Reverse mortgages are available to homeowners that are at least 62 years old, have equity on their primary residence, and want to convert some of the equity into cash. Essentially, it’s a loan backed by property equity in conjunction with postponed repayment of the loan for as long as the borrower continues to live on property. Repayment of the loan is made when either the home is bought by another buyer or in the event that the borrower dies.
For many elderly people without substantial income, this is a viable option. Prior to reverse mortgages, which became available in the 80s, homeowners in this situation had fewer options. These were limited to selling their property and moving into a smaller home, a rental, or moving in with family.
This is a federal program for which the Florida Housing Authority takes several steps to safeguard themselves, such as the FHA’s Mortgage Insurance Premium. But unfortunately foreclosures have negatively impacted the FHA with regard to reverse mortgages. Reverse mortgages had worked out quite well for the past three decades. However, the real estate bubble burst caused many people to default on their mortgage payments, insurance premiums and taxes. To exacerbate the problem, property values plummeted. The result was a $1.7 billion bailout for the FHA.
Due to these series of events that led to the bailout, the FHA set out to perform more thorough and in-depth screening of reverse mortgage applicants. They now need to prove that they are willing and capable of meeting their duties as borrowers and undergo extended credit checks. The process will now be similar to applying for a new mortgage. It is expected that fewer people will now qualify for reverse mortgages, which will mostly affect the middle class.
Graham Legal is a foreclosure defense law firm located in Miami, Florida. We are passionate about keeping families in their home and ensuring that they well-represented in the court of law. If you’re in foreclosure and want to learn more about your options and how we can help, let’s meet for an initial consultation.