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Reverse mortgages have become increasingly popular in recent years, as cash-strapped seniors seek ways to keep pace with rising expenses — not to mention cope with the pummeling their retirement savings took during the Great Recession.
But the Department of Housing and Urban Development (HUD) noticed that borrowers increasingly have been opting to withdraw most or all of their home equity at closing, leaving little or nothing for future needs. Consequently, by mid-2012 nearly 10 percent of reverse mortgage holders were in default and at risk of foreclosure because they couldn’t pay their taxes and insurance.
That’s why Congress authorized HUD to tighten FHA reverse mortgage requirements in order to: encourage homeowners to tap their equity more slowly; better ensure that borrowers can afford their loan’s fees and other financial obligations; and strengthen the mortgage insurance fund from which loans are drawn.
Here are the key changes:
Most reverse mortgage borrowers can now withdraw no more than 60 percent of their total loan during the first year. Previously, borrowers could tap the entire amount on day one — a recipe for future financial disaster for those with limited means.
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