Reverse Mortgage Loan Blog

The Federal Housing Administration (FHA) is developing a new reverse mortgage product that sharply cuts up-front payments by home owners but also significantly reduces the percentage of a home’s equity that can be paid to owners under the program. Reverse mortgages insured by the government are available on homes where the youngest owner is at least 62 years old. The program is called a Home Equity Conversion Mortgage (HECM).

Many consumer advocates have been opposed to reverse mortgages, in part because they carry stiff fees to consumers. They also have been controversial because of high-pressure marketing tactics that led some borrowers to use loan proceeds for inappropriate investments. Most experts advice older consumers to use a reverse mortgage only when they need funds for living expenses and other necessities.

Details of the new product were outlined in a press release from an industry group, the National Reverse Mortgage Lenders Association (NRMLA). It said the FHA had already approved the changes. A government spokesman, however, said the changes were not yet final. “There has been no official announcement yet because we are still working out the details,” said spokesman Lemar Wooley.

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Up-front real estate payments could soon be reduced for many home-buyers with the aid of a reverse mortgage product being prepared by the Federal Housing Administration (FHA).

Real estate will be easier to buy with these new reverse mortgages, but they also reduce the percentage of the home’s equity due to the new owners.

The new Home Equity Conversion Mortgage (HECM) will be available on homes where the youngest owner is over 63 years old. The HFA has already approved the real estate package and are now preparing the product for the market, according to the National Reverse Mortgage Lenders Association.

New homeowners taking out the HECM Saver will be able to draw down 10% to 18% less from their home’s equity under this real estate product, but the 2% insurance payment will be eliminated.

With reverse mortgages homeowners can get access to some of the equity in their home. Using these funds to pay off mortgages. The NRMLA says the HECM Saver will be introduced in October.

Found here.

FOR many baby boomers, retirement will be a financial juggling act. Without the backing of compulsory superannuation contributions throughout their working life, many may consider a reverse mortgage as a source of additional retirement income.

A reverse mortgage provides an opportunity to access home equity, with the loan secured by your home. There are no repayments necessary until you 1) sell up, or 2)die – in which case the loan is repaid out of your estate.

You can choose to receive the cash from a reverse mortgage as a regular series of payments, a lump sum or a combination of both. A lump sum payment may be counted in the Centrelink assets test, so it could reduce your age pension entitlements.

To be eligible for a reverse mortgage you generally need to be aged 60-plus, and it’s essential to own your home. You can usually borrow between 15% and 40% of the value of your home depending on your age. The older you are, the more you can borrow.

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Janet Bush began looking into reverse mortgages about 15 years ago when money became a little tight. Though she didn’t apply for the loan back then, she kept it in the back of her mind as a financial option.

Two months ago, Bush decided to take out a reverse mortgage home equity line of credit on her 3,000-square-foot farmhouse in Victor. A piano teacher who enjoys being independent, the line of credit offers her the option “to draw on it if I need it,” said Bush, 82.

Is a reverse mortgage right for you? A reverse mortgage allows individuals to borrow against the equity they have established in their home. Instead of making monthly payments, as with a typical mortgage, the borrower of a reverse mortgage can choose to receive monthly payments, take a lump sum or establish a line of credit to draw on.

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The Federal Reserve and other top regulators said on Monday reverse mortgages pose “compliance and reputation risks” for lenders, and offered guidance to financial firms on how to avoid such pitfalls.

The Fed said reverse mortgages, which enable borrowers to get a monthly income stream by surrendering a portion of the equity in their homes, are likely to become increasingly popular given an expected rise in the elderly population.

The guidance puts no limits on fees that can be charged for reverse mortgages.

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Hundreds of families face an uncertain future after falling for scams involving supposed reverse mortgages. But for a small group of the population, legitimate reverse mortgages may offer hope.

Reverse mortgages involve taking a big loan with your house as security. The bank usually pays you a tax free amount, which is then subtracted (with accumulated interest) from the value of your house when it is sold.

Reverse mortgages are popular overseas because they offer pensioners hard cash, while they can stay on in their house.

Usually the reverse mortgage is only paid back when the house is sold or when the owner and spouse have both died. If the amount owed on the house is more than the value of the house, it has to be written off in terms of the requirements of the SA Home Equity Release Protection Association (Saherpa), a consumer protection organisation. The owner’s estate can’t be liable for the shortfall.

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For some seniors who take out reverse mortgages, potential financial problems are often rooted in “non-financial” matters. Slowly, financial problems ooze out of everyday issues. “Soft” issues that financial people may not always appreciate, such as losing a spouse, living alone, staying far away from relatives, having difficulty getting up from bed or getting dressed, taking a lump sum reverse mortgage advance, relying on reverse mortgage funds for too many needs, having frequent falls and being in poor health, and lacking information about private and public benefits programs for which they may qualify, among others. Before long, these issues mushroom into an inability to meet borrower obligations. Yes, they become “financial problems.”

Built around traditional budget analysis and information about reverse mortgage alternatives and disclosures of obvious borrowers’ risks, the best conventional Home Equity Conversion Mortgage (HECM) counseling often miss these existential issues and their financial implications, let alone address them. That is about to change, thanks to two evolving forensic reverse mortgage counseling tools developed by the National Council on Aging (NCOA): The Financial Interview Tool (FIT) and BenefitsCheckUp (BCU).

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With the cost of living and life expectancy continuing to rise, senior citizens are facing a double whammy.

Add to that high insurance costs, medical expenses and mortgage payments, some retired individuals are struggling to keep their heads above water without a steady income coming in any more.

Looking for a revenue stream, some elderly homeowners are turning to reverse mortgages.

Reverse mortgages allow qualified borrowers to tap the equity in their home, pay off their existing mortgage balance and remain in their home for as long as they can.

The Home Equity Conversion Mortgage [HECM], the Federal Housing Authority’s reverse mortgage program [FHA), allows homeowners to convert part of your equity into cash.]

To be eligible, you must be at least 62 years old, live in the home and own it or have a low mortgage balance that can be paid off with the proceeds of the reverse loan when closing, according to the HUD web site.

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The reverse mortgage industry, hammered for high fees and high pressure sales tactics, has steadily improved its procedures and its image. Loan fees and interest rates have been lowered, consumer disclosure has improved, and the federal government’s insured reverse mortgage program has provided stability and credibility to the industry. A-list lenders have expanded their presence in the market; Wells Fargo and Bank America are the nation’s top two reverse mortgage lenders.

Now that the industry is cleaning up its act, it is finding that customers are very hard to find. The volume of reverse mortgages is off nearly 40 percent so far this year, and is on an annual pace to record only 70,000 transactions nationally for the entire year. The number of lenders active in the reverse mortgage market has plunged by more than half in the past year to roughly 600, according to Reverse Mortgage Insight, which tracks industry trends.

Reverse mortgages allow qualified borrowers (the youngest owner must be at least 62) to tap the equity in their home, pay off their existing mortgage balance, and remain in their home as long as they’re able. Homeowners remain responsible for all home maintenance expenses and property taxes. Under certain conditions, the products are a sensible solution for aging homeowners who are running short on retirement funds.

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