3 Significant Reverse Mortgage Changes You Should Know About

Dismissing Reverse Mortgages as a Last Resort? It’s Time to Take Another Look…

For the vast majority of us (89 percent) the question is not if we want to age in place, we know we do. The idea of being moved away from the comforts of home and into a nursing home makes us squirm.

According to this study, it’s the loss of our independence that we fear most (more so even than death). 

We want to live where we are. And if we do end up moving we want it to be to someplace even better—someplace where we’ll still have the freedom to come and go as we please, set our own schedules, and have the first and final say about what we’re eating for breakfast, lunch and dinner.

The questions that we do have tend to be along the lines of, “How can I afford to stay at home and get the care that I need?” and, “If I decide to move, will I be able to afford that?”

If questions like those sound familiar, but you haven’t looked into an HECM (Home Equity Conversion Mortgage—the fancy name for a reverse mortgage) lately, you owe it to yourself to do so … you might just find the answers you’ve been looking for.

3 Reverse Mortgage Regulations Redesigned to Work for You

reverse mortgage regulations have changed

In a recent article published by the National Academy of Elder Law Attorneys (NAELA)  Mary E. Loeven, an HECM for Purchase Specialist at Reverse Mortgage Funding, and Stephen R. Pepe, JD, an HECM Loan Specialist at Reverse Mortgage Funding and a NAELA member, look at three important changes that have occurred in the U.S. Department of Housing and Urban Development’s reverse mortgage program since mid-2014.

In addition to explaining the new regulations—and how they’ll affect you if you intend to pursue an HECM—Loeven and Pepe look at an interesting development in the commercial marketplace*. We’re going to cover that at the end of this article…

But first let’s look at the game changers:

  • Financial Assessment. As of April 27, 2015, lenders are required to look at each applicant’s residual income, property charge payment history and credit history to determine the homeowner’s willingness and ability to meet the obligations of the loan. All of the details can be found here. “Homeowners can present supporting documentation to explain extenuating circumstances that were beyond their control and led to an
    identified credit or financial problem… unemployment, reduced work hours, medical emergencies, divorce, a spouse’s death, and emergency property repairs not covered by insurance” are included. 

 

  • Non-Borrowing Spouses. For new reverse mortgages (as of August 4, 2014) safeguards have been put in place to allow the non-borrowing spouse to remain in the home should they be pre-deceased by the borrowing spouse—without having to repay the HECM debt. All mortgage requirements still have to be maintained … but the HECM itself doesn’t have to be repaid until such time as the property no longer serves as the survivor’s primary residence. Read more about the new Non-Borrowing Spouse regulations here.

 

  • Mortgage Seasoning. This change took place on November 10, 2014 as a way to streamline the refinancing process. The rule states: Mortgagees may only permit the payoff of existing non-HECM liens using HECM proceeds if the liens have been in place longer than 12 months or resulted in less than $500 cash to the mortgagor, whether at closing or through cumulative draws (e.g., as with a Home Equity Line Of Credit (HELOC)) prior to the date of the initial HECM loan application. An existing reverse mortgage can also be refinanced into a new one—in those cases, however, 18 months of seasoning is required. Read more about Mortgage Seasoning here.

*Marketplace Innovations Amount to Low-Cost Reverse Mortgages

How does a total net closing cost of less than $500 sound? Due to increased consumer demand and competition among lenders, it’s now possible. Here’s how it works:

“For clients who draw less than 60 percent of their available HECM principal limit during the first year, HUD lowers its Initial Mortgage Insurance Premium (IMIP) to 0.5 percent of the lesser of the home’s appraised value or $625,500. For many clients, that is an 80 percent reduction (from 2.5 percent to 0.5 percent) in the IMIP. The second highest closing cost, the financed origination fee, is calculated based on the home’s value and capped at $6,000. However, many lenders are reducing their origination fees or eliminating them altogether. Finally, some lenders offer “lender credits” to further offset most of their closing costs, resulting in extremely low-cost HECMs.” 

It should be noted that certain closing fees vary by state—this is not possible in all states. Maryland, for example, has an EXTREMELY high mortgage tax … which means that your closing costs could be as low as $500, but it’s not a guarantee. 

If you’re interested in pursuing an HECM, your best bet is to retain the services of a professional.

For more information about making a reverse mortgage work for you, contact Mary E. Loeven at Reverse Mortgage Funding, LLC.

 

All our best,

Care for You

 

P.S. You CAN live where you are, on your own terms.

Call us at 301-650-4169 to learn more about our individualized Companion Care, Care Coordination and Home Management services.

Or, if you’d prefer, visit our Contact page to schedule a free, in-home needs assessment. 

 

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