Moving Ahead through Retirement

Imagine that you are about to retire. Your health is good, you have no debts, your Social Security benefits are about to kick in and between that, your pension and your savings, you’ll be able to make it through each month. Unfortunately, “just making it” pretty much describes the next several decades of your life.

What are your options?

If you’d like to maximize your resources by 25 – 50 percent for the rest of your life, a Reverse Mortgage may be your best bet. A Reverse Mortgage provides you with a line of credit or monthly payments that boost your retirement income.  A Reverse Mortgage is a type of loan that allows you to borrow against the equity that you hold in your house while affording you the ability to continue to live in your house.

Recent research has shown that reverse mortgages are powerful tools for senior income planning. Until now, however, objective assessments of the impact of a reverse mortgage have been lacking.


Objective studies have shown that taking out a Reverse Mortgage has a significant impact on a senior citizen’s retirement planning. In particular, selecting the line of credit draw option seems to afford the biggest lever for optimizing retirement savings and income.


In one mark-up, Jacob and Marta Richards, who are both in their late 70s, have $2000 in monthly Social Security benefits. They have $150,000 in savings and a house that’s worth $443,000. At their present situation they can budget for $30,300 in yearly income – enough to pay their taxes, Medicare premiums and house expenses and live simply. However they won’t have enough for the “extras” such as travel or home repairs.

At the present status of 3% inflation, they can take out a Reverse Mortgage line of credit and anticipate an extra $15,000 a year in purchasing power. That’s a 50.8 percent increase in real income. On the one hand, the income that they receive from their Reverse Mortgage isn’t taxable. They will have to remember that, by taking out a Reverse Mortgage, they will be building a debt against their home equity, so the amount of home equity that they will have at death will be dependent on future real estate appreciation.

In another scenario, Ralph and Maria Sanchez, aged  67 and 65, have the same $2,000 a month in Social Security benefits but only $70,000 in savings. Their house is worth $200,000. Presently they can count on $20,000 a year in income. If they take out a reverse mortgage line of credit, they can look forward to an extra $6000 in income each year, a 29.5 percent increase. It’s smaller than the increase for the Richards but is still meaningful to their budget.

The Big Picture

How do these examples help you prepare for your retirement? They demonstrate that your home equity can make a big difference in the kind of life you have during your retirement years. According to statistics, 80 percent of all households have more money in home equity than they have in combined financial assets and retirement accounts. It can make the difference between retirement squeeze and retirement comfort.

Reverse Mortgage – Bottom Line

If you’re considering applying for a Home Equity Conversion Mortgage, you’ll probably want to look at the pros and cons of the loan – the upfront costs, the loan fees, your responsibilities under the terms of the loan and your options. But when it comes right down to it, in making your decision, the bottom line will probably center around the amount of money that you’ll receive under the terms of the loan. Since this varies widely – each applicant’s payout is dependent on the equity that he/she holds in the home – you’ll need to examine the loan in light of your own particular circumstances.

Don’t forget that monthly and yearly obligatory payments, such as property tax payments, payments for the interest on the loan, homeowner’s insurance and other financial responsibilities  must be factored into the decision.

So how do you figure out that bottom line?

How Much Will You Receive?

The cost of retirement has been estimated to be almost $3750 per month, or $40,000 annually, depending on your lifestyle.  So it’s obvious that it’s important to start planning for retirement early on.

A Reverse Mortgage can help you to meet these expenses. Reverse Mortgages are available through the Department of Housing and Urban  Development (HUD) to qualifying older Americans age 62 or above. Under the terms of the loan you must:

1. retain a substantial amount of equity in your home

2. occupy your home as your primary residence

3. Demonstrate, by your credit and other financial history, that you are ready and willing to meet the loan obligations .

The amount that you will receive is based on the value of the home and your age. The exact value of the loan will be determined when you apply for your loan, though at the mandated counseling session that you attend as a pre-requisite to beginning the loan application, the counselor will be able to help you estimate how much money you will receive and how that will translate to your draw options – monthly payments or a line of credit.


Here’s an example of how HECM loan payouts will be able to help you more easily meet your retirement goals.

Arthur is 70 and his wife Patricia is age 62. Their home is valued at $200,000 and they’ve decided to use their home equity to meet their financial goals for retirement. Patricia and Arthur decide on monthly payout draw option which will be based on Patricia’s age, since she’s the youngest spouse in this scenario.

