Reverse Mortgage Loan Blog

A HECM, also known as the reverse mortgage, is a refinance loan which does not work in the traditional sense of the refinancing program. The reverse mortgage program enables mature borrowers who are over the age of 62 to receive various payments over the life of the loan. The borrower uses the equity in their current home to maintain their quality of life. The loan only becomes due for payment if the borrower moves from their home or if the borrower dies. There are different offerings within the scope of the reverse mortgage program which may prove beneficial to mature borrowers.

HECM for Purchase Program. While not accepted in some states due to technical wording and conflicts of state laws and constitutions, the overall program allows for mature borrowers to apply for a reverse mortgage and use the equity to purchase a new home which fits their needs.

Fixed Interest Rate HECM. Typically the HECM program has an adjustable interest rate which may change on a monthly basis. The newly rolled out fixed reverse mortgage interest rate HECM allows for the borrower to receive a fixed interest rate over the life of the loan which gives the borrower a peace of mind regarding their payment amounts at the end of the loan. This program does not have the flexible payment options offered in the adjustable interest rate programs but the peace of mind often outweighs the lower rate available with the ARM HECMs.

Flexible Payments. Using an ARM HECM gives borrowers the opportunity to receive the varied or combine payment options of a onetime lump sum payment, monthly payments, and/or a line of credit. Again with the fixed interest rate HECM there is only one payment option which is the lump sum available only at time of closing.

New Margin Index. The mortgage industry will no longer use the CMT index to measure margins for reverse mortgages or mortgages as a whole. This is due to the rising costs associated with wider margins for mortgage loans. Meaning lenders were allowed to charge mature borrowers more at closing for their reverse mortgage which left the borrower with less cash to receive. The new margin index is a London based index known as the Libor. The Libor offers more reasonable margins in hopes of maximizing the borrower’s cash return.

Ethics Codes Strengthen. The National Reverse Mortgage Lending Association has enforced two new ethics advisory, the 2009-02 Lead Generation State Licensing Requirements and Ethical Advertising and the 2009-01 Ethical Offers of Other Financial and Insurance Products and Services. Both advisories provide borrowers against borrowing misdeeds in ethical practices in the reverse mortgage industry.

New Counseling Requirements. Due to more and more mature borrowers being unable to fully understand the requirements of the reverse mortgage program the U.S. Department of Housing and Urban Development and the Federal Housing Administration collaborated and implemented new counseling requirements for borrowers interested obtaining a reverse mortgage.

Loan Limit Increases. For the fiscal year 2009 the Obama Administration has increased the amount a borrower can receive on their home. The reverse mortgage limit increased from $417,000 to $625,500. The increase will end on December 31, 2009.

Refinancing Updates. HUD and FHA have updated the refinancing guidelines for mature borrowers who have made it to their maturity date on their present reverse mortgage. The new terms of refinancing a reverse mortgage includes the Anti-Churning Disclosure form which prohibits mortgage lenders from benefitting from a reverse mortgage refinance on behalf of the borrower.

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