Why Are Reverse Mortgage Starts Increasing?

Reverse mortgages — technically known as Home Equity Conversion Mortgages or HECMs — seem to be advertised more frequently these days. Lending institutions confirm that there are, indeed, many more requests for information about Reverse Mortgages coming in to their companies.

There are a couple of reasons for this upsurge:

1. The population is aging. As more and more people are reaching retirement ages, the percentage of individuals who are looking for ways to increase their income is expanding. The equity that people have in their homes becomes a form of investment that they can liquidate and use.

2. The generation that is coming into retirement age is less prepared for retirement than were previous generations. Many of these people are carrying more debt into retirement than previous generations.

Gregg Dimkoff, a certified financial planner and professor of finance at Grand Valley State University’s Seidman College of Business, commented that, a generation or two ago, the general assumption in America was when your debts were paid off when you retired. And if they weren’t, you didn’t retire. That is no longer true today.

Dimkoff says that the percentage of all retirees who still have a mortgage is nearing the 50 percent mark. That’s ludicrous from a financial planning standpoint ” Dimkoff says.

The National Reverse Mortgage Lenders Association serves as an educational resource, policy advocate and public affairs center for reverse mortgage lenders and related professionals. According to the NRMLA, a reverse mortgage is a type of loan which is available to homeowners aged 62 or older, which allows them to convert part of the equity in their home into cash.

Reverse Mortgages were created by Congress and the Department of Housing and Urban Development as a means to help retirees with limited income use the equity that they’ve accumulated in their homes to cover basic monthly living expenses and pay for health care. The loan is called a reverse mortgage because instead of making monthly payments to a lending institution, as with a traditional mortgage, the lender makes payments to the borrower.

The borrower does not have to pay back the loan until the home is sold or the borrower leaves the home. As long as the borrower continues to reside in the home, s/he is not required to make any monthly payments toward the loan balance.

However, borrowers must remain current on homeowners insurance, condominium fees, property taxes and the monthly loan interest fees. If they don’t maintain these payments, they, in effect, default on the loan. The lender then has the same legal remedies for recovering the money as the lender has in a standard or “forward” mortgage — foreclosure.

Borrowers should remember that, under FHA rules, the loan comes due if the borrower leaves the house for 12 months or longer. This might happen if the borrower goes into a rehab facility. However, if the borrower spends several months in a rehab facility and then return to the home, it does not impact the reverse mortgage.

There is another aspect to reverse mortgages that are not included in forward mortgages: the HECM “no recourse” clause. This clause ensures that, for the purposes of the loan, the value of the home will never be less than the value of the loan upon closure. For example, if housing values plummet and the sale of the house will not cover the amount of the loan, the lender has no recourse against the borrower’s other assets. The difference is forgiven and is paid through the FHA’s insurance fund which is funded through the insurance premium that all Reverse Mortgage borrowers pay as part of their loan.

Reverse mortgages can seem complicated and some seniors find them difficult to fully understand. The HUD requires that potential borrowers attend a counseling session with a HUD-approved counselor BEFORE they begin the loan process to ensure that the potential borrowers fully understand the benefits and obligations of the loan.

Compare and Contrast Lending Institutions for the Best Reverse Mortgage Deal

Senior homeowners who want to explore the reverse mortgage market for the best deal — finding the lowest interest rate and origination fee – must know how to obtain the most updated and comprehensive data. Unlike the standard mortgage market in which price data is available from many sources, including 3rd party sources, multi-lender websites, prices are hard to find for the Reverse Mortgage market.

Few individual lenders spell out complete and up-to-date reverse mortgage prices on their websites. Senior financial counselors are aware of this and caution potential borrowers to carefully examine each lender’s fees before they sign on for a HECM loan.

Calculating the Loan

The most important source of reverse mortgage price data which seniors may access is the HECM calculator which estimates the proceeds that a borrower can expect to receive from his reverse mortgage. Even here, however, it’s a good idea to compare site calculators and even check the NRMLA (National Reverse Mortgage Lenders Association) calculator to get the best estimate of exactly how much one can expect to receive from his reverse mortgage loan.

For example, on November 21st, an individual aged 75 with a $200,000 existing mortgage balance on a home worth $500,000 could find the following prices NRMLA calculator: a 5.060 percent interest rate with a origination fee $6,000. Conversely however, one individual lender offers a publicized 4.25 percent interest rate with an origination fee of minus $2,015 – the “minus” rate means that the lender is offering a rebate that will be credited against settlement costs or the mortgage insurance premium.

These large price differences don’t result from any differences in investor risk, since all HECMs are insured against loss by FHA. There is no subprime versus prime distinction here. It’s important to note that price changes which occur while the loan is in process, on an individual lender’s site, will not be used to justify a price increase on the day that the price is locked. This indicates that it’s better to check prices on an individual lending institution’s site than on the NRMLA site.

Closing Costs

Many financial observers feel that Reverse Mortgage origination costs are high. Reverse Mortgage lenders profit on the sale of the mortgage, the size of which depends on the amount of the initial loan. If the profit on that loan is significantly large, competitive lenders will provide a negative origination fee (rebate) to cover the upfront mortgage insurance premium and other settlement costs. The result is a no-closing cost reverse mortgage.

If the profit on the home’s sale doesn’t cover all the costs, it may be large enough to justify a rebate to cover some of the costs. That would result in a low-closing cost reverse mortgage. Potential HECM borrowers should be aware of this option and, if their home’s worth is sufficiently large, should negotiate with the lender to obtain as big a rebate as possible. The rebate option, by the way, is not mentioned on the NRMLA calculator which assumes that the lender will be charging the highest origination fee allowed by law. So again, it is worthwhile to check out each individual lender’s calculator in order to obtain the most comprehensive overview of the true cost of the loan.

As in any consumer activity, obtaining a Reverse Mortgage Loan should be undertaken after research and price comparison.

Reverse Mortgages: Be Prepared

The image of an elderly man rocking on his front porch flashes across the television screen. The announcer tells us that this man is happily living off tax-free income, with no mortgage, for the rest of his life.

“You can do the same,” the announcer says as his voice rises enthusiastically “with a reverse mortgage.”

According to the advertisement,

* It’s safe (if done right)

* It’s inexpensive

* It’s simple

* Your heirs will not be obligated to pay back the loan

Lenders and senior advocacy groups agree that federally insured reverse mortgages, also known as Home Equity Conversion Mortgages (HECMs), can be advantageous. However, it’s important for potential borrowers to be prepared for the loan’s cons, as well as its pros.

New rules mean more protection for seniors but borrowers must do their research and work with a reputable lender and counselor.

The National Council on Aging offers detailed information about reverse mortgages.

Q. What is a reverse mortgage?

A. Home Equity Conversion Mortgages are for homeowners ages 62 and older. The mortgage allows borrowers to access the equity in their homes without making monthly mortgage payments.

