Trump Administrations Reverse Mortgage Change

Donald Trump's of ministration is in the works of raising premiums and putting more restrictive limits on loan programs that allow some seniors to supplement as their income. 

The US Department of Housing and Urban Development plans to reveal changes to the reverse mortgage program. That program lets borrowers take money out on the house they own. The Trump administration believes doing this will put it on a stronger financial foundation, because after all it is is paid by the taxpayers.

Ben Carson says there have been troubling loses in the program over the years, and he believes these changes are the right thing to do by the taxpayers. 

The changes won't affect those with existing mortgages, only those to take out new loans. More than a half 1 million borrow ours, 650,000 have outstanding reverse mortgages which are insured by the Federal Housing Administration. 

The changes to the program will make new borrowers pay higher premiums upfront, but lower ones throughout the life of the loan, which protects taxpayers if the seniors live longer than expected. Borrowers are set to pay 2% up front, and 0.5% throughout the life of the loan. 

Right now borrowers only pay 0.5% upfront and 1.25% annually during the loan. If someone wanted to borrow more than 60% of their homes value in the first year they're already paying 2.5% upfront, so luckily for them their premiums will be going down. 

To balance it all out, most seniors will be able to borrow less money. Right now the average borrower takes out 64% of their homes value, and at current interest rates, they'll only be able to borrow 58%. Keep in mind these numbers are not concrete, they are based on the average borrower. So for the average borrower who can only afford to borrow less, some may be able to borrow more depending on what happens to interest rates. 

The whole point of the reverse mortgage program is to help seniors take out money against their home to help with any financial supplements they may need. If the bar were moves or dies, The lender will then take possession of the property and sell it in order to repay the loan.

This is quite a large risk for the government since they are the ones who ultimately back up the loan.  

What happens is the Federal Housing Administration covers the losses on the loans that us supported most by premiums from younger borrowers of traditional FHA loans. Since 2009 the FHA has lost nearly $12 billion from that fund. 

The cross subs today he comes from a younger group of people who are trying to become homeowners.

In 2013 the FHA required a one time $1.7 billion appropriation from the US treasury because of the losses from the program.

Lenders often use actuary tables to guess how much borrowers are able to receive, but making predictions 10, 15, 20 years down the road can be quite tricky. They will often lose money if the price of the home doesn't appreciate as expected, or if seniors don't keep their homes up to date, or if they live longer and the interest on the loan a cruise with time.

If the program were to stay as is, the burden would continually rest on the reserve fund, and in a couple years time the FHA would need an appropriation from Congress to keep backing the reverse mortgages. It's also squelching the HUD's ability to lower premiums because they're still relying on the reserve fund.

The day Trump was inaugurated, they said they would be suspending an Obama directive to reduce premiums in traditional FHA mortgages by a quarter of a percentage point.

Those who advocate for the program know there are some major issues to be addressed, while still realizing it is a major source of income for a large amount of seniors.

Imagine if you are retired and didn't have the largest 401(k), this source of income would surely help you pay your bills, be okay if any unexpected costs arise, and even buy groceries. 

Post a Comment