Reverse Mortgage Information

One of the most important steps that a borrower can do when considering an application for a Home Equity Conversion Mortgage (HECM — also known as a “Reverse Mortgage“) is to shop around for the lender who will offer the best terms and conditions for the loan.

HECM loans are insured by the Federal Housing Administration (FHA) but the FHA does not require that all lenders set identical criteria for credit scores, interest rates or even the closing costs. These variables differ among lenders. The FHA rules state that lenders can set their own criteria for credit scores and other payments as long as these requirements are applied equally to all loan applicants, are considered “reasonable and customary” in the industry and do not violate fair housing laws.

For instance, a lender can charge a slightly higher or slightly lower interest rate based on an applicant’s financial history and credit score. The FHA views this as both reasonable and customary. As long as the lender applies identical criteria to all applicants there would be no question of a violation of the Fair Housing Act.

In addition closing costs vary from lender to lender. The FHA recognizes this and does not intervene unless the lender violates any of the previously-mentioned clauses.

These are, however, areas that give borrowers room to negotiate which allows them to receive the best rates from a HECM lender. Before an applicant begins the process of applying for a Reverse Mortgage he should obtain a copy of his Fair Isaac Corporation (FICO) score. The AnnualCreditReport, operated by the three credit reporting bureaus (Experian, Equifax and TransUnion) provides an individual with one free copy per year of their personal credit report. A good FICO score may improve a borrower’s eligibility for better Reverse Mortgage loan terms and conditions.

The FHA or a Reverse Mortgage Counselor can advise applicants with low credit scores on ways that they can raise their credit score before applying for the HECM loan. These bodies can also provide advice regarding how to present other assets (such as cash reserves) in a way that will improve their chances of obtaining better terms from a Reverse Mortgage lender.

In short, it is the borrower’s responsibility to research available lending institution options. This research can result in information that will allow the individual to receive the best terms and conditions for a HECM loan. The HECM loan has federally-mandated requirements, guidelines and minimums but the FHA does not require HECM lenders to offer the loan to at terms which fall outside market norms.

Fluctuations in the economy and a depressed housing market are forcing increasing numbers of people to look for creative ways to navigate these times of financial uncertainty. A growing number of senior citizens are investigating the options that a Reverse Mortgage can offer.

Reverse Mortgages, also called Home Equity Conversion Mortgages (HECM) are federally insured mortgages which are available to elderly individuals who are prepared to mortgage their home back to the bank. In return for this “reverse mortgage” the borrower collects a percentage of the home’s value from the bank, either through a line of credit, a lump sum payment or monthly payments.

Many advisors agree that, for some seniors, a Reverse Mortgage can offer a good financial investment for their senior years.  This is particularly true for people who want to continue to live in their own house but lack the resources to do so without an additional income source. Individuals who will benefit most from the Reverse Mortgage program include seniors over the age of 72. Older singles receive a higher percentage of their home’s value as a HECM loan than younger seniors will obtain.

A second benefit of the HECM loan is that the mortgage is insured by the Federal Housing Administration.  Individuals who might otherwise be wary of taking out a mortgage have federal assurance that their loan’s terms will not change and their payments will continue, even if the lending institution experiences problems.

The various options that reverse mortgage borrowers have to obtain their money is something that each borrower should consider before signing on for an HECM loan. Obtaining the loan in one lump sum may result in lower closing costs or the lender may even waive these costs. Conversely, interest rates on a one lump sum payment may be higher than for a line of credit or monthly payments.

In addition, borrowers should examine how the various payment options will affect their tax status as well as any other incoming payments. Receiving a one-time payment may adversely affect a senior’s income tax statement and raise their taxes for that year.  In addition, different types of payment options can have an impact on an individual’s eligibility for supplementary social security, Medicaid or Medicare benefits.

Seniors aged 62 and older who are considering a Reverse Mortgage should list the payment options that they are considering along with the pros and cons of each method of payment. It’s important to remember that borrowers with good credit can negotiate for better interest rates and even lower closing costs when dealing with a lending institution. Reverse Mortgage counselors are able to answer questions and offer advice that will provide different perspectives and allow borrowers to make the decision that is the best for their individual situation.

Economic consultants are advising consumers that the 2012 housing market is showing indications that it is climbing out of its plunge of the 21st century’s first decade. This means that the economic climate offers good opportunities for people who want to apply for a mortgage. This advice includes Home Equity Conversion Mortgages (HECM) options, also called “Reverse Mortgages.” Interest rates are low and the Federal Housing Administration has extended the 2011 lending limits through 2012, creating a prime opportunity for seniors to obtain ready cash against the value of their home.

Reverse Mortgages are available to seniors, aged 62 or older, who wish to obtain a cash payment, monthly payments or a line of credit against the value of their home. The lending institution which holds the mortgage can take possession of the home only when the borrower(s) are no longer living in the home. Borrowers agree to accept responsibility for the HECM mortgage’s origination costs and normal house expenses, including home insurance, upkeep and property taxes. In exchange, the cash that the borrower(s) receive can be put towards normal living expenses, travel or even providing financial assistance to children.

This advice comes with the recommendations that borrowers carefully research the Reverse Mortgage program and the pros and cons of the loan. Individuals who are considering taking out a Reverse Mortgage should consult with qualified professionals who can provide needed guidance for people who are trying to navigate the world of real estate.

The conditions of a HECM loan include a regulation mandating that borrowers participate in a counseling session with an HECM-approved counselor who will provide them with all the information about the loan, its benefits and its obligations. In addition, potential borrowers should speak to other seniors who have taken out an HECM loan, representatives of different lending institutions and perhaps even a real estate lawyer.

In addition, experts advise that potential borrowers make sure that they know their credit profile. Borrowers who have a good credit score can often negotiation better terms for the Reverse Mortgage. Even if the credit history is problematic, borrowers may be able to explain the reasons for the difficulties and reach a deal for better terms for their Reverse Mortgage.