Q. How much can be borrowed?

A. The loan amount is based on the value of the home and the age of the youngest borrower, minus insurance and finance fees (appraiser, escrows, title company, legal fees and county recorder), loan interest fees and, when necessary, a set-aside equity reserve.

Q. Does a borrower’s HECM income affect other benefits?

A. Reverse mortgage loan payments are not taxable and do not affect Social Security or Medicare benefits; they may, however, reduce SSI and Medicaid benefits.

Q. What are homeowner obligations under a reverse mortgage?

A. Homeowners retain title to the house. They must pay the property taxes and homeowner’s insurance and any home association dues. The property must be maintained. Homeowners insurance payments must be kept up to date.

Q. What is required to apply for a HECM loan?

A. Prospective borrowers must complete a reverse mortgage counseling session with a HUD-approved counselor.

Q. What should seniors review before they apply for a HECM loan?

A.

  1. All other housing, social service, health and financial options.
  2. Other types of home equity conversion options such as HECM for purchase, sale-leaseback financing deferred payment loans, proprietary and private reverse mortgage and property tax deferral requests.
  3. Financial implications of entering into an HECM agreement

Q. Where can I get more information?

A. The National Council on Aging recommends the following sources for more information on using and protecting your home’s value, either with a Reverse Mortgage or with other programs:

· Home Equity Advisor

· BenefitsCheckUp

· Consumer Financial Protection Bureau

FHA HECM Guidelines Set to Propel Reverse Mortgage Industry Forward

The Federal Housing Authority’s Financial Assessment, which went into effect on April 27th, has altered home equity conversion mortgage underwriting procedures to resemble those used for forward mortgages. Seniors who want to borrow, based on the equity that they have in their home, will now have to prove, with documentation and paperwork, that they can handle the ongoing property costs. The financial assessments are viewed by the government and financial consultants as a positive change for the reverse mortgage industry. They argue that, in taking on many of the practices used in forward mortgage lending while slowing down the reverse mortgage application, lenders can prevent many defaults that might have otherwise occurred.

Up until recently, there were surprisingly few requirements for a senior to receive a Reverse Mortgage. The individual had to be 62 years of age or older and be the owner of a home which had been completely, or almost totally, paid off. Borrowers had to agree to continue to pay for all of the costs of operating a home including keeping up their homeowners insurance, and property taxes, paying for the loan’s interest and maintaining the home. Over the past several years, many borrowers failed to meet these responsibilities and they defaulted on the loan. As a result of the ensuring foreclosures the FHA’s insurance fund experienced a huge deficit and Congress debated the advisability of continuing with the HECM Loan.

Throughout 2013 Congress and HUD officials worked together to find a solution to the problem. The solution involved two main changes to the loan. One – there would no longer be an option for borrowers to draw all of their funds at once. And two – safeguards would be put into place to ensure that borrowers would be able to keep up their loan obligations.

Many consultants believe that forward mortgage practices should have been conducted all along by the reverse mortgage industry. Up until recently the only ongoing financial requirement that a reverse mortgage borrower had to agree to, by virtue of the mortgage agreement, related to home upkeep, taxes, loan interest and home insurance. The lack of requirement that borrowers would have the residual income to be able to pay those costs almost caused the collapse of the loan. Now that calculating residual income is required by HUD under the financial assessment, senior potential borrowers will be able to better decide whether they are viable candidates for such a loan.

Reverse lenders have an additional tool as well — the Life Expectancy Set-Aside – which functions similarly to an escrow account in requiring that a borrower set aside funds that will pay for property taxes and insurance over the course of the loan.

Industry analysts are aware that these new financial assessment requirements will pose a challenge, but they agree with HUD that they are necessary to the sustainability of the reverse mortgage program. As the policies become standard, borrowers, lenders and the government will gain and the reverse mortgage industry will be able to move into the future.

FHA Implementing Tougher Credit Standards for HECM Loans

Starting on April 27th 2015, the Federal Housing Administration (FHA) began implementing tougher credit standards for reverse mortgages.

Reverse mortgages are available for senior homeowners aged 62 and above who have equity in their homes which they want to use to obtain cash. A reverse mortgage may be applied to a primary residence. A borrower may convert part of the equity that he holds in the home into cash. Repayment of the mortgage loan or credit line is delayed until either the home is bought by another buyer, the borrower leaves the home or the borrower dies. Borrowers don’t pay income tax from money withdrawn from the reverse mortgage loan because it’s loan income.

The line of credit grows annually and can never be reduced or frozen. The borrower will never owe more than the value of the loan but if he wants to sell the house he must first repay the loan, including the interests and fees. If he repays these costs, he can then will the house to his heirs.

If the borrower dies, the heirs can buy the home at 95% of the property value, if that is less than the mortgage owed by the borrower upon the death of the borrower. FHA will then pay the loss via its Mortgage Insurance Premium.

The program has been a success since its inception in 1989 but in 2012 an audit of the FHA uncovered a huge deficit in Federal Housing Administration’s loan fund due, in a large part, to Reverse Mortgages. Many borrowers had fallen into foreclosure due to the borrowers’ failure to pay their interest, property taxes and insurance payments and/or to maintain the homes, forcing the FHA to take the loss. With the lowering of property values, the FHA’s loan fund incurred additional losses and the Treasury Department was forced to provide a $1.7 billion dollar bailout to save the program.

New rules, which were introduced on April 27, aim to correct this problem. Now reverse mortgage applicants must prove that they are willing and capable of meeting their obligations as borrowers. The loan now requires that potential borrowers be investigated and credit reports about their credit history be analyzed, similarly to the requirements for a first mortgage loan, before the loan is granted. The rules state that a potential borrower must demonstrate that s/he has been diligently paying real estate taxes, home association dues and other fees related to homeownership for at least the previous 2 years.  Employees will be asked to produce related documents and will undergo a “residual income” analysis to determine whether the person’s cash flow is sufficient for him/her to keep up with his loan obligations.

Senior rights advocates worry that many homeowners may not qualify for a reverse mortgage loan under these rules but, for the present, they offer the best alternative under which the HECM loan can continue to function.

Five Things that you Should Know About Reverse Mortgages

If you own your own home, you can access the equity that you have in your house to turn it into a pension. The Reverse Mortgage option gives you a tax-free monthly payout or a lump sum which you don’t need to repay until you die or sell your home.

According to the rules of the Home Equity Conversion Mortgage program, you can take out a Reverse Mortgage even if you still have a small balance left on your mortgage. You can use the cash for any purpose — medical expenses, living expenses or even a vacation.

You don’t have to repay the HECM loan until you die or sell the home. Even then, you’ll never owe more than the amount of the loan.

Yet there are several issues involved in Reverse Mortgages that many people don’t know. Here are five points that you should be aware of when you start to consider taking out a Reverse Mortgage.

