Wednesday, October 16, 2013
Earlier this year, Congress passed the Reverse Mortgage Stabilization Act of 2013, and under this legislation the Federal Housing Administration (FHA) was directed to make key changes in the reverse mortgage program, also known as the "Home Equity Conversion Mortages for Seniors" program. FHA has issued several advisories to Lenders, Financial Counselors and Borrowers (links to recent "Reverse Mortgage Cautions" available here).
During my years in Penn State Law's Elder Protection Clinic, we often were frustrated by reverse mortgages. We saw clients who had taken out the mortgages without guidance on whether there was enough money to keep the home afloat, especially when equity was stripped to pay for daily living expenses, but there still wasn't enough money to pay real estate taxes. The mortgages sometimes delayed the client's departure from the home -- but not by much. Sometimes clients came to the Clinic in time for a discussion about whether selling the home would be a more effective solution to serious money problems, combined with moving into a more affordable rental. But, of course, pride and affection for the homestead, combined with the illusion of easy money, could be strong motivation, stronger than practical advice.
Will the FHA changes be effective to promote sound use of reverse mortgages?