If the couple’s credit history is solid and there’s no need to create a “set-aside” funds that will cover loan expenses, the couple could, potentially, receive approximately $80,000 in a line of credit. This line of credit will increase by 4.6% each year. Alternately, they couple would be able to choose to draw their equity as monthly payments which would give them an extra $509 every month.

These options are dependent on one or both individuals retaining primary residence in their home.

Since interest rates on the loan, calculated by the U.S. treasury, vary, the exact amount may vary slightly.


This example provides a basic example of how a reverse mortgage could help Arthur and Patricia more easily meet their monthly obligations. If you’re considering a Reverse Mortgage, you should speak to a representative at a lending institution to obtain more up-to-date information about how the loan will impact on your own personal retirement situation.

HECM 3.0 — New and Improved

Home Equity Conversion Mortgages (HECMs) have evolved significantly since they were first introduced in 1989. Today they offer senior homeowners a safe and secure strategy for borrowing against their home’s equity.

Since its inception the HECM program has undergone a number of significant changes. Some of these include

· Introduction of the HECM for Purchase which allows homeowners to combine their Reverse Mortgage with the sale of their original home and the purchase of a new home – often a smaller home or one that’s closer to family and friends

· Introduction of mandated HECM counseling which is aimed at providing potential borrowers with an overview of the program from a non-biased source

· Streamlining of the loan’s draw options so that today, all borrowers pay the same insurance premium and receive the same options to draw out their money as a line of credit or monthly payments (the option to draw out the money in one lump sum was eliminated for all borrowers).

Over the last 2 years, however, the HECM program has seen its widest range of policy updates. Lenders believe that it is now entering a “steady period” which views the HECM program as one that has evolved  over the course of three phases — before the financial crisis, post-crisis and the “HECM 3.0” of today.

The Barclays bank, which has been conducting a review of the program for the past year, writes that “the new program is different from prior ones in many respects and fixes the weaknesses in the previous programs to make this a more stable product for investors, as well as a better financial risk for the FHA


In its review, Barclays notes that, prior to the crisis, HECMs were mostly floating rate lines of credit in which prepayment rates were fairly stable, there were few delinquencies and large bank and insurance originators (such as MetLife, Bank of America and Wells Fargo) dominated the scene. Investors acquired HECMs in pool rather than HMBS form.

During the period of financial crisis, reverse mortgage underwriting, was spotlighted as issues of default concerning the fixed-rate full-draw HECM product became more prominent. Once the HUD was granted Congressional authority to modify the program, program criteria was tightened to cut down on loopholes, abuse and losses.

Also during this time smaller lenders entered the market. Big banks exited the market, paving the way for smaller lending institutions to create a more personal and individual product.

The final changes, including the Financial Assessment rule and updates to the non-borrowing spouse policy, mean that most of the adjustments to the HECM program have finally been implemented. Today’s product has been termed “HECM 3.0″ because, the FHA believes, the weaknesses of the old HECM program have been cleared out and a stronger loan products is now in place.

As of October 2015 the most important changes to the Reverse Mortgage program have been completed and the program parameters are now stable. These include:

Financial Assessment

Potential borrowers will be obligated to demonstrate that they’re “able and willing” to take on a Reverse Mortgage loan. They will be required to submit financial and credit history that demonstrates that they can and will live up to their obligations under the loan, including keeping up property tax payments, insurance payments and home maintenance. If the credit/financial history is unsatisfactory, the lender may create a “set-aside” fund from the HECM’s assets from which these payments will be made.

Spouse Policy

Non-borrowing spouses can remain in the home after the death of a borrowing spouse when the lender assigns the HECM to HUD. This will defer the foreclosure process for HECM loans The lender can still pursue claim payments if the heir sells the property. Alternately, the lender can foreclose on the property and then file an insurance claim under the FHA insurance contract.

The Reverse Mortgage as a Retirement Tool

EBRI, the Employee Benefit Research Institute (EBRI), a think tank dedicated to encouraging and enhancing the development of public policy and employee benefit programs via objective research and education, has published findings that indicate that Americans are not adequately prepared for their retirement years. EBRI estimates that roughly two-thirds of Americans are relying on their Social Security benefits for their retirement income, yet that income, in reality, will only cover approximately 50% of their retirement needs.

