Reverse Mortgage Loan Blog

Question: Your June 12th posting “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?

Answer: 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.

The concept of reverse mortgage is a bit complicated particularly for those who are new to home loan, and have done only with industrial, commercial or business loans. Though one can get help from a mortgage calc that works like an auto loan calculator, which we use to calculate the car financing loans. People with bad credit need loan advice before applying for a reverse mortgage.

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