To access a credit score as the first step in negotiating HECM terms, borrowers should click into the AnnualCreditReport which is operated by the three credit reporting bureaus (Equifax, Experian and TransUnion) to obtain a free copy of their credit report. All individuals are entitled to such a free report once every 12 months.  Then the borrower can either use the report to demonstrate responsible credit history or delay the mortgage while he improves his credit score. Either way,  HECM borrowers must know where they stand vis-à-vis their credit history before they apply for a Reverse Mortgage.

In short, 2012 offers many opportunities to make wise real estate choices for individuals who have the correct data and know their Reverse Mortgage responsibilities, rights and options.

Parent-care can throw a family’s carefully-planned finances into a tailspin. Adult children who thought that their parents had the resources to manage the Golden Years of their lives suddenly find that they must step up to cover their parents’ needs. When parents are living in their own home but need extra help, supervision and nursing assistance the financial strain can seem daunting.

Seniors often make huge sacrifices for their children’s and grandchildren’s welfare, but many don’t forsee the complications that parent-care will present for their families. The time to plan for such an eventuality is before a crisis hits.

Two available options can be combined to provide the needed funds for nursing care or senior care. Seniors who have life insurance policies can convert their life insurance policy to a long-term care policy. Individuals aged 61 or older who have a chronic or terminal medical condition can use their policy to pay for their care. This involves no waiting period and the insurance policy converts to provide the family with a cash payout to be used for the senior’s care.

To ensure that this resource is a viable option, the couple can take out a Reverse Mortgage. This mortgage option, insured by the Federal Housing Administration (FHA) allows seniors aged 62 or older take out a Home Equity Conversion Mortgage (HECM) which, in effect, mortgages their home to the lending institution. The regulations of a HECM allow the borrowing individual or couple (if both partners are 62 or older) to remain in their home while receiving monthly payments from the lending institution against the value of their home.

These payments often provide the seniors with the extra funds needed to make payments on an existing or new life insurance or long-term care insurance policy, ensuring their continued care in their home as they age.

The procedure is simple. The senior, together with a spouse, partner or any other individuals who are listed on the home’s deed, meet with a representative of a HECM lending institution to ascertain the terms and conditions of the loan. The lending institution will provide the borrower(s) with an estimate of the worth of the Reverse Mortgage, which the individuals can obtain through a one-time cash payment, a line of credit or monthly payments.

After a meeting with a certified counselor who provides additional information about the loan’s terms and conditions, the borrowers sign for the Reverse Mortgage. The loan enables the borrowers to make the plans that will enable them to remain in their home for as long as possible, easing their worries and the concerns of their loved-ones.

During 2011 a number of changes, revisions and other alternations were made in the Reverse Mortgage lending program. These clarifications strengthen the program and clarify borrower’s rights based Federal Housing Administration (FHA) and Housing and Urban Development (HUD) guidelines.

As of December 2011 a Language Line operated by HUD offers assistance to non-native English speakers who are interested in obtaining a Reverse Mortgage but who would like to learn more by speaking with an HUD professional in their native language. The telephone interpretation service offers live, one-on-one interpretation services 24 hours a day. The service serves speakers of more than 175 languages. Interpreters are on call to speak to callers in their own language, translate their questions about the Reverse Mortgage to authorized HUD employees and translate the answers back into the caller’s native language. Languages represented in the HUD Language Line include Spanish, Vietnamese, Tagalog, Arabic, Korean, Russian, Chinese, Portuguese and Farsi.

The FHA announced that it would extend the maximum loan limits for Home Equity Conversion Mortgages from their 2011 levels. The loan limits will remain in effect throughout 2012 at $ 625,000. The value of a Reverse Mortgage is based on a formula which determines the amount that an applicant is eligible to receive. The formula takes into account the borrower’s age, the calculated market value of the house and current interest rates. There are also different maximum rates offered in various counties. A Reverse Mortgage calculator can assist applicants estimate the amount that they may obtain through an HECM loan.

The provision affecting mandated counseling for HECM applicants was revised in August 2011. The FHA mandates that all applicants for a HECM mortgage undergo counseling at which time they will receive a full accounting of their rights, obligations and responsibilities regarding the terms of the Reverse Mortgage. The FHA requires that all owners listed on the home’s property deed, including non-borrowing spouses of loan applicants, attend the counseling session. A certificate attesting to the attendance of all such individuals must be signed and dated by the counselor, all property owners listed on the property deed and any non-borrowing spouses.

In December 2011 the Federal Housing Administration announced that the FHA’s anti-flipping waiver would be extended. However, HECM applicants should keep in mind that Reverse Mortgages are not covered. The anti-flipping waiver is aimed at stabilizing home values and improving conditions for areas of high foreclosure. The FHA will, under this waiver, insure mortgages on homes that are resold after being owned by the seller for less than 90 days. This has been previously  disallowed under FHA regulations but in the interests of improving real estate options in distressed areas, the FHA is now insuring such mortgages on a temporary basis.  However, Reverse Mortgages do not fall under this waiver.

The Home Equity Conversion Mortgage (HECM) is a federally-insured loan option that allows seniors, aged 62 and over, to take out a mortgage on their home. The borrowers can use the income from the loan, either monthly payments, a line of credit or a one-time payment, while remaining in their home for as long as they are able or wish to live in the house.

The process of applying for a HECM loan, also termed a “Reverse Mortgage” can be intimidating but pre-application counseling sessions will provide needed information and guidance. Trained counselors will be able to offer any needed advice and direction to assist applicants.

Some seniors may avoid applying for a Reverse Mortgage because they worry that their past credit mistakes may make them ineligible to obtain a HECM loan. However past financial problems do not necessarily preclude approval for a HECM loan. On the opposite side of the coin however, applicants who have a good credit history can negotiate with the lender for the best terms possible.

Borrowers must do their homework before they select a lending institution with which to apply for a Reverse Mortgage. It is imperative that you know your credit history. If you can demonstrate that you pay your bills on time and have not defaulted on loans, you have the tools to request that the lender give you better terms on interest rates.

