The Expanding American Homeownership Act and Reverse Mortgage

In November 2007, US Senator Jim Talent introduced the Expanding American Homeownership Act.

Since 1934, the FHA has helped more than 34 million families purchase homes with affordable mortgages and fair payment terms. Still, many experts feel that the agency needs to adapt to today’s market place. The ultimate intent of the Expanding American Homeownership Act is to enable to FHA to use risk-based pricing to reach underprivileged borrowers more effectively. The act, or bill, specifies three main amendments to the National Housing Act:

1. Modify guidelines governing the maximum principle on loan obligation.

2. Extend the mortgage term.

3. Revise requirements for cash payments by the borrower in the eligibility criteria for mortgage insurance.

So, what does this all mean, and how does the Expanding Homeownership Act apply to the typical American homeowner? More importantly, how does the Act relate to reverse home mortgages and FHA reverse mortgages?

The following two specifications of The Expanding Homeownership Act relate specifically to reverse mortgage loans and reverse equity loans:

1. The Act eliminates the current statutory three percent minimum down payment, reducing a significant barrier to homeownership.

While many more citizens can now own homes, lowering down payment requirements may also increase monthly mortgage payments for many borrowers. High mortgage premiums will ultimately lead to more senior homeowners who struggle to pay their mortgage premiums after retirement, thus raising the number of seniors who contemplate applying for reverse mortgage loans.

2. The Act increases and simplifies the FHA reverse mortgage loan limits. FHA’s loan limit in high-cost areas would rise from 87 to 100 percent, and in lower-cost areas from 48 to 65 percent of the conforming loan limit.

The FHA reverse mortgage limits used to be a very worrisome for people who wanted to borrow against their home’s equity. This change is crucial in today’s housing market. In many areas of the country, the existing FHA limits are lower than the cost of new construction, eliminating FHA financing as an option for buyers of new homes in those markets. Again, more federally insured homeowners will ultimately result in more senior owners who will consider taking out reverse mortgage loans later.