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The FHA reverse mortgage program is popular with seniors who want to convert the equity they have in their home for cash.  As underwriting guidelines have changed over the last few years with regards to people doing cash-out refinances, the FHA reverse mortgage guidelines have remained somewhat unchanged.

As long as a senior meets the age requirements and has equity in their property, they are eligible.

One of the rules of the FHA reverse mortgage program is that the senior agrees to pay their property taxes and keep the home in good condition – but apparently many seniors have fallen behind their property taxes and FHA is planning on addressing the issue with some upcoming changes.  And up until now, FHA has been somewhat hesitant to foreclose on seniors who have fallen delinquent on their property taxes.

FHA doesn’t exactly want the negative headlines of throwing a senior out of their home for not paying their property taxes, but they are searching for solutions that may work to help seniors who fall behind on their property taxes get current.

According to the Washington Post:

Both Fannie and the FHA say they are working on solutions that will not only flag defaults on seniors’ tax and insurance payments earlier but also create a mandatory, step-by-step system to contact borrowers who are delinquent, determine the causes of the default, and if necessary refer them to charitable groups who can assist them and prevent foreclosure.

Vicki Bott, FHA deputy assistant secretary for single-family housing, said the new guidance this summer will emphasize a “curative approach” that allows seniors to “develop a plan to repay past tax and insurance delinquencies.” However, if the plan doesn’t pan out — and the borrowers simply lack the capacity to pay what they owe — FHA will be forced to pull the plug and foreclose.

So if you are a senior who has a reverse mortgage and have fallen behind on your property taxes – it is probably about time that you start working with your lender to get caught up – or possibly risk foreclosure.

In a bit of good news for seniors who may be considering a FHA reverse mortgage, HUD has announced that they will extend the loan limits for 2010 at 150% of the regular conforming loan limit. This means that the nationwide reverse mortgage loan limit is $625,500 through 2010.

HUD made the official announcement in Mortgagee Letter 2009-50 – and if you read it, chances are that you may be confused.

But the simple answer is that no matter where you live in the US, the loan limit for a reverse mortgage is $625,500 — even if you live in places that are considered “high cost” areas or “special exception” areas such as Alaska, Hawaii, Guam or the Virgin Islands.

This $625,500 loan limit is in effect right now – according to the announcement:

The loan limit shall be effective for all HECMs that have been assigned a FHA case number on or after the effective date of this Mortgagee Letter.

The maximum amount of money that you can borrow with a reverse mortgage is a factor of your age, the interest rate on the loan, the loan type (fixed or adjustable) and the amount of equity in your home. While some people claim that this new reverse mortgage loan limit may impact some people, the ones who are possibly most impacted from the change are the “younger” people eligible for a reverse mortgage (you must be age 62 in order to qualify).

As the economy has went through a downturn over the last few years, a reverse mortgage has been a good option for many Seniors who are looking for tax free income for monthly obligations – although the amount of money that those Seniors have been able to borrow has been somewhat impacted by the downturn in real estate values.

Not as much equity in a home = can’t borrow as much money with a reverse mortgage.

With so many lending institutions facing bankruptcy during the current economic downturn there is reason to believe there may be decreases in the amount of funds a homeowner can borrow against the equity of his home. The recent bankruptcy of  Lehman Brothers and the purchase of Merrill Lynch by Bank of America place some concerns in the foreground concerning the future of the current reverse mortgage industry and the levels that are currently available. There also seems to be controversy concerning the limits currently in force under the Housing and Economic Recovery Act of 2009. The National Reverse Mortgage Lenders Association believes current federal regulations allow a limit of $417,000 with an increase to $625,500 in high priced areas. This may mean many homeowners with high value homes may be limited to the Home Equity Conversion Mortgage with a standard limit of $625,500.

 The key issue is to understand what the impact might be if these limits were lowered especially in light of the current cost of homes. In some areas the prices of even high priced homes is dropping significantly thus reducing the need for higher lending limits on reverse mortgages. If you are to compare the current price of homes to those in the past there is likely to be a significant difference in most areas. While this decrease will have no affect on those senior homeowners who already have reverse mortgages in place, it can have a significant impact on those who may look to the possibility of using a reverse mortgage in the future. This may also has disastrous effects on those whose home equity already exceeds the current limits.

If the limits are reduced on reverse mortgages it could make only those homeowners with mid-range homes able to qualify for a reverse mortgage. Those who have worked all of their lives to pay off a home that has a higher value will be unable to really cash in on the true value of their homes. The answer for those homeowners is for those who qualify now but have not done so to take advantage of the reverse mortgage programs at current lending limits while they are still able to do so. 

Whether the limits will actually be dropped on reverse mortgages is yet to be seen, but there is little doubt if this happens it will have a huge impact on the industry as a whole. Though current housing prices have slowed in growth, they still remain at an industry high that dates to better economic conditions. Housing prices are hopefully not going to decrease significantly in value if at all but they are not significantly increasing either. If this trend continues it will also have an affect on the lending limits of reverse mortgages. The ultimate effect this can cause is an increase in both the sales of homes by older homeowners and an increase in the number of foreclosures by those who cannot make their mortgage payments.

A thirteen-year veteran of the mortgage industry, Robert Griffin specializes in reverse mortgages and has helped over 3000 Americans find financial security with a reverse mortgage. The owner of Griffin Financial Mortgage LLC, based in Fort Worth, Texas, his memberships include the National Association of Mortgage Brokers (NAMB), the Mortgage Bankers Association (MBA), the National Reverse Mortgage Lenders Association (NMRLA) and the Better Business Bureau (BBB). Robert Griffin is also co-author of “62 Senior Moments.”