federal government is proposing to make big changes to its reverse mortgage
program early next year that should make the (reverse mortgage) loans safer for
seniors who use them to tap home equity.
In a response to the speculative loan market, we have seen
increased regulation in the banking and loan industries. Yet the structure of
one type of loan has gone relatively unchanged in that time - the reverse
A reverse mortgage is a special type of home loan that allows
homeowners to convert a portion of their home equity into cash. The equity you
built up over years of making mortgage payments can be paid to you to
supplement your income.
The issue was recently brought up in a Reuters article titled, “Federal clampdown looming
on reverse mortgages.”
According to the Department of Housing and Urban Development,
reverse mortgages are a safe plan that can help older Americans supplement
Social Security, meet unexpected medical expenses, and make home improvements.
Unfortunately, riskier loan structures are making reverse mortgages
increasingly dangerous. In response, the federal government is planning to take
a more conservative approach when evaluating new reverse mortgage loan
applications. This means reverse mortgage loans will be harder to acquire in
For purposes of estate planning, the reverse mortgage is an idea
worth exploring. In practice, when your home is no longer used as a primary
residence, the cash, interest, and other finance charges from the reverse
mortgage loan must be repaid. However, all proceeds beyond such amounts owed on
the reverse mortgage belong to your spouse or estate and no debt is passed
along to the estate or heirs. This makes the reverse mortgage option an
appealing idea for older homeowners who may need supplemental income, but hope
to avoid passing on debt to family members.
If you or your loved ones are concerned about needing additional
income during the coming months, reverse mortgages are worth discussing with
your family and estate planning attorney before lending standards become too