While social security income remains the largest retirement income asset of the average American, there are two other major income sources for American retirees — retirement savings and home equity. Retirement savings is a big item in retirement planning but many seniors and their financial planners ignore home equity as a possible income source.

These are the days in which the baby boomer generation is moving into retirement. Many consultants feel that society is not prepared to provide housing resources and alternatives to this population, especially those retirees who wish to continue to live in their homes. One possible solution involves Reverse Mortgages which offer strategies that can help retirement-age homeowners remain in their long-time home, in familiar surroundings, where long-term relationships and convenience contribute to a preferable quality of life.

Focus on Home Equity

Many consultants feel that, by not focusing on home equity as part of retirement income planning, seniors are failing to properly plan and utilize all of their available retirement assets. They point out that those individuals who do make strategic use of their home equity can avoid possible financial difficulties in their retirement years. When observing the process from a public policy standpoint, such a focus might stem the overall retirement income crisis which aging Americans could be facing in the years to come.

It’s always been part of the American dream to own a home. Americans

take pride in home ownership and feel that they can build a reliable nest egg when by owning a home. Yet home ownership, in itself, doesn’t translate into savings that can be accessed to increase retirement income. When, however, it’s used as a strategy as part of a comprehensive retirement plan, home ownership becomes a positive retirement asset that brings returns and can be turned into a liquid asset.


Home Equity Conversion Mortgages (government-insured Reverse Mortgages) can be utilized as part of a retirement income plan that dramatically improves the borrower’s financial security. Potential HECM borrowers who feel that they want to continue to live in their home and aren’t worried about leaving their home as an inheritance would do well to investigate their status under the Reverse Mortgage guidelines.

Reverse Mortgages aren’t the only way to utilize home equity as part of a retirement income plan but the tool does offer many benefits. Some of these include:

1. The financial security that allows you to defer your social security benefits, so when you do start to draw benefits, you’ll receive higher benefits.

2. Untaxable income that doesn’t affect the borrower’s social security retirement benefits.

3. Income that can be accessed as monthly payments or as a line of credit, providing flexibility

HECM loans aren’t appropriate for all situations but for many seniors, they are the difference between a tight retirement budget and the option to enjoy senior years with some additional disposable income.

Reverse Mortgages: What is “Willing and Able”?

In April 2015, a new tool was put into place to determine whether a potential borrower would be eligible to acquire a Reverse Mortgage. The Department of Housing and Urban Development began to enforce a criteria that is called “willing and able” that determines that the potential borrowers are prepared to abide by the loan’s criteria and meet their responsibilities under the terms of the loan.

There are many advantages to a Reverse Mortgages. Probably the most attractive part of the loan involves the fact that, by mortgaging a property to a lending institution, the borrower is then able to count on a monthly check, or a line of credit, that provides them with extra income. After factoring in the loan costs and the percentage of the home’s equity that can be mortgaged, borrowers can count on an average of several hundred dollars in additional income, every month, to be used at their discretion.

That’s great news at a time when seniors are facing reduced pensions, higher health care costs and social security payments that aren’t keeping up with the cost of living.  However, for many years, the Reverse Mortgage’s borrower-obligations were not properly explained to potential borrowers. At first, HUD instituted a requirement that all HECM applicants undergo counseling sessions with HUD-approved, non-lender affiliated counselors to learn more about the loan before signing on the dotted line.

The numbers of Reverse Mortgage foreclosures, due to owner misunderstandings, inability or unwillingness to meet their loan obligations, continued to climb. By 2012 HUD reported to congress that they were experiencing a 16 billion dollar shortfall in their insurance fund, largely due to HECM foreclosures.

By April HUD had successfully introduced the “Willing and Able” rule which asserts that HECM applicants must submit documents that will demonstrate that they are willing and able to maintain the home that has been mortgaged through the HECM loan and pay for regular upkeep including property tax payments, homeowner’s insurance, flood insurance (where necessary) and the monthly insurance premium.

The “willingness” part of the assessment is conducted by a review of the potential borrower’s past performance and credit history. The “ability” refers to the individual’s income and assets versus his/her expenses.