  1. How much can you borrow? The amount of equity that you can access depends on your age, the current value of your home and the current interest rate. The maximum amount of home equity that is available in a federally insured Home Equity Conversion Mortgage is $625,000. To get an idea of how much money you could access, go to the Reverse Mortgage calculator and check out your eligibility. Alternately, sit down with an agent at a lending institution to find out how much money you can expect from a Reverse Mortgage and get more details about the loan.
  2. How much interest will be charged? The interest rate is fixed at the time you take out the reverse mortgage. You don’t have to actually pay the interest since it will accrue monthly and be added to the balance owed when the house is sold.
  3. What other fees are involved with a Reverse Mortgage? Borrowers should prepare for other fees that add to the balance of the loan. This is one of the reasons that you should only take out a reverse mortgage if you are planning to remain in your home. for a long time. Borrowers are responsible for paying a monthly fee for the up-front federal mortgage insurance premium (MIP). The MIP is designed to protect the lender against your longevity while, at the same time, protect you against owing more than the home is worth. This means that you will pay 0.5 percent of the funds that you withdraw in the first year. If you take more than 60 percent of the equity in a lump sum, upfront MIP is 2.5 percent. There’s an additional annual MIP premium which is equal to 1.25 percent of the outstanding loan balance. You’ll also be expected to pay a monthly servicing fee, closing costs (appraisal fees, title search, credit check, etc) and the cost of a one-time mandatory counseling session with a HUD-approved counselor.
  4. What other costs are involved in a HECM loan?  You are responsible for paying property taxes and homeowner’s insurance and for keeping the property in good repair and paying any assessments if you live in a condo.Your lender will do an assessment to ensure that your income can cover those expected expenses.
  5. What happens when your leave the house? When you die, sell the property or permanently move into a nursing home, the accrued balance will come due if there’s no co-borrowing spouse. The house will then be sold to repay the loan.

HECM Loans – Changes, Revisions, Today’s Situation and some Hints

The Home Equity Conversion Mortgage was introduced to the American market in 1989. The concept behind the HECM loan was that, in order to help seniors increase their income during their retirement years, the government, under the auspices of the Department of Housing and Urban Development, would help these individuals access the equity that they held in their homes.

According to statistics, most seniors own their own homes. Yet until the introduction of the HECM loan, they didn’t have any way to make their equity work for them. The government reckoned that, with a reverse mortgage loan, they would be able to draw money based on their home’s worth. Then, when the individual died or had to leave the home, the lending institution would claim the property, sell it and recoup their investment.

Over the years the terms of the Reverse Mortgage have been refined and changed. When it became clear that many seniors didn’t fully understand the loan, HUD instituted a counseling program under which all potential Reverse Mortgage borrowers would be obligated to sit with an HUD-approved counselor and receive a full overview of the loan from a non-biased third-party.

In 2012, an audit of the FHA uncovered a $16.3 billion dollar shortfall in the FHA’s insurance-fund. Of that, $2.8 billion was traced to the part of the fund that administered the Reverse Mortgage program. Industry analysts say that this shortfall was due to a loan structure that offered too many possibilities for foreclosure.

Upon close examination, it was determined that much of the problem could be attributed to borrowers’ misunderstandings about their obligations under the terms of the loan. HECM loans obligate the borrower to maintain the home for the time that he is living in it under the Reverse Mortgage – to pay for upkeep, property taxes, insurance payments and homeowner’s insurance, in addition to the loan’s interest payments.

Many of the foreclosures were attributed to borrowers’ lack of foresight – many people would draw our all of their Reverse Mortgage funds when the loan came through, use the money to pay off debts or for other expenses, and then be left without necessary capital to pay for the loan’s costs.

Over the last 2 years, Congress and HUD have been addressing this problem. Borrowers may no longer draw out all of their funds when the loan is issued and, when the lender deems it necessary, the borrower must allow the money to be put aside in escrow to pay for these costs.

Presently, HUD is dealing with a class action lawsuit, filed by the AARP, on behalf of non-borrowing spouses who claim that they were not fully informed about what might happen when a borrowing spouse dies while the non-borrowing spouse is still living in the house. Under the present terms of the HECM loan, the house reverts to the lender, but the AARP argues that, by not providing better information, HUD is responsible to see to it that the surviving spouses don’t suffer the foreclosure of their residence.

Reverse mortgage borrowers are at risk of falling prey to unscrupulous scam artists. The FBI reminds potential borrowers to keep scam artists at bay by remembering their rights. Potential borrowers should know that:

  • they may select their own mortgage counselor. Lenders may not promote one counselor over an other. They should make their own appointment and not allow any “consultant” to do that for them.
  • no one may take any money for any services until the counseling appointment takes place.
  • no agency, other than the FHA, insures Reverse Mortgages.

Non-Borrowing Spouse Rule – Where it Stands Today

In the ongoing saga of the HECM’s non-borrowing spouse rule, last week, the Department of Housing and Urban Development rescinded its August 2014 rule that was intended to keep as many non-borrowing Reverse Mortgage spouses as possible from being forced out of their homes upon the death of the borrowing spouse. Beginning in May 2015, spouses who had not been listed on the Reverse Mortgage will have more time to find alternative arrangements before the foreclosure process begins.

The issue has been dogging the HUD since 2012 when the AARP, in a class action suit, went to court to request relief on behalf of non-borrowing spouses who have been threatened with foreclosure following the deaths of their HECM-borrowing partners. The United States Court of Appeals sided with the AARP and demanded that HUD come up with a solution that would protect the rights of the spouses.

To answer the court’s demand, HUD revised its policy. In an amendment to the rule, HUD mandated a deferral of “due and payment status” for eligible non-borrowing spouses which would defer the foreclosure process/ The goal of this amendment involved giving surviving, non-borrowing spouses a period of time in which they would be able to gather their resources to determine how to meet Reverse Mortgage guidelines so that they can continue to live in their home.

As soon as the amendment was published, consumer advocates began to express concern that non-borrowing spouses would continue to face foreclosure and eviction after the borrowing spouse had passed away or left the house. A letter, “Regarding the Alternative Option for Claim Payment Announced in Mortgagee Letter 2015-03″ was submitted to HUD. The document involved a collaboration of the National Consumer Law Center on behalf of low-income clients who had turned to the NCLC for redress, the Consumers Union, the California Reinvestment Coalition, the Housing and Economic Rights Advocates, the Institute on Aging, and the National Housing Law Project.

In the letter, the groups pointed out that, even with the amendment, most surviving, non-borrowing spouses of borrowers will not even qualify for the benefits since reverse mortgages that originated prior to August 2014 did not take into account the surviving spouse’s age, which was generally younger than that of the borrower.

Under the amendment, in order for the non-borrowing spouse to qualify for HECM relief, the servicer must agree to assign the loan to HUD and to not pursue foreclosure.  In addition, the surviving spouse must be either older or the same age as the borrowing spouse, calculated based on the time that the loan was originated. If these conditions are not met, the surviving spouse must pay off the entire loan amount or 95 percent of the home’s value in order to continue to live in the home.

