The Department of Housing and Urban Development’s recent changes to the reverse mortgage program have garnered mixed reviews from the industry, as some laud the rules for helping seniors preserve more equity, while others lament the fact that fewer borrowers may qualify.
Senior advocacy groups like AARP and the National Council on Aging (NCOA) are weighing in, asserting the program’s continued importance while acknowledging that the revised program may attract fewer consumers. Both say the changes reinforce the need to educate the public about the loan.
Lori Trawinski, director of banking and finance at AARP’s Public Policy Institute, declines to call the changes positive or negative, but does admit that higher costs might make the loan less attractive — and new principal limits might mean fewer seniors will qualify.
“If you have an existing forward mortgage, that mortgage needs to be paid off before you can get a reverse,” she says. “So if someone is counting on a certain amount of reverse mortgage proceeds to be able to pay off a forward loan, it could be that with the new principal limit factors, they may not get enough proceeds out of the loan to do that.”
Higher upfront costs might also be a disincentive to consumers, Trawinski says.
“For about three quarters of borrowers, the upfront premium went from 0.5% to 2%, so that’s a significant increase. It may dissuade some borrowers from going forward with the loan,” she says.
Amy Ford, NCOA’s senior director of home equity initiatives and social accountability, agrees that these factors might influence consumer decisions and says the changes highlight the need for effective counseling.
“Some could ultimately be deterred by the higher upfront cost or the lower principal limit available. However, we must support consumer education and housing counseling in its critical role as champions for older adults in decision-making,” Ford says. “Older adults considering options to meet their cash needs benefit greatly from robust education and counseling that highlights all pros, cons, and product features for a complete picture of options available.”
Trawinski says AARP aims to help consumers better understand reverse mortgages.
“We continue to monitor developments in this marketplace, and we do that because reverse mortgages can be a useful loan for some people, but it really depends on someone’s personal financial situation,” Trawinski says. “It’s a matter of trying to help people understand what they are getting into before they actually take out the loan.”
Ford says regardless of program changes, reverse mortgages continue to be an important financial tool for older Americans,
“Assuring the HECM program is available to older adults for years to come is critical,” she says. “There are limited tools available to seniors to leverage their home to meet their needs later in life, and long-term sustainability and solvency of the program is key.”
Written by Jessica Guerin
