August 2010 - Reverse Mortgage Falling House Values - With declining home values, people might be less inclined to take out a reverse mortgage these days because the equity in their home has taken a hit, said Stucki, of the National Council on Aging. Typically, people like to tap their home's equity when they have a lot of it.
It's important to note that those who took out a reverse mortgage when home prices were at a peak won't see changes to that loan even if their home value has fallen substantially.
"We've seen instances … where people already have higher balances than the value of their house," said Jeff Lewis, chairman of Atlanta-based Generation Mortgage.
That's not a problem for the borrower. When the loan comes due often when the homeowner either sells the home or dies the amount owed will never exceed the value of the home, due to the FHA insurance.
But falling house values have prompted some recent changes to the program. Last year, HUD put in place a 10% reduction in borrowing limits for FHA-insured reverse mortgages, reducing the amount of equity a homeowner can tap, Stucki said. And this year may bring more changes, including another possible reduction in borrowing limits and an increase in mortgage-insurance premiums, Bell said