Such requirements keep many – if not most – surviving spouses from qualifying, the consumer groups say. In many cases the surviving spouse is younger than the non-surviving spouse and s/he doesn’t have the available money to pay such a large sum.

The consumer advocate organizations are frustrated because HUD is not revealing how many people are affected by this situation or by how many non-borrowing, surviving spouses are presently facing eviction and foreclosure.

An April report by the Consumer Financial Protection Bureau, which examined reverse mortgages, noted that issues of surviving, non-borrowing spouses who find themselves facing foreclosure upon the death of a borrowing spouse topped the list of concerns. The CFPB’s report summarized the two main issues: that some loan originators falsely assure borrowers that they will be able to add the other spouse to the loan at a later date, and that the loans can be difficult to repay.

HUD now requires that lenders consider the non-borrowing spouse’s age when originating a new HECM loan. This solves the problem for newly originated loans but it doesn’t resolve the problem of Reverse Mortgages that were originated before August 2014.

Consumer Groups Fight HUD on Non-Borrowing Spouse Changes

Despite its ongoing efforts to address challenges faced by non-borrowing spouses of Reverse Mortgage borrowers, the Department of Housing and Urban Development (HUD) is receiving a scolding from consumer advocate groups, which denounce the agency’s latest guidelines on this matter.

In May 2015, senior advocates and the agencies’ attorneys sent a letter to HUD in which they laid out their objections to the new policy regarding non-borrowing spouses. That policy was issued by the Federal Housing Administration in January 2015. Under the Home Equity Conversion Mortgage (HECM) program, the new rule allows lenders the option of delaying foreclosure on non-borrowing spouses after the borrowing spouse dies or leaves the home if specific guidelines are met.

While it’s not a requirement, lenders can now assign eligible HECMs to HUD upon the death of the surviving borrowing spouse. This way, the surviving (non-borrowing) spouse has the opportunity to remain in the home despite their non-borrowing status. The rule enabling the house to remain in the hands of the non-borrowing spouse, was issued in Mortgagee Letter 2015-03 in March 2015.

Consumer groups and senior advocates charge that this revised guidance is “nearly impossible for the majority of surviving spouses to meet.” The challenges stemmed from the Principal Limit Test, and these objections were cited in their letter of objection..

The letter read, in part, “Under the new policy, a reverse mortgage servicer could assign the loan to HUD. However, even if the servicer chose this option (at their discretion), the surviving spouse would then most likely need to make a large, lump-sum payment to meet the Principal Limit Test, something that most surviving spouses will be unable to do.” .

In HUD’s Mortgagee Letter the criteria for such a deferral was set out. According to the letter, the non-borrowing spouse would be obligated to make a payment that would reduce the unpaid principal balance on the Reverse Mortgage. This would enable the surviving spouse to meet the requirements set forth by the Principal Limit Test. If such a payment is not made within ninety days after the Mortgagee Optional Election (MOE) Assignment or within one hundred and eighty days after the publication of the Mortgagee Letter — whichever falls later — the lender may proceed with foreclosure.

Advocates who are fighting the HUD’s non-borrowing spouse changes include lawyers, financial advisors, seniors’ advocates and other consumer rights organizations. They include Odette Williamson of the National Consumer Law Center (NCLC), Kevin Stein of California Reinvestment Coalition, Maeve Elise Brown of Housing and Economic Rights Advocates, Sandy Jolley, a reverse mortgage suitability and abuse consultant, and others.

In its letter to HUD, the National Consumer Law Center wrote that Mortgagee Letter 2015-03 does not go far enough in protecting the rights of surviving spouses. The letter points out that these non-borrowing spouses will continue to be at risk of displacement and the foreclosures will continue to plague the senior population. The letter proposes that HUD develop “more effective solutions” to allow non-borrowing spouses to stay in their home. This, the letter asserts, will “fulfill the true spirit and intent of the HECM authorizing statute.”

Estimates state that a Reverse Mortgage Could Help Boost Your Retirement Income By 30%

According to a recent Wall Street Journal article, when facilitated in conjunction with a few other retirement planning steps, taking out a reverse mortgage could help increase retirees’ annual income by up to 30%.

The information comes at a time when fears of financial security plague retirees and potential retirees. Reports indicate that few Americans are truly prepared for retirement.

Financial advisors believe that, by tapping home equity for retirement planning purposes, taking out a Reverse Mortgage could put an extra $7,800 to $9,700 in seniors’ pockets each year.

Jonathan Clements, a Wall Street Journal writer, discusses the scenario by projecting the annual retirement income of an early 60ish couple — a woman and a man, eligible for a combined $22,000 in yearly Social Security, who own a $300,000 home with no mortgage and have $500,000 in accumulated savings.

Figuring at a 4% withdrawal rate, the couple’s $500,000 savings would generate $20,000 in first-year retirement income. Together with their Social Security benefits, they could count on an annual retirement income of roughly $42,000.

However, if the couple delays Social Security benefits, spends down their $500,000 nest egg, purchases longevity insurance and takes out a reverse mortgage, they can expect to add an estimated $54,000 or more per year.

In other words, the couple would be able to count on approximately 30% more income than if they simply claimed Social Security at the minimum retirement age of 62 and relied on their portfolio’s 4% withdrawal rate.

Clements expands on his theory by writing “Moreover, the strategy is arguably less risky, because they’re locking in various income streams that will keep paying no matter how long they live.”

Delaying Benefits

Reverse Mortgage advisors suggest that potential borrowers delay their Reverse Mortgage for a few years, since the older the borrower is, the more s/he can access through his monthly Reverse Mortgage payments.

There’s another delaying tactic that can also help seniors boost their retirement benefits – delaying filing for Social Security benefits. Instead of filing for social security benefits at 62, seniors should wait a few years. If the breadwinner waits to file until s/he’s 66, the non-breadwinner spouse can claim spousal benefits, worth $10,000 a year. There’s no point in postponing spousal benefits beyond full retirement age because there are no additional benefits for waiting. For the breadwinner, however, the longer s/he waits to file (up to age 70), the more credits s/he earns and the more Social Security s/he’ll receive. Additionally, this guarantees the non-breadwinner higher spousal survival benefits if the breadwinner dies.

When the theoretical couple reaches age 70, they would be able to count on $36,400 in combined Social Security income, figured in today’s dollars and ignoring any intervening inflation-driven increases in Social Security benefits.

Regardless of the couple’s age, Reverse Mortgage income would offer a helpful boost to retirement planning.

CFPB Guidelines and Advice for Reverse Mortgage Borrowers

The Consumer Financial Protection Bureau is embarking on a campaign to educate the American public about Reverse Mortgages. Many people are unaware of the differences between a traditional mortgage and a Reverse Mortgage. A traditional mortgage is used to buy or refinance a home. The lender lends you the money to buy or refinance the home and in exchange, you promise to pay back the lender the money you borrowed, plus interest, over many years.

