Refi Boom for Reverse Mortgages?

Reverse mortgage lenders are expecting a refinancing boom now that the Department of Housing and Urban Development has finally issued a rule that reduces the costs of refinancing a federally insured reverse mortgage.

"We are very pleased that HUD has issued this rule while rates are still down," said Jim Mahoney, chief executive of Financial Freedom, the largest originator and servicer of reverse mortgages based in Irvine, Calif.

Mr. Mahoney expects the new rule, which goes into effect April 26, will spark a refinancing boom. He noted that housing values have been increasing over the past few years and interest rates are still at record lows, which allows seniors to tap more equity in their homes.

"It is an opportune time for seniors to refinance and obtain much-needed tax-free retirement income," he said. Mr. Mahoney is co-chair of the National Reverse Mortgage Lenders Association.

Federal Housing Administration reverse mortgages are called home equity conversion mortgages (HECMs). And the new rule gives seniors credit for the upfront insurance premiums they paid on their HECM loan when they refinance. So seniors only have to pay a 2% upfront premium on the difference between the original loan balance and the new loan balance.

If a senior has a $150,000 HECM loan, the ...