A popular trend among established homeowners is taking out a reverse mortgage loan on the equity built on their home. The funds can be used to renovate the home, pay bills or used for miscellaneous expenses. Since the homeowner is borrowing against their own equity, many lenders have been fairly lenient in lending.
After the number of homes in foreclosure began to rise, many lenders became spooked by the industry’s future. Once regarded as “safe” , reverse mortgages are leading lenders into rethinking their position in the market. Many banks have begun to back out of offering these loans due to the housing market instability over the past few years.
For homeowners that were counting on borrowing this money, many were disappointed to find out their bank was not offering the loans at all. However, after The Home Equity Conversion Mortgage (HECM) got a boost in the loan limit back in 2009 as an attempt to reassure lenders, a further extension was granted this week. The Housing and Urban Development (HUD) authority increased the maximum claim amount allowed on reverse mortgage loans to $625,000 and extended the claim period until December 31, 2011.
Previously scheduled to expire on October 1, 2011; these limits were thought to be eliminate for high cost areas such as Alaska and the U.S. Virgin Islands. The president of National Reverse Mortgage Lenders Association, Peter Bell said “We’re glad to see FHA take this interim step. It eliminates uncertainty for loan applicants who might have been concerned about not getting their loans before the limits possibly dropped.” He adds, “Now, we need to focus on persuading HUD and/or Congress to retain this limit beyond calendar 2011.”