A HECM borrower who is “willing and able” would be, ideally, someone who has a good credit history, can demonstrate that s/he pays his/her taxes and insurance payments on time and doesn’t have any outstanding liens or debits.

In cases where the potential borrower cannot prove that s/he is “willing and able,” the lender may set up a “set aside” fund in which a portion of the income from the home will be put side, in the lender’s care, to automatically make the needed payments. This solution does put an extra financial burden on the borrower who will have to pay an additional fee for the service.

Financial advisors and consultants believe that the “ready and willing” rule will return the Reverse Mortgage to its original objective – to function as a retirement income tool, rather than as a life jacket for cash-poor but house-rich retirees. They caution, however, that Reverse Mortgages are not the right tool for everyone. For some, a 30-year traditional loan could offer a more advantageous solution. Every potential borrower should review their own personal financial situation to find out how to proceed with such a decision.

Reverse Mortgage Stabilization Act of 2013 – Customer Safeguards

If you’re exploring the Reverse Mortgage option, check out the new book by Shelley Giordano, What’s the Deal with Reverse Mortgages. Giordani is the principal of a Reverse Mortgage Consulting Firm, the  Longevity View Associates. She also acts as the chair of the nonprofit Funding Longevity Task Force. Giordani’s book can help you understand your Reverse Mortgage options which include using lines of credit verses monthly payments, fixed versus variable loans and all of the mortgage fees.

In her book Giordano discusses the merits of (HELOCs) – home equity lines of credit, as opposed to lines of credit offered by HECM loans. The HECMs are FHA-insured open-ended reverse mortgages. HELOCs, Giordano writes, have significant disadvantages to the borrower since borrowers are obligated to repay principal and interest with a HELOC whereas under a HECM loan there is no such obligation. Lending institutions can cancel a HELOC loan if there is reason to believe that a borrower has insufficient assets or income while borrowers with a HECM line of credit aren’t vulnerable in this way.

Many financial analysts believe that one of the significant disadvantages of a HECM involves the high closing costs. First of all, closing costs differ from lender to lender, so it’s important to shop around – even if you have a lender that you want to work with, find out what the closing costs are with different lenders and then use that information to negotiation the best deal for yourself. Some financial institutions are offering, at present, reverse mortgages with closing costs as low as $250. Don’t forget to check the interest rates though – there may be a tradeoff for lower closing costs.

If you intend to maintain a line of credit for a long period of time, most financial advisors believe that the HECM offers significant advantages over the HELOC – provided that  you can obtain a HECM with very low (or no) closing costs.

Reverse Mortgage Stabilization Act

The Reverse Mortgage Stabilization Act of 2013 was a game-changer in the Reverse Mortgage industry. The act was created to provide safeguards for consumers, lenders and the FHA which insures the loan. The act introduced financial assessments for borrowers. These financial assessments are intended to form  the basis for HECM loan approvals and ensure that borrowers would have the financial wherewithal to pay real estate taxes and homeowner insurance and maintain their homes, as stipulated by the loan contract. Prior to this reform, there was a high rate of foreclosures with the loan, causing foreclosures and evictions (and big insurance payouts from the FHA). Today, as long as a potential borrower can meet the financial assessment requirements and maintain his/her residence in the home, there is no danger of foreclosure.

Prior disadvantage was also addressed by the Act of 2013. Previously, if the borrower who signed on the loan died or left the house, the surviving spouse was obligated to repay the outstanding loan in order to remain in the home. Now, a non-borrowing status (NBS) has been created in which the widow(er) is able to defer due and payable status within 90 days after the death of the last surviving borrower, thereby establishing legal ownership to remain in the property.

Seniors who are looking for extra income should consider a Reverse Mortgage but only after other options, such as downsizing or selling and renting an apartment, have been examined. Also, if you feel that it is important to leave equity to your heirs, a reverse mortgage isn’t your best option since there is no guarantee that there will be equity left after your death.

Don’t forget – you must complete a counseling session with an approved FHA counselor before you apply for a reverse mortgage. In addition to the counselor’s advice, you should also consult your own financial adviser or attorney before you make your decision about which type of mortgage is best for you. And don’t forget to comparison shop in order to select a lender whose terms are the most cost-effective.

What Can You Expect From a Reverse Mortgage Counseling Session?

