Financial advisers are heartened by the fact that reverse mortgage rules are getting tougher. Such loans typically are made by specialist lenders, with the most common ones backed by the FHA's Home Equity Conversion Mortgage program. In order to qualify, borrowers must be 62 years or older.
Used wisely, reverse mortgages enable seniors to tap the value of their residences without having to move or sell. Experts, though, caution retirees to tread carefully, as improperly used reverse mortgages can leave retirees broke and potentially homeless. For instance, some couples have been foreclosed on when only one spouse was listed on the deed and that person subsequently passed away or had to be moved into a nursing home.
The U.S. government is tightening guidelines to make it more difficult for borrowers to dig themselves into a hole. In 2013, HUD made regulatory changes that limit most reverse-mortgage borrowers to taking 60 percent of the available equity out of their house as determined by FHA standards in the first year. Borrowers can tap the reminder of the equity in their house in subsequent years. Additionally, HUD is now mulling a requirement that lenders first evaluate borrowers' ability to meet their financial obligations on the home. Based on that assessment, the new rules can require borrowers to allocate money upfront to pay property taxes and insurance.