Seniors used to use reverse mortgages insured by the Federal Housing Administration as a way to avoid foreclosure and continue to stay in their homes. Now, reverse mortgages are being pitched as a retirement tool, thanks to new rules designed to make them safer, National Mortgage News reported.
In order to reduce the chances of default, seniors can no longer receive the entire proceeds from an FHA-backed reverse mortgage in one lump sum. For the first 12 months, they are generally limited to 60 percent of the funds in order to make sure they have some equity left. And FHA will soon require reverse mortgage lenders to assess whether borrowers have the necessary residual income to pay taxes and homeowners insurance and maintain the property — a problem in recent years.