A reverse mortgage, on the other hand, is typically used to access the equity that you have in your home. Instead of borrowing to buy a house, you are borrowing against a home that you already own. This allows you to use the cash for expenses that you have now, and pay back the loan when you die or sell the home.

The CFPB is concerned because potential borrowers are applying for a Reverse Mortgage without fully understanding the loan, its obligations or its consequences. CFPB has launched an information campaign to better inform the public about the loan so that each potential borrower can make the best decision for his or her own personal circumstances.

Reverse mortgages are designed for older homeowners who want to access their home’s equity (the investment that they’ve made in their home). In order to obtain a Reverse Mortgage you must be at least 62 years old and have paid off most, or all, of your mortgage.

Unlike traditional mortgages, reverse mortgages, including the government-insured HECM (Home Equity Conversion Mortgage) loan, do not require monthly mortgage payments. The interest and fees on a reverse mortgage are added to your loan balance each month and, over time, your home equity decreases as your loan balance grows. So it’s the reverse of a traditional mortgage.

It’s vital to be careful when you consider taking out a reverse mortgage. There are many factors to consider, including your age, your financial goals and needs and how long you expect to stay in the house. If you feel that it makes sense for you to take out the loan, be sure that you know about the fees and compare interest rates before you sign anything.

In the CFPB’s overview, the guide stresses three main points which potential borrowers should know before submitting their application.

Verify who is signed onto the loan:

If only one spouse is signed onto the loan, the second partner can continue to live in the house after the signee has died or left the house, but will no longer receive Reverse Mortgage payments.

If anyone else is living in the home when the loan ends (for instance, a child) that person will be obligated to vacate the home and the home will then be sold by the lender, with the proceeds used to repay the loan.

Calculate the loan fees and subtract those fees, along with the other loan obligations, from your expected loan income.

Upfront costs include lender fees, real estate closing costs and upfront mortgage insurance. Your upfront mortgage insurance charge is based on the size of your loan, and how much you choose to take out during the first year of the loan.

Many borrowers choose to pay for the upfront costs using funds from their loan, rather than paying out of pocket. The CFPB reminds borrowers that paying for upfront costs with loan funds is more expensive than paying them out of pocket.

Loan maintenance fees include interest and ongoing mortgage insurance premiums. You must also continue to pay your homeowner’s property taxes, homeowner’s insurance and home maintenance costs.

A HECM loan can be a helpful tool, but only if you fully understand the loan’s implications.

Understand a Reverse Mortgage Before You Apply

Rose Camden’s mother passed away in 2013 after a long illness. Now Rose is about to lose her home.

Camden spent the last decade living with her mother in her house in Omaha, caring for her full-time. Rose thought she would simply inherit the house after her mother died, but she discovered that her mother’s reverse mortgage, taken out in 2005, precluded that option.

With a reverse mortgage, an heir can keep the property if s/he pays off the outstanding loan balance in full or if s/he buys the property for 95 percent of the appraised value. Camden couldn’t afford to pay off the loan or the required 95 percent of the current appraised value, so the house went on auction and Camden was forced to relocate.

Rose Camden’s story is just one example of how a lack of knowledge about the HECM loan can create unnecessary complications. In Rose’s case, it’s likely that her mother didn’t understand the implications of the Reverse Mortgage in relationship to Rose, or didn’t think about it. But if she had prepared herself more thoroughly before signing on the loan, she could have helped her daughter to be better prepared for the end of the loan

Camden agrees, saying “I really don’t think that my mother understood what she was doing. She always wanted to make sure I would have a roof over my head.”

Reverse Mortgage applicants are required to attend a counseling session before they proceed with submitting their application. This counseling session, which takes place with a HUD-approved Reverse Mortgage counselor, is geared towards ensuring that the potential borrower fully understands the loan and its implications. Financial counselors, however, advise seniors to do their homework so that they understand the basic outline of the loan even before they have their counseling session.

Some of the most important points to remember when applying to qualify for an HECM include

  1. *The homeowner must be 62 years of age or older
  2. The homeowner must own the property outright or have it paid down enough so that the Reverse Mortgage will cover the remainder of the mortgage
  3. The homeowner must occupy the property as a principal residence.
  4. The homeowner must not be delinquent on any federal debt.
  5. The homeowner must have financial resources to continue making timely payments on ongoing property charges, such as insurance, property taxes and homeowner association fees.
  6. The homeowner must participate in a consumer information session given by a HUD-approved HECM counselor.
  7. HECMs are insured by the FHA (Federal Housing Administration).
  8. The amount of a reverse mortgage loan is based on a property’s appraised value and the percentage of the equity that the homeowner has in the property. In general, the older the borrower is, the lower the interest rate and more valuable the home, the higher the loan amount.
  9. The borrower pays closing costs and a monthly servicing fee. To estimate the costs and benefits of a potential loan, the potential borrower should check the loan calculator.
  10. Reverse mortgage borrowers receive their disbursements as monthly payments or a line of credit.
  11. Reverse Mortgage borrowers pay taxes and insurance but do not pay principal or interest on the loan. When the borrower dies or leaves the house the lender sells the house to recoup the investment.

Camden reminds potential borrowers “Before entering into one of these loans, the homeowner, heirs and anyone else who might be affected by the decision now or in the years ahead should sit down and discuss the loan so that everyone knows what to expect.”

A Look at HECM Loans

Housing equity is often the most important wealth component

of senior homeowners in the United States. Reverse mortgages allow elderly homeowners to consume housing wealth without moving out of their home. Until recent years however, relatively few eligible homeowners used a reverse mortgage to access this income. Now, HECM loans are evolving. To understand the recent growth in the reverse mortgage market, it’s important to analyze the program.

One of the most important questions facing researchers and policy makers today involves the question of whether Americans are saving enough for retirement. The answer depends on how housing wealth should be treated - are elderly homeowners able and willing to consume their housing equity in retirement? Housing wealth is often the largest non-pension income component for senior homeowners. For example, the 2004 Survey of Consumer Finances (SCF) data suggest that for more than 27% of homeowners aged 62 or above, housing wealth represents 80% or more of their total wealth. Economists believe that reverse mortgages increase consumption of house-rich but cash-poor elderly homeowners as they continue to live in their homes.

Reverse Mortgage is a financial product that is similar to a home equity loan. The difference involves the fact that the borrower does not pay back the loan until she dies or permanently leaves the house. HECM loans were first introduced in 1989. The most common type of Reverse Mortgage loan, the Home Equity Conversion Mortgage (HECM), is insured by the Federal Housing Administration (FHA) and constitutes over 90% of all reverse mortgage

loans that are originated in the U.S. market. Despite a considerable economic appeal, using reverse mortgages to finance consumption after retirement has been the exception for most of its existence but its use is growing.