Take your credit report with you when you begin the HECM loan process. The Fair Credit Reporting Act (FCRA) requires consumer reporting companies to furnish you with a free copy of your credit report, at your request, once every 12 months. This report includes information on where you live, how you pay your bills, and whether you’ve been arrested, sued or have filed for bankruptcy.

Contact annualcreditreport.com by calling 1-877-322-8228 or mailing your request to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281 (you can print the request form from ftc.gov/credit website). Bring your report with you when you meet with a Housing and Urban Development-approved Reverse Mortgage lender to prove that you have a good financial history. Request the lender’s best terms. If you have doubts, meet with other lenders and ask for their best offer.  

If you have a problematic credit history, don’t assume that you can’t obtain a HECM loan. Discuss your options with a FHA-approved counselor and ask the counselor to suggest ways to obtain a Reverse Mortgage. The terms, in such as case, may involve a higher interest rate, but the benefits that the loan provides may be just what you need to get your finances back on track.

If you are 62 or older and considering your financial future, review the pros and cons of a Reverse Mortgage. This information can give you added data that will allow you to make an informed decision about your money management during your senior years.

Taking out a Reverse Mortgage isn’t the best solution for everyone. But it does provide a good option for many seniors who want to maximize the potential of, what is for many, their most important asset — their home.

Many seniors have spent their lives paying off their mortgages on their home so that they will have “security.” Now, as they enter their retirement years, these people feel the pinch of not having enough savings to live on.

The Reverse Mortgage option, also called a Home Equity Conversion Mortgage (HECM) provides the opportunity to use the home as collateral on a reverse loan. The lending institution gives the senior individual (or couple) a loan, using the home to secure the loan. During the ensuing years the couple receives a monthly sum, or line of credit, based on their home’s worth, their age when they took out the HECM loan and several other considerations.

When the senior citizen, or couple, can no longer live in the house, the ownership of the home reverts to the lending institution and the proceeds from its sale go towards paying off the loan.

Seniors who are considering taking out a Reverse Mortgage should be aware of some of the basic FAQs of Reverse Mortgages.

Who is eligible for a Reverse Mortgage?

Individuals aged 62 or older are eligible to apply for a Reverse Mortgage. If a couple applies together, both partners must be at least 62. If only one partner is 62, the loan is taken out on that person’s name only. HOWEVER, at the point that that individual no longer lives in the house, the lending institution takes ownership of the house, even if the other partner still lives in the home.

What are the loan limits for a Reverse Mortgage?

A Reverse Mortgage’s maximum loan limit is $625,500. The loan amount will be based on the appraised home’s value if the house is worth less than $625,500. If the house is worth $625,500 or more, the loan is capped at a $625,500 ceiling.

What fees are associated with a Reverse Mortgage?

There are two upfront fees that a lending institution adds on to a Reverse Mortgage, as mandated by the Federal Housing Administration (FHA). Borrowers pay an “origination fee” which equals two percent of the initial $200,000 of the loan and one percent of the balance. This amount is capped at $6,000.

In addition, loan recipients must pay a Mortgage Insurance Premium (MIP) which equals two percent of the maximum claim amount as well as an annual premium equal to a 0.5 percent of the loan’s balance. The MIP guarantees the loan through the FHA.

Are there any other payments that Reverse Mortgage Recipients must pay?

Recipients of the HECM loan are responsible for maintaining their home, maintaining hazard insurance, and paying all local taxes.

What do I do if I have other questions about the Reverse Mortgage loan?

The FHA requires that loan recipients complete a session with a certified FHA-approved counselor. If a couple applies for a loan together, both partners must attend the session. If one individual applies for a loan but a second person’s name is listed on the house deed, that second person must also attend the session.

At this counseling session you can ask all of your questions about the different aspects of a Reverse Mortgage. The counselor will review the rules and regulations associated with the loan, including payment options, banking issues and any possible complications. The counselor can help many seniors resolve perceived problems before they begin the application process, ensuring a smooth and easy process.

According to the American Association of Retired Persons, “Reverse mortgages can be tremendously positive for borrowers. But you need to fully understand how they work.”

In a letter dated December 2 2011 the United States Department of Housing and Urban Development (HUD) announced that 2012 will see no change in the loan limits for Home Equity Conversion Mortgages (HECM). The loan limits remain at their previous cap of $625,500. This includes the “exemption areas” of Alaska, Hawaii, Guam and the Virgin Islands.

This is good news for new applicants for the HECM loan, also called a Reverse Mortgage. The Federal Housing Administration (FHA) and HUD have essentially agreed that seniors who apply for a HECM loan will have access to the same loan funds as were available through 2011. While some federal loan limits have been changed, the HECM loan remains stable.

There are various Reverse Mortgage options but the HECM loan is the oldest and most popular reverse mortgage on the market today. Seniors above the age of 62 are eligible for a reverse mortgage which is calculated based on the age of the applicant (or applicants, if a couple applies together), the current interest rates and the home’s appraised value. Older seniors with more valuable homes are eligible for the most funds but circumstances vary, making the reverse mortgage option an attractive one for many senior citizens.

The maximum loan limit available through the HECM loan remains at $625,500. If an applicant’s home is worth less than $625,500, the loan amount will be based on the appraised home value. If the applicant’s home is worth $625,500 or more, the loan amount will be based on an appraisal ceiling of $625,500.

The FHA has also placed limits on the upfront fees that HECM loan recipients must pay. An origination fee will equal two percent of the initial $200,000 (the sum that is lower — county lending limit or the home value) and one percent on the subsequent balance. The amount is capped at $6,000.

In addition, loan recipients are required to pay a mortgage insurance premium (MIP) that equals two percent of the maximum claim amount. The Reverse Mortgage recipients must then pay an annual premium equal to a 0.5 percent of the loan’s balance. Loan recipients pay the MIP directly to FHA in exchange for the FHA’s guarantee of the loan.

This FHA guarantee assures loan recipients that they will never owe more than the value of the house when the time comes to repay the HECM loan. In addition, the MIP guarantees HECM loan recipients that if their loan servicer (the company managing the HECM loan) goes out of business, the government will enable the recipient’s continued access to their loan funds.

