Seniors have used reverse mortgages as a lifeline to deal with urgent financial needs, causing them to fall into a financial crisis. The National Council on Aging says one-third of its counseling clients have mortgage debt that exceeds 50% of the value of their home. When using a reverse mortgage to pay off existing mortgages as well as other household debts, these borrowers have very little equity to fall back on and, in many cases, these borrowers can’t afford to pay their property taxes and homeowner’s insurance.

Money gets taken from the Federal Housing Administration mortgage insurance fund because of these losses. As a result, the FHA is proposing stricter requirements for seniors who apply for an FHA-insured reverse mortgage, which the agency also calls a home equity conversion mortgage, or HECM. Now, for the first time, the agency wants to impose a financial assessment test on borrowers.

The test will determine if the borrowers have enough remaining cash to pay their living expenses after meeting their HECM obligation to pay taxes and insurance. The borrowers who fail to meet the measure will be required to set aside two to three years worth of taxes and insurance payments. Another possibility is that the FHA may decide every HECM borrower, not just those who failed the test, will have to set aside a certain amount of money for taxes and insurance in case of emergency.

Consumer and industry groups support these efforts to straighten up the HECM program; however, there are some concerns that the FHA may be overreaching in its regulatory powers. Consumer groups want to make sure that there is still some flexibility, especially for low-income seniors. NCA Senior Director Ramsey Alwin has reassured those expressing concern that there are numerous public and private programs that provide property tax relief for seniors.