Government set to crack down further on reverse mortgages

The federal government is getting ready for round two of the Great Reverse Mortgage Crackdown.

Earlier this year, the Department of Housing and Urban Development eliminated one of the most risky reverse mortgage programs – upfront lump-sum loans issued at fixed interest rates. Now, it is proposing to further discourage big lump-sum reverse mortgages by limiting the amount borrowers could get from variable rate loans, too.

HUD also wants to tighten things up by adding a feature you would expect to find when applying for any other type of major loan: an upfront financial assessment to determine the borrower’s financial fitness to take on a reverse mortgage.

Learn more in my Reuters Money column today.

August 9 update: President Obama signed reform legislation requested by the U.S. Department of Housing and Urban Development. This means the standard HECM loan program will continue, but borrowers will be required to undergo financial assessments that look at free cash flow, credit scores and obligations for property taxes, hazard insurance, homeowner association dues, utilities and other debt. Borrowers with risky-looking financial profiles would have to set aside funds from the loan proceeds to cover their future tax and insurance obligations. Loan amounts also will be reduced.