FHA reverse mortgage rule won't stop defaults

by Paydayloans24705 Aug 2013

The FHA's recent announcement that it will cut fixed-rate reverse mortgages from its product line will not prevent borrowers from defaulting, a reverse mortgage lender has claimed.

Claudia A. Quintero of Strock & Tanner Mortgage Corp. in Miami, Fla., has said adjustable-rate reverse mortgages may stave off default temporarily, but that borrowers are just as likely to eventually default as their equity dries up.

While fixed-rate options saw borrowers receiving large up-front sums of cash for the equity in their home, adjustable-rate reverse mortgages mean borrowers will receive smaller payments each month in order to preserve equity. But Quintero argued that property taxes, insurance and upkeep will still hit borrowers who use up their equity.

Although borrowers may receive less cash each month, Quintero said the adjustable-rate option does not compel borrowers to set aside cash for expenses when the equity in their home is exhausted.

The FHA's discontinuation of fixed-rate reverse mortgage products has significantly dented Quintero's business, she said. She argued that smaller upfront payments provided retirees less motivation to stay in their home, and therefore less desire to take out a reverse mortgage.

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