What is the Reverse Mortgage Stabilization Act?
In August 2013, President Barack Obama signed the Reverse Mortgage Stabilization Act into law, allowing the Department of Housing and Urban Development (HUD) to move forward with reverse mortgage program reform and make changes that will further protect borrowers.
Although reverse mortgages already have many regulations to protect borrowers, the Reverse Mortgage Stabilization Act gives the Secretary of HUD the power to include additional requirements to the reverse mortgage program – aka the Home Equity Conversion Mortgage (HECM) program – making it even safer and more secure for borrowers. Essentially, this legislation makes reverse mortgages safer for consumers and should help dispel some of the myths and misinformation that have plagued the reverse mortgage industry for decades.
Thanks to this act, HUD will be able to make changes to the program in a much quicker fashion and prevent losses like those discovered in an FHA insurance fund audit in 2012. These changes helped boost protection for borrowers when it comes to getting behind in their tax and insurance payments as well as protecting spouses of reverse mortgage borrowers who were not included in the reverse loan. Known as ‘mandatory inclusion,’ the Reverse Mortgage Stabilization Act made it so that both spouses must be included on the reverse loan. That way, if something happens to one spouse where he or she can no longer use the home as their primary residence (death, moving into nursing home, etc.), the remaining spouse can stay in the home. Before, the spouse that was not on the reverse mortgage faced the risk of having to give up the home once their spouse no longer lived in it.
It should be noted that another requirement for reverse mortgages is that the borrower(s) must be 62 or older. With the updated regulation, if one spouse is younger than 62, the couple must wait until both are at least 62 before they can apply for a reverse mortgage.
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What other changes does this act include?
HUD worked with the National Reverse Mortgage Lenders Association (NRMLA) to reform reverse mortgage lending standards. Together, the two agencies came up with changes necessary to further protect borrowers and simultaneously bring stability to the Federal Housing Administration’s insurance fund for the reverse mortgage program. Now that the act is in place, HUD has the ability to make the following changes:
- Mandatory escrow accounts to help borrowers pay for property taxes and insurance payments
- Financial assessment of borrowers
- Restrictions in upfront draw amounts
Will there be additional changes?
As of this writing, no other changes to the reverse mortgage program are planned. However, this could be subject to change as lawmakers and industry regulators continue to observe the program and may determine if further changes are necessary.