Reverse Mortgage Legislation Update: HUD 2011 Budget
The highlights of HUD’s proposed budget for fiscal year 2011 includes an increase in the ongoing annual Mortgage Insurance Premium (MIP) from .5% to 1.25% and a low-to-mid single digit cut in the principal loan limit with the higher end affecting older borrowers. This proposal still needs to be approved by Congress and, if implemented, will not take effect until October 1, 2010. What do these proposed changes mean to seniors looking into the Reverse Mortgage program?
Increase in the Mortgage Insurance Premium (MIP) from .5 to 1.25%. What this means to homeowners that get their Reverse Mortgage after this change is an overall increase in the cost of the loan. Instead of a .5% fee, a fee of 1.25% will be added to the loan balance annually.
Low-to-mid single digit cut in the principal loan limit with the higher end affecting older borrowers. What this could mean to homeowners that wait until this is in place is a reduction in the amount for which they are eligible. For example, a 5% decrease would mean that a person with a home worth $250,000 could have a decrease of $12,500 available to them. On October 1st, 2009 HUD passed the first ever reduction to the financial benefit of the FHA HECM. HUD implemented a 10% reduction in principal limits for its Federal Housing Administration (FHA) insured reverse mortgage product.
Why is HUD considering making these changes? HUD wants this program to be available to senior homeowners for a very long time with the FHA insurance. Therefore, by increasing the Mortgage Insurance Premium (MIP) and by lowering the principle amount, this will offset some of the government’s risk analysis of a potential subsidy shortfall for the worst case scenario. In other words, HUD is attempting to protect this program so it does not turn into another unregulated meltdown and protects senior homeowner even more.
If you are considering a Reverse Mortgage the time to move forward is now as the cost of waiting may be substantial. Please call us @ 1-800-963-8011 to speak to one of our Senior Home Advisors.
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