A rules change that will raise fees and reduce loan amounts for reverse mortgages apparently has created a nationwide rush to get new loans completed before the reforms take effect Monday, Oct. 2.
Agencies providing financial counseling needed for such loans have been swamped, and a leading industry group has appealed for waivers and extensions so more borrowers will qualify under the old rules.
“Our industry is currently inundated,” said Julie Martinez, a reverse mortgage housing counselor at the nonprofit HomeStrong USA housing agency in Rancho Cucamonga. “We have an enormous influx of calls and requests for appointments that’s unprecedented.”
Another agency, NeighborWorks Orange County, reported that calls requesting counseling jumped to 100 or more from 20 calls a day since rule changes were announced Aug. 29.
“It was just an all-of-a-sudden rush,” said Helen O’Sullivan, NeighborWorks-OC chief executive. “It’s possible most of them looked at the (new) terms and said, ‘I don’t want to pay more and get less.’ ”
The U.S. Department of Housing and Urban Development sent emails last week to its network of counseling agencies to see if any of them has “capacity to take up additional clients for (reverse mortgage) counseling” before Friday, Sept. 29.
“We had to say no. We’re filled up,” O’Sullivan said.
Reverse mortgages are available to homeowners age 62 or older, allowing them to convert equity in their homes into cash to cover gaps in their retirement income or savings. Under a reverse mortgage, borrowers are freed from making monthly mortgage payments and can stay in their homes as long as they want under most circumstances. The accumulating debt is repaid when the borrower moves, sells or dies or falls behind on paying such housing costs as maintenance, property taxes or homeowners insurance.
Recent reforms require borrowers to undergo housing counseling, either in person or by phone, before they can get a reverse mortgage.
But the program has been a big money-loser for the Federal Housing Administration, which insures the loans. HUD, which oversees FHA, said the insurance fund has lost $11.7 billion since 2009, adding the fund would need a cash infusion from Congress in the coming year without an increase in insurance fees paid by borrowers.
“The (reverse mortgage) program is losing money and can no longer remain viable in its present form,” the HUD announcement said. “Today, younger, lower-income…