Reverse Mortgages Promoted By Washington Lawmakers
- Posted by admin on June 12th, 2007 filed in Reverse Mortgage Info
The topic of reverse mortgages seems to be making the news almost daily lately. If you haven’t heard about them yet from your local newspaper or widely broadcast television commercials featuring the actors Robert Wagner and James Garner, then it won’t be long before you do become aware of this innovative mortgage product aimed at seniors age 62 and older.
Reverse Mortgages allow senior homeowners to tap into their home equity to receive supplemental income on a tax-free basis. The income they receive is not taxable and does not have to be repaid until the homeowner permanently leaves their home. Social Security and Medicare benefits are not affected. Additionally, the senior’s estate or heirs will not be responsible for repaying any shortfall if the loan balance exceeds the value of the home at the time the senior leaves the home permanently.
Unlike traditional or forward mortgages there are no monthly payments to be made, no credit qualifications and no income qualifications. The main requirements are that the youngest person on the title be at least 62 years old, the home is used as the primary residence, the home be either mortgage free or have a low balance on the current mortgage, and that the home is not a mobile home, a cooperative or on rented land.
Support and encouragement for the use of Reverse Mortgages is coming from Washington DC. The Centers for Medicare and Medicaid recently gave the National Council on Aging a financial grant to promote the use of reverse mortgages to pay for long-term care and long-term care insurance. The Department of Housing and Urban Development (HUD) is offering a 2 percent discount on closing costs for reverse mortgages that are taken out to buy long-term care insurance.
Many experts, including the Federal Reserve Chairman, Ben Bernanke, see a crisis looming because many seniors don’t have enough savings or insurance to pay for extended-care needs. Instead, they often turn to Medicaid, which pays primarily for nursing home stays, but not care given in the home. With Medicaid costs already putting a huge strain on state and federal budgets, experts are predicting disaster as 78 million baby boomers become senior citizens in the upcoming years.
In his statement to the Economics Club of Washington on Wednesday, October 4, 2006, Fed Chairman Bernanke stated:
“Unless Social Security and Medicare are revamped, the massive burden from retiring baby boomers will place major strains on the nation’s budget and the economy. Reform of our unsustainable entitlement programs should be a priority.” Financially shoring up Social Security and Medicare will involve difficult choices by lawmakers and other policymakers, Bernanke said.
We are clearly seeing a shift in public policy that is starting to focus on reverse mortgages as a funding source to address the long term needs of this burgeoning segment of the population. On July 25, 2006 the House passed H.R. 5121, the Expanding American Homeownership Act of 2006, which will remove the current cap that has limited the number of reverse mortgage loans that the Federal Housing Administration (FHA) could insure. The bill will also set a single nationwide loan limit for reverse mortgages, instead of designating different loan limits for each county across the nation. A Senate version with similar provisions is under consideration.
The Congressional Budget Office (CBO) estimates that the bill would save the federal government $2.3 billion over the years between 2007 - 2011.
Clearly, the financial problems of aging Americans are serious. Unquestionably, home equity remains the most significant asset for most senior households. Reverse Mortgages may provide solutions for both individuals as well as overburdened government programs.
There are many myths and misconceptions regarding reverse mortgages. To find in depth information regarding reverse mortgages or to locate a lender or loan advisor in your area please visit the website Let Your Home Pay You.com You will find unbiased information as well as a reverse mortgage loan calculator, so that you can see approximately how much money you might qualify for.
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June 25th, 2007 at 3:58 pm
Your June 12th posting re: “Reverse Mortgages Promoted By Washington Lawmakers” raises some questions concerning the information in paragraph four. It states, “The Department of Housing and Urban Development (HUD) is offering a 2 percent discount on closing costs for reverse mortgages that are taken out to buy long-term care insurance. I do not believe this legislation has passed. It was pending but the question was (and still is, I believe) do all the loan proceeds have to be used for LTC or can part of the proceeds be used for LTC? I would like to see a clarification along with the status of the pending legislation. Also, is that “2% of the closing costs” as stated in your release or waiver of the 2% UFMIP?
June 26th, 2007 at 1:26 pm
You are correct. The Legislation is pending and I am providing several links that state just that. The third link contains the strongest information. The last action surrounding the legislation (H.R. 1852) took place on March 5, 2007. It was Ordered to be Reported (or Amended) by Voice Vote.
As stated in this article, the legislation is still pending as of June 17.
This is the National Reverse Mortgage Lenders Association, and they have information posted about the most recent state and federal legislation that has been passed.
The following information is from http://reversemortgage.org and shows that the legislation is still pending:
NRMLA Anticipates FHA Modernization Bill to Move Soon (June 2007)
NRMLA is hopeful that legislation (H.R. 1852) to improve to the reverse mortgage program will start moving toward a vote in the House of Representatives after the July 4th recess. The bill would lift the cap on the number of reverse mortgages that the Federal Housing Administration can insure, increase loan limits in high-cost areas, permit reverse mortgages on co-ops, allow reverse mortgages to be used to purchase newer housing, and other reforms.
Now for the main part of your question.
No, not all of the proceeds have to be used for long-term care. They can be used for daily living expenses, to pay off debt, for education or travel, for financial and estate tax plans, and for any other legal purpose you wish. In addition to long-term care, it is most common for seniors to use the proceeds of a reverse mortgage to pay off existing debt.
The 2% of the closing costs that is discussed in the article could either be the Up Front Mortgage Insurance Payment (UFMIP), or the origination fee. You have to pay the UFMIP, but a lender can also make a borrower pay up to 2% of the origination fees as well.