Reverse Mortgages and the Housing and Economic Recovery Act of 2008
The Housing and Economic Recovery Act of 2008 was put in place to “strengthen and modernize the regulation of the housing government-sponsored enterprises and expands the housing mission of these GSE.” Although the bill was primarily created to address the sub-mortgage lending crisis, legislators included provisions to regulate the reverse mortgage industry and offer greater protection to seniors. The bill included reverse equity mortgages in the legislation partly because of concern over seniors who are being taken advantage of by unscrupulous lenders.
Below are the highlights of the Housing and Economic Recovery Act of 2008 specifically regarding reverse mortgages:
• The bill provides for an increased national limit, raising the maximum to $625,000. This increases the amount of equity borrowers are eligible to borrow against with an FHA reverse mortgage.
• The bill sets maximum limits on fees: origination fees are capped at two percent of the initial $200,000 loan and set a one percent maximum limit on the balance thereafter with a cap of $6,000. This reduces the total cost of a reverse mortgage for seniors, making reverse mortgage loans a more affordable option for borrowers.
• The bill prohibits lenders from requiring borrowers to purchase insurance, annuities, or other similar financial products as a condition of getting a reverse mortgage. This protects seniors from predatory lenders attempting to use deceptive rules and requirements to defraud the borrower out of more money.
• The bill provides specific restrictions on lenders in terms of cross-selling financial products. Again, this protects seniors from predatory lenders attempting to defraud the borrower out of more money.
• The bill allows seniors to purchase a home using a reverse home mortgage. This provision enables seniors to leverage their reverse mortgage funds more effectively. A borrower could use the proceeds from the sale of one property to downsize into a smaller property.
• The bill strengthens the requirements on counseling protocols, practices, and funding. This will help borrowers become more educated and empowered during the reverse mortgage process.
• The bill allows for co-op provisions, which will allow more seniors to stay in their homes or in their communities, particularly in urban areas.