The new FHA reverse mortgage rules will lead to more originations of variable-rate home equity conversion mortgages because of the restrictions on the first draw, according to Jeffrey Taylor, president of Wendover Consulting.
Most borrowers will take only 60% of the proceeds of the reverse mortgage on the first draw. So they will elect for a variable-rate HECM with a line of credit. This line will allow seniors to tap the remaining 40% of their HECM proceeds.
Taylor expects it will take time for lenders and the secondary market to adjust to the changes that go into effect Sept. 30. That will result in a drop in loan volume during the transition.
The
Previously, almost any senior over 62 with a low mortgage balance could qualify for a HECM. Going forward, HECM borrowers must undergo a financial assessment.
“It is a great program for a group of seniors but not everyone will qualify,” the reverse mortgage expert said.
In the future, Taylor says a hybrid HECM might be developed where a senior gets a fixed rate on the first 60% draw and a line of credit for the remaining equity.
Wendover Consulting is based in Greensboro, N.C.
