If you’re eyeing a reverse mortgage as a means to fund your retirement, expect more hurdles in the future.
Currently, the restrictions on converting your home equity into cash are few and far between. The Federal Housing Administration insures the loans, intended for property owners 62 or older. Credit scores are mostly irrelevant—even left unchecked in many cases. And the mortgage is often seen as an efficient, low-risk plan of action for aging Americans needing to supplement their retirement savings.
But the federal program, under the Department of Housing and Urban Development, deteriorated under the housing crisis. Though reverse mortgages make up less than 7% of the FHA’s portfolio, they now result in more than 16% of expected losses.
In a previous shot at strengthening the program, the FHA chose to increase fees and limit how much homeowners could borrow. Now, the agency is floating increased restrictions as a further attempt in stabilizing the system, The New York Times reports.
By October, borrowers could be required to submit to a financial assessment of their budget, as well as to create escrow accounts for taxes and insurance payments. And, for the first time, credit scores could soon factor into the decision.
Congress will need to give approval before the changes can go into effect; the bill passed the House of Representatives in June, but will still need to go through the Senate.
If the bill fails to advance, it’s likely that the FHA will have to resort to eliminating some products—leaving borrowers with increasingly few reverse mortgage options.
RELATED: How Your Credit Score Works