A HECM loan is a reverse mortgage which is secured by the borrower’s home equity. In a forward mortgage, the borrower’s home equity increases over time while the mortgage debt

decreases over time. In a reverse mortgage, on the other hand, the borrower’s home equity declines over time and the mortgage debt grows over time. To be eligible for a HECM loan, borrowers must

  • be 62 years of age or older
  • be mortgaging a 1-unit dwelling
  • own their homes free and clear, or have a lien that doesn’t exceed the HECM loan that they can receive.

Unlike conventional home equity loans, a HECM loan doesn’t have a fixed maturity date. The loan becomes due and payable only after the borrower dies or no longer occupies the property as his/her principal residence.

HECM loans are “non-recourse” loans, meaning that the borrower and his estate will never owe more than the value of the property — no other assets can be seized to repay the loan.

Some other points to remember about HECM loans:

  • HECM loans now require that the borrower show proof that s/he has sufficient income to maintain the loan (pay for the loan’s interest as well as to keep up house insurance payments, property taxes and home maintenance.
  • The borrower must continue to live in the house during the course of the loan. If the borrower dies or leaves the house, the loan becomes due.
  • HECM loan income is not taxable.
  • HECM loan income does not affect Medicare or social security old age benefits, but may affect Medicaid or social security disability payments.

New HECM Guidelines for Seniors

Up until this month, one of the most attractive features of the HECM Reverse Mortgage was the lack of income or credit requirements. All homeowners 62 and older who lived in their homes in which the mortgage had either been fully paid or for which only a small mortgage balance remained were eligible for the loan. However, as of March 2015, a series of new Federal Housing Administration rules come into play which require that potential borrowers prove that they are able and willing to keep up their loan obligations.

What precipitated these new rules was the rise in property tax defaults by HECM borrowers. Borrowers were faced with foreclosure because they had violated their obligations under the reverse mortgage contract, putting them at risk of eviction. The Reverse Mortgage was intended to ease the lives of seniors so the FHA was, understandably reluctant to proceed with foreclosures. When such foreclosures did occur, political and public relations fall-out followed, putting the FHA in a difficult position and making it harder for the agency to enforce those obligatory payments.

As of this month, the FHA is imposing income and credit requirements on loan applicants. The purpose of these checks is to ensure that borrowers have both the capacity and the willingness to pay their loan insurance, homeowners insurance and property taxes while maintaining the property – all HECM loan obligations. The new rules won’t affect existing loans that are presently in default, but the new regulations should help to reduce the default rate on new loans. To offset the cost of implementing and maintaining these services, future borrowers will now be required to pay higher origination and servicing costs. It will also take longer for the loans to receive approval.

Senior rights advocates are concerned that the new underwriting requirements that lenders apply are overly detailed, and in some respects, tougher than the checks used with standard mortgages. Some provisions go beyond the checks that pertain to standard mortgages. Senior advocates protest that this is unnecessary because, while reverse mortgages borrowers pay only taxes and insurance, applicants for standard mortgages must also pay principal and interest, which is usually much more.

Reverse Mortgage applicants who don’t meet the new criteria have a second option, called a Fully-Funded Life Expectancy Set-Aside. The Set-Aside involves setting aside funds, drawn under the HECM. Which will be reserved for insurance and property tax payments. The amount is calculated using a formula provided by FHA, which believes that the set-aide will be sufficient to assure the required payments can be met though the life span of the borrower.

A third possible option involves the Partially-Funded Life Expectancy Set-Aside. This option is available to applicants who meet the HECM’s credit requirements and are viewed as willing to meet their obligations, but don’t have enough income. In such a case, the set-aside is much smaller Via the Partially-Funded Life Expectancy Set-Aside, funds are drawn from the HECM twice a year by the servicer who then sends the fund to the borrower to make his payments.

New underwriting requirements must be applied to every applicant. Senior advocates point out that fully-funded Set-Aside imposes no burden on borrowers who have large equities while the people who need the loan the most — those with smaller houses, or homes that aren’t located in “desirable” neighborhoods — will find the new costs prohibitive.

The new rules are also seen as weak in that they mandate that the lender make the required payments under the fully-funded Set-Aside. An alternate proposal involves giving borrowers the option to make the required payments with their own funds and then adding an inducement that an equivalent amount will be transferred from the Set-Aside account to the borrower’s credit line. In this way, borrowers become responsible for their payments and the servicing costs drop. No risk would be involved to FHA since the lender will make the payments if the borrower does not.

Three Reasons that a Reverse Mortgage Might be the Right Move for You

Many seniors worry about their retirement. Some seniors are continuing to work to make up for their lack of retirement savings while others have planned for years and prepared themselves by setting aside money in 401(k)s and other investments. Some retirees rely on pensions and social security to keep them solvent during their senior years. Many seniors however, rely on their ace in the hole — the equity that they have in their homes which can be accessed via a Reverse Mortgage.

With a reverse mortgage, homeowners 62 and older are able to take out a loan which is backed by the equity that they have in their homes. The lender is repaid when the borrower no longer lives in the home or dies. Homeowners can access their funds via monthly payments or a line of credit.

For homeowners under the age of 62, there’s no easy way to draw from the equity that they have in their home. However, for seniors aged 62 and over, reverse mortgages are helpful in retirement planning. Reverse Mortgages allow the homeowner to age in his or her home while maintaining a comfortable lifestyle. Before turning 62, there’s no easy ability to draw from the equity in your house other than selling it. That’s why reverse mortgages are becoming more critical in retirement planning — they allow you to maintain your home and lifestyle, and make money while doing it.

There are numerous reasons to secure a reverse mortgage. Reverse Mortgages can be used to retire early, do home repairs, help family members financially or even travel or do some of the things that the borrower has always dreamed about. Reverse Mortgages can also be used to downsize, with the entire buying/selling/reverse mortgage transaction bundled into one convenient operation.

When financial advisors discuss reverse mortgages, they generally give these three reasons that explain why a reverse mortgage is a sound financial deal.

Investment

It’s possible to use the income from a Reverse Mortgage to invest. Some people start cottage industries while others buy a second home and rent it out for added retirement income. It’s also possible to use a HECM for Purchase and relocate — perhaps to buy a duplex that allows rental of the second unit.

Early Retirement

With people working longer and longer to make up for lack of retirement savings, it’s good to know that, via a Reverse Mortgage, they can retire, access the equity that they have in their home and live comfortably. While at one time, a $100,000 - $125,000 savings was considered adequate retirement income, that’s no longer true. By eliminating mortgage payments, it’s possible jumpstart retirement savings and income.

Peace of Mind

This is probably one of the most important benefits of a HECM loan. Borrowers are able to feel secure that they have enough monthly income to cover their expenses as they age in their own homes. Using the monthly payment option or the line of credit option, it’s possible to cover regular expenditures as well as unexpected payments including elder care.

