The HECM Redesign

10 Jan

The Center for Retirement Research at Boston College published research this week on the updates to the HECM reverse mortgage program.

Researchers Alicia Munnell and Stephen Sass find the changes to the HECM program will protect borrowers and the federal government while providing a better customer experience overall.

“Accessing home equity will become increasingly important in a world where retirement needs are expanding,” Munnell and Sass write, “people are living longer and face rapidly rising health care costs—and the retirement system is contracting—Social Security replacement rates are declining and employer-provided pensions have shifted from defined benefit plans to 401(k)s where balances are modest.”

Accessing home equity through a reverse mortgage is one way retirees will be able to offset the rising challenges they are facing, according to the brief.

Three changes made to the HECM program at the end of 2013 serve to improve appeal of the loans, the researchers conclude, including the merge of the former Saver and Standard loan programs; restricted upfront draws on lump sum loans; and underwriting that will determine whether a borrower can continue to meet ongoing loan charges such as property tax and insurance.

“All these changes should be viewed as positive,” say Munnell and Sass. “Consolidating the Standard and Saver will make the program easier to understand. The lower maximum loan amounts and the limit on first-year withdrawals will take pressure off the insurance fund by reducing the likelihood that borrowers default. The financial assessment will ensure that the people taking out a reverse mortgage will not lose their homes by failing to pay taxes and insurance.”

Read the complete paper here:




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