Overview of the Recent Changes to the Reverse Mortgage RulesBanker Resource
November 11, 2013 — 1,334 views
The changes that are evident in the revision of the reverse mortgage rules show that the government plans to continue their trend of slowly making the regulations around this more stringent. The gradual tightening that has been seen will continue for a while because of the effects of the loosely portrayed rules of reverse mortgage had on the home loan crisis in the recent past.
Tighter Rules to Prevent Further Crises
The housing crisis was a major contributor to the economic slump that the world is still slowly recovering from. For the purpose of maintaining stability, the laws regarding home equity and the amount that can be borrowed are becoming more and more unfriendly to debtors.
Once again, the rules are going to change. Those who are deep in debt will no longer be granted loans on reverse mortgage. This means that a number of people who thought taking a loan would solve their present financial issues will be disappointed and will have to look for alternatives to finance their activities and businesses.
Even the value that is locked in a house is reduced by about 15 percent, which is a rather large sum of money considering most homes are worth hundreds of thousands of dollars. The new limits on the amount of money that can be generated by taking a loan makes it very difficult for borrowers to manage their finances. Long term financial planning will be changed for most citizens who considered such options of gaining immediate capital for business or personal endeavors.
The Action of the FHA
The FHA (Federal Housing Administration) is responsible for insuring almost all reverse mortgages. However, the same body has now changed the regulations regarding such mortgages to make sure that the program is strengthened. Due to the recent economic crisis, it was a pattern that borrowers would withdraw the entire amount entitled to them on the onset of the loaning process.
This would make it extremely difficult for the program to manage because of the number of times this amount would cut into the reserve funds of the organization. There is now a limit on the amount of money that can be withdrawn during the first year of the loan being issued.
Limits on Loan Amounts and Withdrawal Amounts in Time Frames
This provides some security to the financial institutions themselves on the home equity mortgaging process because the debt is being paid off at regular intervals while the loan is being fully processed. Now a borrower is entitled to a maximum of 60 percent of the total amount that they are borrowing during the first year of the issuing of the loan.
There are certain clauses like the ‘mandatory obligations’ which require those borrowing money to pay off existing mortgages before they can receive any new loans. This stabilizes the system, although it makes it harder for debtors to manage immediate crises in their lives. The more relaxed versions of the past were directly involved in the slump, which is why the rules are becoming tighter over the years.