Regardless of the specific reasons for accessing a Reverse Mortgage, a HECM loan offers an affordable and accessible option for seniors’ financial security in their retirement years.

Is This the Year to Obtain a Reverse Mortgage?

Financial analysts see that higher mortgage rates, lower down-payment loans and new mortgage regulations encompass some of the key mortgage trends for 2015. Potential Reverse Mortgage borrowers are wondering how this will affect their plans to apply for a HECM loan.

In a recent article, the Washington Post wrote” The government seems to be operating on two tracks: This year, it is introducing another set of rules aimed at preventing the lax underwriting standards that spurred the housing crisis and Great Recession nearly seven years ago. At the same time, it is addressing concerns that lenders’ stringent standards may have led to a cooldown in the housing market by putting mortgages out of reach for thousands of would-be borrowers.”

The mortgage rate now stand at 3.66% but they are expected to rise to 5% by the end of 2015. At the same time, minimum down payments for loans guaranteed by Fannie Mae and Freddie Mac have been dropping, now as low as 3%.

Some borrowers who otherwise might have chosen an FHA-insured loan may now turn to these new conventional loans, thanks to the lower monthly payments which will depend on the mortgage insurance premiums, the Washington Post wrote. However, the Post also noted that there’s also a bigger risk factor when someone makes a smaller down payment. For that reason, analysts expect that the restrictions on who can qualify for a loan with a down payment of 3% will be tighter. In addition, the cost of private mortgage insurance may rise drastically once the down payment is made, making that kind of loan much less attractive.

New Qualified Mortgage (QM) regulations, which are aimed at shoring up lenders’ underwriting policies, require that no more than 43% of a borrower’s gross monthly income may go toward their minimum monthly payment on all of their debt. Additionally, a new “Qualified Residential Mortgage” rule (QRM) will take effect, requiring that lenders keep a 5% share of mortgages on their books for at least five years unless the loan complies with the QM rules. Lenders will feel more confident about lending but that doesn’t mean that taking a conventional mortgage is the best solution for someone who qualifies for a Federally-insured mortgage.

Financial advisors who work with seniors admonish that it’s important to check out all options when building a financial plan for retirement. For some people, a conventional loan or refinancing option, might work best. However,  the reverse mortgage option continues to be attractive for individuals who plan to remain in their homes and want to access the equity that they have in their homes.

Using a Reverse Mortgage, a borrower can access up to 60^ of his home’s equity, as long as his mortgage - either totally or the majority of it - has been paid off. Payments are made in monthly payments or as a line or credit. The borrower will have to commit to maintain the home, pay the monthly interest payments and continue to keep up homeowner’s insurance, property taxes and disaster insurance.

Financial consultants suggest that a potential borrower refrain from relying on Reverse Mortgage income for daily expenses so that the borrower doesn’t overextend him/herself. But, for many seniors, the HECM program offers the best solution for accessing extra income during retirement years.

Reverse Mortgages Pros and Cons

Over the last decade, reverse mortgages have come to be seen as an easy way for seniors to cash in their home equity to pay for living expenses. However, numerous seniors have learned that improper use of the product has led to subsequent financial problems later, including foreclosure.

Reverse mortgages can be helpful to borrowers but it is imperative that the potential borrower do extensive research on the product before signing.

Overview

Reverse mortgages are special kinds of home loans in which borrowers are able to convert some of their home equity into cash. There are three types of Reverse Mortgages:

Who can apply?

Homeowners can apply for a reverse mortgage if they are at least 62 years old and have a low mortgage balance which can be paid off with the proceeds of the reverse loan, or if they own their home outright. Qualifying homeowners may also not owe federal debt and must demonstrate that they have the financial resources to pay for upkeep, taxes and insurance. Borrowers must also commit to live in the home during the life of the loan.

The following pros and cons offer a starting point as you consider this loan choice. Even though you must attend a counseling session if you’re planning to apply for a HECM loan, you should prepare yourself by learning as much about the loan as possible before you begin the process.

Reverse Mortgage Pros:

  • Reverse Mortgages provide needed cash for cash-strapped seniors who will be able to use the equity that they’ve built up in their homes for living expenses. Borrowers can select their draw method — the amount of the loan can be drawn as a line of credit or regular payments.
  • Proceeds are, in general, tax-free.
  • Proceeds generally don’t impact Social Security or Medicare payments. They may impact on Medicaid payments.
  • A borrower will never owe more than the home is worth. HECM loans have a “nonrecourse” clause which prevents the borrower’s estate from owing more than the value of the home when the loan becomes due and the home is sold.
  • Reverse Mortgages offer a solution for downsizing via the HECM for Purchase.

Reverse Mortgage Cons

  • The borrower’s heirs can’t keep the house after his/her passing unless they repay the loan. If the heirs hope to inherit the home outright, it’s best to try to find some other funding solution (family loans or other conventional loan products).
  • Reverse Mortgage fees are more expensive than conventional loans. Reverse mortgage lenders charge higher closing costs than conventional loans along with an origination fee. This adds up to several percentage points of the home’s value.
  • Reverse Mortgages are adjustable rate projects. The adjustable rate affects the cost of the loan over time.
  • If the borrower has to move out for any reason, the loan becomes due. This includes moves into a nursing home or assisted-living facility, in which case the loan becomes due after the borrower has left the home for 12 continuous months. If a non-borrowing spouse is living in the home, the spouse can continue to live there, but will not receive Reverse Mortgage payments.

In short, Reverse mortgages are popular but controversial. The loan option fits the needs of some senior homeowners but not all needs. Potential applicants should obtain qualified financial advice before applying.

What Every Retiree Should Know

Millions of retirees face financial challenges as they try to make ends meet when their income drops. For many seniors, the equity they have in their home is their largest untapped asset, yet they don’t want to make the dramatic decision to sell their family home in order to access the equity that they’ve built up over the years. Many seniors prefer to remain in their home as they consider alternative ways to gain access to much-needed income.

Reverse mortgages promise to give retirees an easy way to access their home equity, but there are technicalities that you should understand before you consider taking out a Reverse Mortgage for that purpose.

What is a Reverse Mortgage?

One of the most confusing aspects of reverse mortgages is the terminology involved. In its traditional form, a reverse mortgage involves making an arrangement with a lender in which the lender makes monthly payments to the borrower in return for full or partial ownership of the mortgaged house. Reverse Mortgages have different payment arrangements. One alternative allows you to take payments for as long as you’re alive and remain in the home. Others allow you take payments for a fixed number of years, in a lump sum, or at a time of your choosing via a line of credit. The option that you choose will affect how much you’re able to borrow — in general, the percentage of home equity that can be borrowered will be higher for older seniors and lower for those at or near the minimum required age of 62.