Loan recipients should also take into account other payments that the loan obligates them to pay. These payments include attorney fees, title fees, property taxes and home maintenance costs. These payments are part of the mandated responsibilities of the homeowner under the HECM guidelines.

If you’ve decided to take out a Home Equity Mortgage Conversion (HEMC) Reverse Mortgage loan, you should prepare yourself for the application process. Lending institutions are aware that borrowers, once they’ve made the decision to take out a Reverse Mortgage, are interested in expediting the process. These lending institutions will make every effort to see the loan approved in as short amount of time as possible. However, some borrowers may find the process to be stressful, especially those who have little or no experience in taking out a mortgage.

Borrowers should be aware that the Federal Housing Administration (FHA) requires lenders to act on the application no later than 30 days after the application has been submitted. However, it is the borrower’s responsibility to ensure that the application includes all the information and details requested on the application form.

This means that the lender is not obligated to act on the application unless the borrower has supplied all credit data, employment history and other financial information. Some borrowers worry that unfavorable information can impact negatively on their loan application, so they refrain from submitting information that they think may impact negatively on their application. However, this information is required for the lender to begin processing the application form. According to the FHA, “Your application will not be considered complete, and the 30 day period will not begin, until you provide to your lender or mortgage broker all of the material and information requested.”

The FHA advises that senior citizen loan applicants who are concerned about how a negative financial history could impact on their HEMC loan request contact an FHA-approved counselor  to obtain advice. Counselors can explain how the loan requirements can be eased in certain circumstances. In addition, counselors can provide suggestions of what the applicant can do to improve the chances of obtaining a Reverse Mortgage.

The FHA mandates counseling sessions with an FHA-approved counselor for all Reverse Mortgage loan applicants. If a couple applies for a loan as a couple, or if a spouse is a signatory on a home’s deed, even though the spouse is not a party to the HEMC loan, both spouses must attend the counseling session.

The counselor will review the rules and regulations of the Reverse Mortgage. If the potential loan applicants are aware that their financial history is problematic or that there are other extenuating circumstances involved in their loan application, they should discuss this with the counselor so that the counselor can address these concerns specifically in the counseling session.

The FHA and Department of Housing and Urban Development (HUD) wants to make the HEMC loan available to all eligible seniors. Potential loan applicants should check out their eligibility and follow the guidelines carefully to ensure their inclusion in the program.  

A Reverse Mortgage, also called a Home Equity Mortgage Conversion loan (HEMC) provides an opportunity for homeowners above the age of 62 to obtain a loan by using their home’s equity to secure the loan.

The loan is available to individuals over the age of 62 as well as to couples where both partners are above the age of 62. The loan is available as a line of credit or to be paid in monthly payments. When the borrower no longer lives in the house (or both partners, if both spouses signed on the loan) the lending institution takes possession of the home.

The Department of Housing and Urban Development (HUD) oversees implementation of HEMC loans and the Federal Housing Administration (FHA) insures the loans.  Due to the complexities and long-term implications of these loans, the FHA mandates that individuals who want to take out a reverse mortgage participate in a loan counseling session where they obtain a full picture of the loan’s pros and cons.

Beginning in August 2011 the FHA instituted new regulations which mandate that these counseling sessions include information about an alternative Reverse Mortgage, the Home Equity Mortgage Conversion Saver loans. The insurance premium cost structure of the HEMC Saver program differs from the traditional HEMC loan. Also, the loan size differs. Many seniors are now choosing the HEMC Saver program because of the advantages that the HEMC Saver presents.

The HEMC Saver presents an initial Mortgage Insurance Premium which is lower than the standard HEMC loans’ Mortgage Insurance Premium of two percent. The HEMC Saver charges 0.01 percent of a home’s value whereas the upfront mortgage insurance premium on a HECM Standard remains at two percent of a home’s value. This means that the HEMC Saver reduces the initial upfront costs of the reverse mortgage significantly.

The difference between the two Mortgage Insurance Premiums is spread out over annual payments, offering an opportunity to ease the loan’s upfront costs for borrowers who find it difficult to pay these costs immediately upon taking out the loan.

The HEMC Saver is also more accessible to potential borrowers. The loans are smaller but borrowers have a higher chance of approval for this lower loan. If a homeowner is disqualified from a standard HEMC loan because of low home equity or existing loans, they have more opportunity to receive approval for a HEMC Saver loan.

Homeowners who want to get more out of their home equity at a lower cost can apply for a HEMC Saver loan. The HEMC Saver loan can help them to refinance their HEMC Standard loan. The upfront cost may be more attractive and affordable if the full Mortgage Insurance Premium has already been paid.

The HEMC Saver offers increased flexibility due to its different repayment requirements. The smaller HEMC Saver loan, which carries lower upfront costs, can offer a Home Equity Line of Credit which is tax free. Whereas the Internal Revenue Service may assess tax on a lump payment from an HEMC loan, the HEMC Saver loan may, in many cases, not be subject to taxes.

In an assessment of the pros and cons of the two Reverse Mortgage programs the AARP (formally the American Association for Retired Persons) notes that if an individual or couple, above the age of 62 can meet their needs with the lower amount that the HECM Saver offers, they should apply for the HEMC Saver loan. It is a less-expensive alternative, especially if the individual/couple only needs a small loan for a limited period of time or for a specific project — say, a renovation or repair. This is especially true for homes with a high assessed value  where eliminating two percent of the upfront insurance premium saves a considerable sum of money.

Senior citizens have the option of obtaining a Home Equity Mortgage Conversion HEMC loan, also known as a Reverse Mortgage. This loan allows them to borrow money using the equity in their home to secure the loan. This loan is available to individuals aged 62 or older. If a couple wants to take out a reverse mortgage but only one spouse is over age 62, only the partner who is over age 62 may sign on the mortgage.

Seniors who take out a reverse mortgage have several options to obtain the loan funds. They can request that the loan be paid in a line of credit or through monthly payments. The method of payment is decided upon when the loan is signed and cannot be changed at a later date.

