Reverse Mortgage Reforms Take Effect Soon! CCCS Housing Counselors Discuss These Changes

Online, September 12, 2013 (Newswire.com) - This past week the Department of Housing and Urban Development announced several major reforms to its HECM reverse mortgage program. These changes will affect how much home equity seniors can access and limit the amount of loan funds they can withdraw the first year. Financially stressed borrowers also may find it somewhat harder to qualify for a reverse mortgage or be asked to set aside a certain amount of funds to cover their property tax and homeowners' insurance during the life of the loan. However, these changes also offer decided benefits. They will provide seniors with increased consumer protection and strengthen the HECM program so it can continue for years to come.

Carmen Jones-Burke, who works as a housing counselor at national nonprofit Consumer Credit Counseling Service of Maryland and Delaware (CCCS) says these reforms have been expected for some time. "Ever since the Congressional Finance report came out last year, we've known the reverse mortgage program was in trouble. The rate of HECM foreclosures has been too high and borrowers have been withdrawing money too rapidly for it to remain solvent. HUD recognized these issues and knew the program might not survive if changes were not made."

CCCS housing counselor Ponciano Allen agrees, "The new measures will help put the program back on track. Seniors won't be as tempted to view their HECM funds as a financial windfall or debt solution. With the new reforms, the program will revert back to its original purpose: It will provide seniors with an effective tool for long-term financial planning."

What will the HECM program look like under the new regulations? Allen says, "Fixed and adjustable rate reverse mortgages will still be available, and the maximum amount of money seniors can receive will still mostly be determined by the age of the youngest borrower, the home's value, and the current interest rate. However, as a precaution, borrowers won't be able to tap into quite as much of their home equity as they did before."

According to Jones-Burke, most of the current HECM disbursal options will continue to be available under the new program. "Borrowers will still be able to receive monthly payments over the life of the loan or for a specific term or access funds through a line of credit. They also can still combine a line of credit with the term or tenure payment option. The total amount they withdraw during the first year will affect how much they ultimately pay for a reverse mortgage. Borrowers also have one new option: They will be able to withdraw their entire funds as a one-time full disbursal at closing based on the new limits."

Last week's reforms also will require some borrowers to set aside enough money to cover their property taxes and homeowners' insurance. Jones-Burke says, "This addresses the issue that led many earlier borrowers to default. After receiving and spending large lump sum payments, they no longer had the resources to cover these costs, and were forced into foreclosure. This new condition will provide protection to consumers and lenders like."

Going forward, lenders will be required to conduct financial assessments to determine seniors' ability to manage their long-term expenses. Allen says, "Lenders won't consider borrowers' credit scores, but they will pull and review their credit reports. They will check to see if applicants have paid their property taxes in a timely manner, if they have a history of nonpayment, and if there are any unexpected debts or liens. They also will analyze borrowers' income sources to see if they have enough money to cover their living expenses, taxes, and insurance for the lifetime of the loan." Based on the results of the financial assessment, certain borrowers may be required to place some of their loan funds in reserve to cover their property taxes and homeowners' insurance.

The financial assessment requirement goes into effect January 13, 2014. The rest of the reforms happen much sooner -- they begin on September 30, 2013. Jones-Burke says CCCS's reverse mortgage counseling program has experienced an upsurge in response to the upcoming regulations. Allen adds "Lenders and clients are both concerned about how the new program will work. That's not surprising. We are all a little fearful of change. But change can be good -- and in this case, it was much needed. The new regulations will make the HECM program more viable and help seniors avoid undue financial stress or the threat of losing their homes."

Both counselors agree that for the short-term, they are faced with many hours of review and training. Jones-Burke says, "We want to continue giving our clients complete, accurate, information -- that's one of the ways we differentiate our service. But the devil is in the details. To provide insight on the changes, we have to gain a deep knowledge of the regulations ourselves."

Allen concludes, "Here at CCCS, we try to provide counseling from the heart. We take the time to answer clients' questions and listen to their concerns. We can help them understand how the new process works, and we want them to be reassured. There's no need to fear these changes. They are there to keep the program healthy and to help seniors build better financial health."

For a limited time, Consumer Credit Counseling Service of MD & DE is providing free reverse mortgage counseling. This service normally costs $125.00. The "free of charge" initiative will last until the agency's grant monies run out. Please call toll-free 1-866-731-8486 to schedule a CCCS reverse mortgage counseling session. Visit the agency website at www.cccs-inc.org to learn more about its many services.

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Consumer Credit Counseling Service of MD & DE, Inc. (CCCS) is an accredited 501(c)(3) nonprofit agency that helps stabilize communities by creating hope and promoting economic self-sufficiency to individuals and families through financial education and counseling. CCCS MD State License #14-01 / DE State License #07-01.