The Federal Housing Administration’s government-insured reverse mortgage program uses private lenders to extend reverse mortgage loans. The primary benefit of a FHA reverse mortgage is that as long as the borrower remains in the home as his principal residence, the loan doesn’t come due. Only after the borrower dies, sells the home, or moves elsewhere does the reverse mortgage become due. In addition, if the outstanding loan amount exceeds the value of the home, the government will cover the difference so that the lender is protected.

Reverse Mortgage Costs

If you take out a Reverse Mortgage you pay between 0.5% and 2.5% of your loan amount as a mortgage insurance premium. Every subsequent year you pay another 1.25% of the outstanding mortgage balance which covers insurance costs. Lenders may charge origination fees of as much as $6,000 including charges of up to $2,500 for the first $125,000 of value, 2% of the next $75,000 and 1% of any value above $200,000. There are also monthly servicing fees which can add $30 to $35 to the cost of a Reverse Mortgage.

You can incorporate these costs into the loan so you don’t have to pay them out of pocket. This, however, reduces the amount that’s available to you to borrow or receive in monthly payments.

Residency

Borrowers must continue to live in the home. When a married couple is listed as borrowers on a reverse mortgage, their joint life expectancies may result in reduced payments if one partner is significantly younger than the other partner. Some homeowners choose to list just one family member on the reverse mortgage but if the borrower dies or requires long-term care outside the home, the spouse is no longer eligible to receive the Reverse Mortgage payments (although the spouse can continue to live in the home).

Reverse mortgages can be complicated but they also offer a way for seniors to tap into their home’s equity in a way that’s consistent with the typical retiree’s lifestyle. Borrowers who are prepared for the potential issues generally find that a reverse mortgage can be a great solution day-to-day needs, while providing them with the opportunity to continue to live in their home.

Delayed Financial Assessment Rule

The Department of Housing and Urban Development (HUD) announced that it is delaying implementation of the long-heralded Financial Assessment rule. This announcement comes just weeks before the new rule was scheduled to take place.

HUD cited a delay in the delivery of “certain system enhancements” that were required to support the policies which had been published in Mortgagee Letters 2014-21 and 2014-22. In an email notice, sent to lenders, HUD explained that the Federal Housing Administration (FHA) will publish a Mortgagee Letter in the coming weeks in which a new effective date for the policies detailed in those letters will be announced.

Lenders expect that the new effective date will be within 30 to 60 days of the original March 2, 2015 date which had been announced in previous Mortgagee Letters.

HUD also announced that is has revised Home Equity Conversion Mortgage (HECM) model loan documents in which requirements to specific clauses were detailed. These clauses pertain to:

  • Life Expectancy Set-Aside
  • Revised eligible and ineligible non-borrowing spouse certifications
  • Reinstatement of the period of deferral of the due and payable status for eligible, non-borrowing spouses.

For over a year, lenders have been preparing their staffs and trainees for the Financial Assessment. HUD issued the rule in November 2014 and lenders had expected it to be implemented quickly. Assessing borrowers’ financial capabilities and willingness to live up to their HECM loan obligations has been expected to create a major hurdle for lending institutions which, as soon as the rule is put into effect, will need to invest considerable time and effort into reviewing borrowers’ credit history and other financial considerations when determining applicants’ eligibility for the loan.

HUD has recognized this difficulty and has made every effort to soften the impact on lenders by giving them time to prepare for the change. In November 2013, then-FHA Assistant Secretary Carol Galante told National Reverse Mortgage Lender Association conference attendees “We have thrown a lot at you in a short period of time. We threw a lot at ourselves. But this was necessary to get a program that will be stable from a budgetary perspective. We had to make these changes before the start of the fiscal year.”

Since that time HUD has postponed the rule several times but lenders are aware that the rule will, in time, be instituted. Representatives of NRMLA, while aware of the burden that the new rule will put on their member institutions, have welcomed the change.

In signaling his approval of the new rule, NRMLA President Peter Bell explained the NRMLA position by saying “At NRMLA, we are always concerned about protecting those aging Americans who cannot afford to meet the responsibilities of reverse mortgage loans. Financial assessment will help determine if the product is right for the potential borrower. By implementing this process, HUD is responsibly making the HECM a safer product.”

The November 2014 Mortgagee Letter 2014-22 was designed to prepare lenders to implement financial assessments for HECMs assigned on or after March 2, 2015. Lenders began training programs for their staffs in preparation for the landmark change that would seemingly appear in a matter of three months.

The latest delay gives these lenders more time to train their personnel after what, hopefully, will be the final delay.

House Democrats are Calling for Expanded Reverse Mortgage Protections

A group of 17 Congressional Democrats sent a letter to Department of Housing and Urban Development Secretary Julian Castro, calling for more foreclosure protections for Home Equity Conversion Mortgage borrowers’ spouses.

Their letter was prompted by a group of surviving spouses, whose names were not on the titles when their partners acquired HECM loans under the government reverse mortgage program. These spouses sued HUD after they found themselves threatened with possible foreclosure upon the death of their spouses. The litigation led to an order by the United States Court of Appeals to HUD to change their policy regarding surviving spouses. The policy was changed and implemented on August 4th 2015. In addition, as a result of the litigation, HUD has been drawing up a new policy for the spouses of borrowers who took out loans previous to that date.

Led by Rep. John Lewis, D-Ga., the Congressional Democrats (John Lewis, Rep. Barbara Lee, Calif.; Rep. Bobby Rush, Ill.; Rep. Henry “Hank” Johnson, Ga.; Rep. Alcee Hastings, Fla.; Rep. Keith Ellison, Minn.; Rep. Suzanne Bonamici, Ore.; Stephen F. Lynch, Mass.; Rep. Alan Grayson, Fla.; Rep. Mark Takano, Calif.; Rep. William Keating, Mass and Sheila Jackson Lee, Texas) the group asked Castro to direct HUD and the Federal Housing Administration to extend protections to all HECM-borrowing spouses – to offer them the same protections which had been given to surviving spouses of HECM borrowers whose loans were originated after August 4th.

The letter reads, in part “HUD has not taken action to protect surviving spouses subject to existing reverse mortgage loans from losing their homes. The same protections must be offered to every surviving spouse regardless of when their reverse mortgage was created.”

While the loans originated after August 4th 2014 take the new policy into consideration, the policy doesn’t relate to loans that originated before that date. This discrepancy leaves the original litigants in limbo. “Many people in this situation, where one spouse is not listed on the reverse mortgage, are in jeopardy of losing their homes,” says AARP Foundation senior attorney Jean Constantine-Davis, who took the case to court and continues to represent the original litigants.

A spokesman for the HUD didn’t immediately respond to the letter and declined additional comment, noting that HUD typically declines comment on pending litigation. This letter, he pointed out, addresses issues that are related to the ongoing legal battles.

However, documents recently filed by HUD in court suggest that, in light of the fact that policy is still pending for “non-borrowing spouses” whose partners took out loans before August 4th, HUD is currently willing to consider postponing foreclosures for borrowers in this category and has done so in at least one case.