The loan is repaid when the borrower dies, sells the property or otherwise no longer lives on the property. The property reverts to the lending institution which may use the profits from it to repay the loan.  If a married couple took out a reverse mortgage but only one partner signed, the loan must be repaid when the partner who signed no longer lives at the residence.

Reverse mortgages are insured by the Federal Housing Administration (FHA) and implementation is overseen by the Department of Housing and Urban Development (HUD).

The FHA mandates that seniors who consider taking out a reverse mortgage participate in a loan counseling session. This session enables the seniors to obtain a full picture of the reverse mortgage, including their own obligations. This is important because, in the past, borrowers have run into difficulties when they did not fulfill their responsibilities that the terms of the loan oblige them to undertake or did not fully understand the terms of the loan.

Some of these requirements include the borrower’s responsibility to remain paid up on insurance and property taxes, maintain the property and use the property as a primary residence.

Recent changes in FHA policy have clarified the rules relating to HEMC counseling. The 2011 Revised Certificate of HEMC Counseling and Clarification of Counseling Guidance clarifies the FHA regulations to insure that borrowers fully understand the terms of the reverse mortgage loan.

Regarding the obligation for the counselor to include all property owners who are listed on the house deed in the counseling session, the clarified rule states: “All owners shown on the property deed (or legal representative, in cases involving documented lack of competency) and a non-borrowing spouse must personally receive counseling. The Certificate must be signed and dated by both the counselor, all owners shown on the property deed (or legal representative for cases involving documented lack of competency), and non-borrowing spouse.”

In short, the mandated counseling session must include all individuals listed on a house deed, even if these other individuals (including a non-borrowing spouse) are not planning on co-signing on the reverse mortgage. The FHA wishes to ensure that an individual who is signed onto a house deed is aware that, if a spouse takes out a reverse mortgage on the house, the loan becomes due when the person who took out the reverse mortgage no longer lives in the house. This holds true even if the spouse who does not sign on the HEMC loan wishes to continue to live in the house and even if the spouse who does not sign on the HEMC loan is listed on the house deed.

In addition the FHA provided additional information for individuals who instigate a HEMC loan process through a power-of-attorney. The rule declares that the person who accepts the power of attorney must also participate in the counseling session and sign the HEMC counseling certificate. This is done to insure that all parties involved understand reverse mortgage loan ground rules.

Obtaining a reverse mortgage can be one of the most meaningful financial decisions that a senior citizen or senior couple can make. Obtaining a reverse mortgage on a home entails committing to maintaining the home as a primary residence and sustaining home maintenance and property tax payments. Borrowers must also agree to a specific financial compensation package that allows them to live in the home for as long as they wish or are able. When obtaining a reverse mortgage, borrowers recognize that, when they no longer live in the home, the loan must be repaid, generally when the lender assumes ownership of the home.

Each senior individual or couple must decide for themselves whether a reverse mortgage is the best course of action, based on their financial situation, their plans for their future, the state of their estate and other factors. However, for many people over the age of 62, taking out a reverse mortgage makes good financial sense. It frees them from concerns about their income while providing them with the security of knowing that they will be able to maintain their home in their older years.

Financial advisors offer tips and suggestions* for seniors who are considering a reverse mortgage option.

1. If you are a married couple, take out the reverse mortgage in both of your names. If you take out the mortgage in both of your names, there is no payment due until the survivor sells the home, moves or dies. But if there is only one partner named on the loan, the loan comes due when that person dies.

It is true that your monthly payments may be larger when the reverse mortgage is taken out with only one partner, usually the older one, signing on the loan. Some reverse mortgage brokers advise couples to do this, since putting the mortgage in the older partner’s name translates to a larger loan.

But borrowers may be unaware that if they take out the mortgage on one spouse’s name, once that partner no longer lives in the home, the survivor must pay the lender the appraised value of the property or the balance of the mortgage. If the survivor cannot repay this sum, the lender will foreclose on the loan, irregardless of whether the surviving partner is still living in the home.

In addition, once the reverse mortgage is signed, the terms of the loan cannot be changed by adding the other partner’s name to the deed.

The Department of Housing and Urban Development (HUD), which oversees regulation of reverse mortgages, posits that the terms of a reverse mortgage protect only the homeowner who signed as the borrower against displacement. The AARP, formally the American Association of Retired Persons, presented a lawsuit against HUD which contends that the terms of a reverse mortgage loan should entitle a non-borrowing spouse to protection from foreclosure in the event that the spouse who signed on the reverse mortgage loan is no longer living in the home. As of November 2011 the suit has not yet been heard.

2.  Calculate the costs involved when you take out a reverse mortgage and stay current on all of your mandatory payments.

Take into account the FHA Reverse Mortgage origination fees.  The fee can be up to $2,500 if your home’s value is less than $125,000 but can climb as the appraised value of your home increases. If your home is worth more than $125,000 the fee may consist of two percent of the first $200,000 with an additional one percent of the value above $200,000. Include servicing fees in that calculation.

You must also factor in the mortgage insurance premium when you take out a reverse mortgage, also called an FHA HECM loan. This insurance is mandated by the Federal Housing Administration and borrowers commit to monthly insurance payments as part of their loan obligations.

Other reverse mortgage costs include maintenance of all property taxes and property maintenance. These obligations are discussed in depth when potential borrowers sit down for a pre-loan counseling session with an FHA-approved counselor. Failure to maintain these payments may result in the loan’s default and foreclosure on the home.

The FHA  allows borrowers to finance these fees into the cost of their HECM loan. This means that you don’t have to pay these costs before you sign on the loan. The money will come out of your loan’s principle.

In short, many financial advisers suggest that a reverse mortgage offers many older citizens the opportunity to formulate a sound financial investment which can ease financial pressures in their senior years. However, if you are considering taking out a reverse mortgage, do your homework beforehand. Learn all the pros and cons of a reverse mortgage and be sure that you are aware of everything that a reverse mortgage entails. Prepare yourself so that you can take advantage of the FHA-mandated counseling session to ask all of your loan-related questions and obtain complete information about the reverse mortgage during the counseling session which will assist you as you make your decision.

