Reverse mortgages could be about to lose their sheen after the Department of Housing and Urban Development said it will increase premiums and tighten loan limits for seniors.
Reverse mortgage programs are targeted at seniors, allowing them to take out a loan against the value of their home. When the borrower moves or dies, the proceeds of the home’s sale go toward repaying said loan.
However, HUD Secretary Ben Carson (pictured, above) indicated in his comments that the program is too expensive to maintain in its current form, and said that restrictions were needed.
“Given the losses we’re seeing in the [reverse mortgage] program, we have a responsibility to make changes that balance our mission with our responsibility to protect taxpayers,” the Wall Street Journal reported Carson as saying.
The reverse mortgage program has proven to be expensive for the government, which funds the program. Officials have said in recent months that reverse mortgages place a big burden on the reverse fund, which will acquire additional money from Congress within the next two years.
However, many advocates of the program say it’s important it remains available as reverse mortgages are an important source of funds for many American seniors.
“Being able to survive retirement when you don’t necessarily have a large 401(k)—that creates the real risk of just being able to pay the bills and eat food and stay in a home,” David Stevens, president of the Mortgage Bankers Association, told the WSJ.
Those who’ve already borrowed money under the program will not be impacted by the changes, Carson added.
However, the changes mean that new borrowers will have to pay two percent of their home’s value upfront, plus 0.5 percent annually throughout the duration of the loan. The current rates are 0.5 percent upfront, and 1.25 percent annually.