Fewer seniors will be able to take advantage of the federal government's reverse mortgage program in the near future.
The Federal Housing Administration will put in place changes next week that will make it tougher to qualify for a reverse mortgage while also limiting the amount of money that seniors can draw down on their mortgage. An applicant's credit history will now be more heavily scrutinized too.
A reverse mortgage is only available to Americans 62 and older. It enables them to cash in on their home's equity in a lump sum or installments. The program is not cheap though. The FHA will spend nearly $3 billion this year backing these mortgages.
Related: Is the Housing Recovery Still On Track?
As Reuters points out: "The problem for the FHA is that an increasing percentage of these loans are ending up in default. A record 54,000 FHA-insured reverse mortgage borrowers - or 9.4 percent - have defaulted. That's up from 8.1 percent in July 2011."
Chris Whalen, managing director & executive vice president at Carrington Holding Company, warns The Daily Ticker: "Reverse mortgages are another festering problem in Washington - it's enabled by the U.S. government." He says they're a "problematic" product for everybody -- the consumer and the mortgage servicer.
Expect lawmakers in Washington to take a long hard look at this program in the months ahead, says Whalen.
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