*RMA is not an official licensed adviser, use this info at your own risk.

Although reverse mortgages are generally a safe product, two loan officers working at the First Continental Mortgage, with offices in Boca Raton and Fort Lauderdale were sentenced on November 4^th 2011 for their role in scheming to defraud the Federal Housing Administration (FHA) and the Genworth Financial Home Equity Access Incorporation.

The two loan officers solicited senior citizens to take out reverse mortgages on their homes. The loan officers inflated the real estate appraisal of the homes’ values so that the owners would qualify for a reverse mortgage. In actuality the owners did not have sufficient equity in their properties.

Using these appraisals the Genworth Financial Home Equity Access Incorporation approved the reverse mortgages and the FHA insured the loans. The convicted loan officers did not pay off the borrowers’ existing mortgages, as required, but rather diverted the funds to a third agent who attempted to conceal the fraud. The third agent then returned the funds to the private bank accounts of the two agents. This story shows how important it is to only deal with reputable and approved lenders.

The FHA encourages seniors who are considering obtaining a reverse mortgage to carefully review FHA and Department of Housing and Urban Development (HUD) regulations and conditions for obtaining a reverse mortgage.

Homeowners aged 62 and over may obtain an FHA-insured reverse mortgage for a single-family home, a four-unit home, a condominium or a manufactured home. The reverse mortgage allows the homeowner(s) to borrow against the equity that they have in their home and obtain the funds through a line of credit, as a steady monthly income or a combination of both. The lending institution takes possession of the home when the homeowner(s) no longer live on the property. This reverse mortgage loan is also known as a Home Equity Conversion Mortgage (HECM).

The borrowers do not need to demonstrate proof of credit or income, but they must have their property appraised and must demonstrate that the appraised value of the home conforms to the FHA’s home value or insurance limit criteria. The lending institution bases the value of the reverse mortgage loan on the lower of the two criteria.

Borrowers may finance the closing costs of a reverse mortgage with the income that they receive from the loan. The loan is available to individuals aged 62 or older, or, in the case of co-signers, on the condition that the youngest co-signer is aged 62 or older. The borrower(s) must live in the home as their primary residence and must obtain FHA-approved counseling which details the loan’s commitments and conditions, before being approved for the reverse mortgage.

Borrowers must also show that their home conforms to FHA flood requirements and property standards. They must commit to their property’s upkeep and payment of all taxes, including property taxes. When the borrower no longer lives in the home, the lender will sell the home and use the sale of the home to repay the loan that the borrower obtained through the reverse mortgage. This will include any interest. After the loan has been repaid, any remaining equity will belong to the homeowner, or the homeowner’s estate.

Participants at the annual National Reverse Mortgage Lenders Association (NRMLA) Meeting & Expo in October 2011 heard several notable updates which strengthen the reverse mortgage program and increase confidence of both reverse mortgage lenders and borrowers.

Karin Hill, Director of Single-Family Program Development of the Federal Housing Administration (FHA) announced that the FHA forecasts an increase in Home Equity Conversion Mortgage (HEMC) approved mortgages.

The HECM is the only FHA insured reverse mortgage program which enables senior citizen borrowers to withdraw a percentage of the equity in their home. The borrowers can choose the method which they wish to use to withdraw funds, either in a fixed monthly sum, a line of credit or a combination of these two options. Borrowers can also use an HECM to purchase a new home under specified circumstances. Hill predicted that the FHA would insure 88,000 HECMs in the federal fiscal year 2012, totaling $22 billion. This is an increase over the fiscal year 2011’s 73,000 HECMs and 79,000 for fiscal year 2009. Hill also noted that, at present, the FHA actively insures 559,000 loans and has provided counseling to more than 28000 HECM borrowers who are delinquent on their property charges.

Federal Housing Commissioner/Acting Assistant Secretary for Housing Carol Galante addressed the NRMLA Annual Meeting & Expo on October 28th and told the conference attendees that the FHA will not increase the current loan limit beyond its present $625,500.

Galante reiterated the FHA’s commitment to the present success of the Reverse Mortgage program, saying “At this point we want to focus on those things we really feel are important in terms of ensuring the book of business stays in a good place.” She elaborated by saying that the FHA will continue to reduce risk and improve the reverse mortgage program performance by keeping the higher limit in place as long as current conditions allow for the limits to remain at present levels. During her tenure at the Department of Housing, Galante has overseen a significant expansion in multifamily volume while re-working the agency’s approach to affordable housing deals.

The NRMLA has instituted a “Borrow with Confidence” campaign. This campaign, to be undertaken in conjunction with the new NRMLA consumer site, is a public affairs initiative which will explain, step by step, what a potential borrower can expect when embarking on the process of taking out a reverse mortgage. The campaign will include a Road Map as well as a lender pledge that will reassure consumers that the NRMLA member will provide them with complete consumer protection when they take out a reverse mortgage. The Road Map will also be printed as a handout that NRMLA members will be able to provide to potential borrowers.

The NRMLA serves as the national voice of lenders who offer reverse mortgage. It is an industry service which offers educational resources to lenders and consumers. It also functions as a policy advocate and public affairs center for reverse mortgage lenders and related businesses. The NRMLA sees its mission as one of education, to educate potential borrowers about the pros and cons of reverse mortgages while working with lenders to train them to be sensitive to consumers’ needs. The NRMLA is charged by its members to advise policy makers on reverse mortgage issues. Members of the NRMLA agree to abide by the NRMLA Code of Ethics and Professional Responsibility.

The Department of Housing and Urban Development (HUD) has taken steps to strengthen the Reverse Mortgage program and insure that all eligible seniors have access to the program’s benefits. Incidents in which lenders have foreclosed against people who have taken out a reverse mortgage because they did not live up to the conditions of the agreement have propelled HUD to introduce the HECM (Home-Equity Conversion Mortgage) Saver program.

The HECM Saver is a reverse mortgage with a more limited loan-to-value ratio and smaller upfront costs. There is also an increased the annual mortgage insurance premium.

