Reverse Mortgage Loan Blog

Older homeowners who have spent years building up equity may be tempted to cash out through a reverse mortgage. But high fees can make these loans pricey.

A new government program reduces some of the expenses. In October, the Federal Housing Administration, the unit of the Department of Housing and Urban Development that runs the reverse mortgage program known as Home Equity Conversion Mortgage, or HECM, introduced the Home Equity Conversion Mortgage Saver, or HECM Saver.

HECM (pronounced HECK-um) Saver trims the upfront insurance premium due at closing to 0.01 percent of a property’s value, from 2 percent. But the amount that can be borrowed is also reduced, by 10 to 18 percent, compared with the standard HECM loan program.

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With demand rising for reverse mortgages, senior citizens are particularly at risk of being misled and should be protected by greater government oversight of the industry, according to a report by Consumers Union and two California advocacy groups.

In a struggling economy, older homeowners are turning to reverse mortgages as a way to pull money out of their homes, with the loan not coming due until the borrower dies. But the loans can come with hefty charges, including origination fees, closing costs and compounding interest on loan principal.

“Reverse mortgages are a very risky deal for borrowers who don’t understand the complicated terms of the loan and how quickly fees and interest charges can add up,” said Norma Garcia, senior staff attorney for Consumers Union.

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Senior homeowners are having difficulty in their financial lives due to a variety of reasons and, as a result, there are indications that more homeowners are turning to reverse mortgage loans as a way to access capital from their home’s equity. FHA reverse mortgage loans have been helpful to certain homeowners, but some financial advisers are cautioning homeowners before they proceed with this type of mortgage and suggest that senior homeowners seek out other options first.

Typically, when a reverse mortgage is concerned, especially one offered by the Federal Housing Administration, a homeowner must go through a counseling session which will make them aware of any difficulties which may arise from a reverse mortgage and also point out requirements that must be met before a homeowner can successfully obtain a reverse home loan. This is beneficial in that homeowners have been able to find alternatives to a reverse mortgage which may help them find financial relief without the risk which sometimes is associated with a reverse mortgage loan.

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Several big changes are coming to the Federal Housing Administration’s reverse mortgage program.

Starting on Monday, the program will introduce a reverse mortgage product that will virtually eliminate one of the biggest upfront fees that borrowers are required to pay. A mouthful, the product is known as the Home Equity Conversion Mortgage Saver, or the HECM (pronounced HECK-um) Saver. At the same time, the F.H.A.’s program will also make changes to its standard reverse mortgage, which will significantly increase certain costs, though it may make more money available for some borrowers.

I outlined the changes in detail — and there are many details — in an article I wrote for Saturday’s paper. But because of space constraints, I had to cut out an example that compared the two reverse mortgage products — the HECM Saver, and the standard version — side by side.

So here it is:

If a 65-year-old borrower with a home valued at $400,000 were to apply for a standard reverse mortgage with a fixed rate of 5.06 percent, he would be eligible for about $255,000. But he would also owe an upfront mortgage premium of $8,000, and roughly $3,600 in other closing costs, which means he would ultimately receive a lump sum of about $243,000, according to ReverseVision, a reverse mortgage software company.

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Reverse mortgage applications saw an increase in August of slightly more than 8 percent.  This according to a report from the Federal Housing Administration (FHA).  Although this represents a decline of nearly 4 percent since the same period last year, the latest reading is the highest measured since last September.

However, an increase in the rate of applications is not unheard of prior to the ending of the fiscal year for the FHA.  Additionally, another surge is expected during the fall as borrowers seek to maximize the amount of their loans prior to the lowering of principal limit factors coming from the Department of Housing and Urban Development (HUD).

With respect to the reduction in principal limits, experts believe that reverse mortgage applications are likely to begin to stall for the remainder of this year and for much of 2011.  At this point, little is known about whether or not HUD plans to make any changes to this policy in the immediate future.

Other data emerging from the FHA showed slightly more than 200,000 applications were processed during August.  Of these, more than half were comprised of mortgaged refinances with the balance made up of new purchase transactions and reverse mortgages. In terms of breakdown, the agency saw approximately 105,000 refinance applications, 87,000 new purchase applications and nearly 10,000 reverse mortgage applications.

Found here.

The Federal Housing administration (FHA) has announced a new and modified version of its Home Equity Conversion Mortgage (HECM) product today. This new product will allow older home owners to dip into their equity. They will be able to use this to cover their living and health care costs. When they are doing this they will still be allowed to live in their homes and pay no mortgage payments that come with normal mortgage and equity loans.

The HECM Saver is a second reverse mortgage option that will allow lowering upfront loan closing costs. Homeowners with a desire to borrow smaller amounts than the one under HECM saver loan can opt for the HECM Standard loan. The loan option is available for all HECM case numbers that are or will be assigned on October 4, 2010.

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Q: I am retired. I’ve lived in my current home for 17 years, but want to downsize into a smaller, less expensive home. A friend told me that a reverse mortgage can be used to help me buy a new home. How would that work?

—Pittsburgh

A: A reverse mortgage called the Home Equity Conversion Mortgage can be used to borrow against your current home’s equity to buy or make a down payment on another primary home. How much you can borrow varies, depending on your age, the value of your home and interest rates. You will, of course, have to make up any difference between the proceeds of this mortgage and the sales price and closing costs of the home you want to buy. But if these costs are less than the proceeds, you pocket the difference.

HECMs are insured by the Federal Housing Administration. The loan requires that you pay a mortgage insurance premium that’s the lesser of 2% of your home’s value or the HECM mortgage limit for your area, as well as a monthly fee that’s .5% of your mortgage balance. (A new option called the “HECM Saver” introduced this week lowers the upfront fee but raises the monthly fee for borrowers who are willing to receive 10% to 18% less than they would under a standard HECM.) But that fee protects your heirs, as I’ll explain later.

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The Federal Housing Administration (FHA) has announced a new modified version of its Home Equity Conversion Mortgage (HECM) product. The HECM loan is a reverse mortgage-insured by the federal government. It allows older home owners to tap into their equity to cover living expenses and healthcare costs, while continuing to live in their home without having to make the mortgage payments that are required with a traditional mortgage or equity loan.

FHA designed HECM Saver as a second reverse mortgage option for the purpose of lowering upfront closing costs, for homeowners who want to borrow a smaller amount than what would be available with a HECM Standard loan. This option will be available for all HECM case numbers assigned on or after Oct. 4, 2010.

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Life is taking a big bite out of the “Sandwich Generation.” If you’re a boomer, it’s more likely than ever that you’re helping with the care of both your aging parents and your adult children. You’re the “meat” in the middle of the sandwich — and the center is getting thin.

A new survey done by Zogby International for Generation Mortgage (a reverse mortgage company) shows that baby boomers are among the hardest hit by this recession. Nearly half of those polled had either lost a job or taken a cut in pay or benefits in the past two years. As a result, 17 percent had been unable to make a mortgage or rent payment on time.

Yet, if you’re the boomer in your family, you’re the one everyone looks to for help. Your adult kids, graduating from college with huge student loan debt and few job prospects, are moving back in. They may collide with a grandparent who reluctantly moved into your home when their money ran out, or they needed some care and assistance.

Finally, the boomer generation has found a use for that huge house on which they overspent a decade ago. Now if they can only keep up with the mortgage!

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