The Senate has passed a Bi-Partisan House Bill known as the Reverse Mortgage Stabilization Act (RMSA) 2013. A reverse mortgage, or a home equity conversion mortgage, is a mortgage in which borrowers 62 years of age or older are able to access a portion of the equity in their home converting it to cash.
The RMSA 2013 was passed later last month to sanction "safeguards for both lenders and seniors", as stated by the bill’s Republican sponsor Congressman Mike Fitzpatrick.
New standards brought about by the RMSA 2013 are as follows:
- Borrowers must receive a financial assessment prior to loan approval in an effort to find which reverse mortgage products best fit the borrower. Assessments will protect the borrower from lenders seeking to promote a loan that doesn’t have the borrowers best interest in mind, and will protect the lender by assuring the loans they write meet their lender's needs.
- An escrow account must be set up when necessary to prevent defaults that may occur when a homeowner falls behind in paying their home owners insurance or property taxes, thus protecting the lender from losing their investment.
- Borrowers are limited as to the amount drawn immediately following the loans initial approval only allowing enough to cover "mandatory obligations" like closing costs and mortgage liens.
- Changes to these rules can only be made if such changes are designed to "improve the financial safety and reliability of the program."