New HUD Rule for Reverse Mortgages

(April 16, 2004) -- Seniors who want to refinance their reverse mortgages to take advantage of recent equity gains now will be able to do so without paying for additional Federal Housing Administration (FHA) insurance under a new rule by the U.S. Department of Housing and Urban Development effective April 26.

Borrowers previously were charged 2 percent of their home's new value when they refinanced, having already paid either 2 percent of the property value or 2 percent of the regional FHA loan limit, whichever is less, when they obtained the original loan. The new rule will keep them from shelling out more than 2 percent of the difference between the claim ceilings on the two mortgages; in addition, borrowers refinancing within five years of the original loan as well as those whose gains are five times more than the refinancing costs are no longer required to attend counseling sessions.

The National Reverse Mortgage Lenders Association reports that loan volume in this niche has surged 39 percent in the last fiscal year; and industry insiders say inquiries have jumped anywhere from 5 percent to 30 percent since the new rule was made public.

Source: Dow Jones Newswire (04/15/04); Chu, Kathy