Acting FHA Commissioner Carol Galente distributed a letter to lenders in October 2011 which outlines the details of the program. Lenders, Galante wrote, are authorized to underwrite HECM loans in order to identify clients who are potentially at risk of defaulting on their reverse mortgages due to an inability to meet their financial obligations. Lenders may assess potential borrowers in order to ascertain the borrowers’ capacity to continue paying homeowners insurance, property taxes and home maintenance after the mortgage has been processed. These payments are mandated payments that reverse mortgage borrowers must maintain.

However, Galente reiterated, reverse mortgage lenders may not require additional qualifications from FHA borrowers other than those required by HUD.

Industry analysts note that many borrowers fall into foreclosure because they don’t understand the terms of the reverse mortgage or they take out the wrong type of reverse mortgage.

Activists provide tips and strategies that allow seniors determine the best reverse mortgage options for their particular case. These tips include:

Review existing income. For seniors who have an extremely low income, the Single Purpose Reverse Mortgage offers an opportunity to take out a reverse mortgage that costs very little and may even provide some funding for home maintenance and taxes. A HECM Saver allows seniors to take out a reverse mortgage on only a portion of their home’s equity. A Home Equity Loan is a line of credit that seniors can obtain against the worth of their home. A Jumbo Reverse Mortgage allows seniors to take out loans which exceed the HECM loan regulations. An HECM Standard Reverse Mortgage provides seniors the opportunity to take out a reverse mortgage on a larger portion of their home’s equity than the HEMC Saver but includes higher upfront fees.

Consider your age. If you’re relatively young and healthy, an option that has high upfront costs may make sense because over the course of time, the fees will prove worthwhile. If you’re already older or have serious health issues, high upfront costs may, in the end, eat away at a too-high percentage of the loan’s capital.

Think about the future of both spouses. You may qualify for a bigger loan if you remove the younger spouse’s name from the home’s deed and take out the loan on the name of the older spouse. However, if the older spouse dies or is put in elder care, the younger spouse will not be able to remain in the home.

Check out the contract’s terms and conditions. Find out what the lender is referring to when the contract states that the reverse mortgage remains in effect as long as the borrower is living in the house. What type of absences may constitute “no longer living in the house.” A long trip? Spending part of the year in another part of the country? A necessary extended hospital or stay in a long-term care facility?

Decide how you want to receive loan payments. Options for reverse mortgage payments include receiving payments as a lump sum, lifetime payments, a line of credit or a series of payments over a specified time period. If your income goes above a certain amount, you may jeopardize Supplemental Social Security or Medicaid payments. The savings themselves are not considered “assets” to SSI or Medicaid but the savings that you may accrue can affect your eligibility for SSI or Medicaid. The amounts differ from state to state so check your state’s Medicaid and SSI offices to ascertain your state’s guidelines.

Shop for the lender that offers you the best interest rates. HUD regulates the fees that lenders can set for an HECM but interest rates vary.

In a message to consumers the Better Business Bureau has released an advisory to individuals and couples who are thinking about taking out a Reverse Mortgage. The BBB cautions these homeowners to carefully assess the various advertising campaigns which are promoting the pros of taking out a Reverse Mortgage before deciding to take this step.

Neil Winget, the president of the Better Business Bureau, notes that promotions for Reverse Mortgages have increased in recent months as banks and other lending institutions aim to draw seniors into the program.

A Reverse Mortgage enables senior citizens who own a home to, in effect, draw out cash payments against the value of their home. Each person or couple’s situation is unique, based on the value of the home, the existing remaining mortgage and the type of withdrawal that they wish to make. But in essence, the Reverse Mortgage is a loan which accrues interest and allows senior citizens to convert their home’s equity into ready cash.

Winget emphasizes that, when entered into with a reputable company, a Reverse Mortgage can serve as a useful tool which offers seniors needed additional income. The Reverse Mortgage ensures that the senior(s) can remain in their own home and enjoy financial security.

The problem arises when unethical lenders with shaky reputations use flashy promotions to lure trusting seniors into signing a Reverse Mortgage agreement. Such contracts may have inordinately high fees or offer “extra options” that the customer does not really need. Some of these companies even turn around and convince the seniors to invest their payments into shaky investments or annuities which, in the end, will benefit the lender far more than the client.

The Better Business Bureau maintains a listing of banks and lending companies which offer Reverse Mortgages. The BBB urges anyone who is thinking about taking out a Reverse Mortgage to review the BBB’s free website which allows customers to check out these institutions before proceeding.

The BBB also advises people who are considering taking out a Reverse Mortgage to make sure that they understand all fees, contract terms and conditions before signing a contract. They encourage customers to shop around and find the lending institution which offers the best terms and to work with a local lending institution.

Benjamin and Irene Felles, 66 and 65*

The decision to take out a reverse mortgage was not one that we came to easily. We bought our first home when we were already in our 40s after saving for many years, and moved into our present home 20 years later. Since it took us so long to buy a home, we valued the independence that home ownership provided more, I suspect, than most. Yet last year, after researching the idea of a reverse mortgage, we decided that taking out a reverse mortgage was the most financially astute move that we could make while maintaining our independent lifestyle.

Neither Irene nor I came into our marriage with any savings. I was a veteran of the early days of the Vietnam War. We married when I returned home and I found a construction job almost immediately. Irene worked as a bookkeeper for the same contracting firm and even after our two sons were born, she always continued working, though it was generally part-time work and she did a lot of the work from home.

We always talked about buying a house but our landlord was pleasant and the terms of the rent were good so we continued to rent until our boys were out of high school. This gave us a chance to save up a sizable down payment on a house. Once the boys were in college we bought our first house. We sold that house and moved into a smaller house in a good neighborhood about six years ago. The value of the two houses was almost exactly the same and we were able to pay off the equity on the new house without taking out a new mortgage.

A bad back and a general downturn in the economy persuaded me to retire at 65. Irene still does the company’s bookkeeping. Once I retired, we saw that, even by maintaining a modest lifestyle and even with Irene’s bookkeeping work we couldn’t meet our expenses. In addition, we wanted  to find a way to help our sons who have been going through their own financial stresses.

We looked into the idea of taking out a home equity loan. We discovered that we would need to have enough income to match the debt ratio in order to qualify the loan. After taking out the home equity loan we would be required to make a monthly mortgage payment. This seemed, to us, like reverting back to where we were 25 years ago.

When speaking to an FHA counselor, we discovered that a reverse mortgage would not be, in any way, tied to current income. We are eligible because we own and live in a single-unit home and are both over the age of 62. The reverse mortgage would provide us with enough money to satisfy our basic requirements for living expenses, allow us extra discretionary funds which we could use to help our children and grandchildren and ensure that the lender could not foreclose on us or force us to vacate our home for missing a mortgage payment.

These points convinced us to take our a reverse mortgage. Since we are both relatively young vis-a-vis reverse mortgage clients, our monthly payments are modest. But they provide us with the security of knowing that we can take care of our basic needs and that we will not be a burden on our children or grandchildren in the future.

(*name changed to protect privacy)

Marion Kevillars*, 69

Throughout my married life I was the financial manager of our family. Not that there was a lot to manage, but my husband respected my conservative outlook and respected my judgement when it came to our finances.

We never were able to put away enough money to create a safe savings plan but I always looked at our home as an investment which we could sell, if necessary, when the time came. We did whatever we could to educate and help our children get started in life and always told ourselves that, if worse came to worse, we could sell our house and get an apartment.

After the stock market crash of 2008, it became clear that my husband’s pension, which had been devalued, was not going to provide the income that we needed. Yet it also didn’t make financial sense to sell our house. Our garden provides us with some of our produce and the location allows us to walk to the nearby shops and doctor’s office so we rarely even need to use our car. And, of course, after 42 years of living in this house, we simply didn’t want to leave it!

My sister-in-law suggested that we explore taking out a reverse mortgage loan. It took me a while to accept this solution because I had always assumed that, after our passing, our children would have our house as their inheritance. But after we looked into the idea, we came to the conclusion that, more than any other option, this one made the most sense.

For one thing, it would provide us with the extra boost that we need to get through each month. We do have other income, including my husband’s pension and our social security. But the reverse mortgage plan allows us to fill in the gap that our low income created, obtain enough cash to live on and relieve our children of the worry of supporting us.

My husband’s biggest concern was the possibility that a reverse mortgage could affect our Supplemental Social Security payments, which we receive as a result of my physical disabilities. As per FHA requirements, we sat with an approved HEMC counselor to discuss our present assets, needs and the pros and cons of taking out a reverse mortgage. The counselor noted that, regarding our standard Social Security payments, we had nothing to worry about as the program is an entitlement program and pays out irregardless of additional resources or income.

However, regarding our SSI payments, the counselor advised us that, since arranging for a higher payment plan could place our countable assets above SSI’s limit, we should select the tenure payment plan. This assures us of equal monthly payments for as long as at least one of us lives and occupies our home.

Taking a reverse mortgage gave us the opportunity to put our finances back on track and look forward to our retirement with peace of mind.

* (Name changed to maintain privacy).

Richard Murrell

They say old is gold. What we say is old age is the time when trouble starts brewing from no idea where. Your body gives you trouble, then it is the turn of your finances, and so on and so forth. Luckily for me the second item, namely finances, was not such a big problem. We had saved our golden nest-egg and had access to decent retirement funds flowing in from stock market and prudently made investments (Thanks to Mark, our investment consultant). We were leading fine lives from the funds coming in through these resources.

And then the inevitable happened, the markets crashed because of the economic downturn, and our interest rates on cumulative deposits kept dropping and we could see our funds were getting quickly depleted. We were dumbfounded and afraid as to what to do. We didn’t want to burden our children financially, we were used to stand on our own especially when it comes to financial matters. We heard about the reverse mortgage or home equity conversion mortgage program from my long term colleague in the Navy. As he said, we could count on incoming money thanks to the home that we own. Our home had appreciated considerably in value during the past decade or so, so we decided to give it a shot. We met with a reverse mortgage counselor who helped us read and understand the fine prints associated with HECM program. We got our program insured federally (we were told it is a requirement anyways). Now we got a decent stream of money flowing in every month from our lender which supplements our dividend and stock investments’ income. It would have been difficult for us to manage during these times of financial hardship without this additional line of income. Thanks to HECM and our counselor we are now safe and sound financially. We continue to live and tend to our home, which we have grown to love during the decades it has been sheltering us.

This is the third part of our new Reverse Mortgage Report series where different seniors share their reverse mortgage experiences with us.Cornelius Foster

Cornelius Foster

I love my wife, home, and have a few close friends from my windshield wiper business. I am fortunate to have wonderful neighbors who are just the same age group as I am. We would all count ourselves as financially middle-class, or an addition to the ‘I aspired to be rich, just as you did’ cesspool. J One day I was taking my car to the car wash when I met Joe, one of our neighbors and he casually told me how their old-age finances had improved after taking up a reverse mortgage offered by a local real estate bank. I listened carefully but I wasnt quite convinced whether a reverse mortgage was the right choice for us. We sure had some money, saved when my business was at its peak. But just like everyone else, we had a desire to be ‘richer’ so we could lead more fulfilling lives. We also had a home remodel pending which could suck up considerable money.

We met with a reverse mortgage counselor before going to the bank (Joe said it was legally required to meet with a counselor before taking a reverse mortgage). We were told yes, a reverse mortgage was appropriate given our financial situation, and that, we could get a nice down payment for meeting the costs of home repair/remodel, and further a monthly income to take care of recurring expenditure such as medical expenses. After looking through our options, we decided to get a new reverse mortgage loan from the bank. We do not have to worry about our most valuable asset - our home - anymore. It is all well taken care of. I think we have been on the right track so far. We got the money for repairs, and we have a nice decent income to supplement our pension funds. Though we aren’t living the ‘life of our dreams’ we are very comfortable and one step upward from a middle class life style. Reverse mortgage is the concept we need to thank.