Reverse Mortgages are popular borrowing options for older Americans. But before you can start the process of applying for a Home Equity Conversion Mortgage (HECM) loan, the Department of Housing and Urban Development mandates that you attend a reverse mortgage counseling session. What does that mean?


To get approved for a HECM loan, you must attend a counseling session with a HUD-approved counselor. These counselors have received training in Reverse Mortgages and can provide you with a complete picture of the loan, its pros and cons, and your rights and responsibilities under the loan.

Your lender can suggest counselors or counseling agencies in your area, but counselors and lenders are forbidden from working in conjunction with each other, so the lender must present you with at least three counseling alternatives. Alternately, you can (and should) check out possible free counseling sessions which are often offered by local housing rights groups, senior citizens organizations seniors rights advocates.

Every session is individualized, and will take into account your specific circumstances (your income, your age, your marital status, your expectations for leaving property to heirs, etc). In Massachussets you can complete the session by phone, but in most states, you must complete the session in person. If you are married, you must bring your spouse to the counseling session, even if s/he is not going to be signing onto the loan.

So, what can you expect from your Reverse Mortgage counseling?

How a Reverse Mortgage Works

The counselor explains how a reverse mortgage works. You will learn more about the Federal Housing Administration, which is the administering agency that oversees the program. You’ll learn what the HECM limit is, about the Standard HECM versus the HECM for Purchase (where you can combine your purchase of a different property with your HECM loan) and what draw options you have.


Every case is individual and the counseling session will take that into account. You will present the counselor with individual information about your present and expected income, your present financial obligations, your home’s estimated worth and any other information that may be relevant to a Reverse Mortgage Loan. The counselor will help you do the math so you can see how much of your home equity you’ll be able to access and how that will translate into a line or credit or monthly payments.

The counselor will also help you compare your options with other financial tools or loan so you can get a better idea of the choices that are available to you.

Loan Obligations

It’s important for you to understand your obligations under the terms of the loan. What loan costs exist? (third party costs such as the fees that you’ll need to pay to the lender to initiate and administer the loan). How will the loan’s interest rate affect you? What monthly payments will you need to make to maintain the loan? What other payments (home insurance, tax payments, home maintenance) will you be obligated to maintain? And what will the consequences be if you don’t fulfill these responsibilities?


If you’re married or have some kind of relationship in which another individual expects to be able to live in the house after you die or otherwise must leave the house (partner, adult child, etc), how does a Reverse Mortgage impact on that individual? The counseling session will cover this information.

Loan Acceptance

Recent changes have made it mandatory for the lender to investigate your credit history to ensure that you are able and willing to maintain the loan. How might this affect your application? What can you do if your credit history shows that your past credit history or repayment history is unsatisfactory? The counseling session will discuss the set-aside fund which the lender may set up with some of your loan funds, which will cover these expenses and still allow you to take out a Reverse Mortgage.

The goal of the session is to educate you about the loan, not to convince you one way or another.  Weigh all aspects of the loan so that you’ll make the best decision for you and your family.

Reverse Mortgage Draw Options – Choose the Line of Credit

The Reverse Mortgage is promoted both as an option that allows seniors to add to their retirement income and as a “loan of last resort” for retirees who must access the equity that they hold in their home in order to meet regular expenses.

The HECM loan was initiated in 1989. Slight revisions have been made to the loan over the years. However, in 2012, Congress directed the Department of Housing and Urban Development to make significant changes to the loan structure. Congress wanted to more thoroughly protect borrowers AND the Federal Housing Administration which insures the loan, after it was revealed that the FHA had amassed a 1.6 billion dollar deficit due to payouts for defaulted loans.

There have been, and continue to be, many discussions over various aspects of the loan. However, most lenders and senior financial advisors agree that the line of credit feature offers borrowers the best option for using their HECM proceeds in their retirement planning.

Since 2012, some of the changes to the Home Equity Conversion Mortgage (HECM) program have made reverse mortgages a more sustainable product for the FHA as well as for borrowers and their non-borrowing spouses. Now, more than ever,  qualified borrowers who could benefit from a HECM are exploring the Reverse Mortgage option, since they see more clearly how a reverse mortgage can function as a viable supplement to a senior borrower’s retirement portfolio.

In particular, the line of credit feature is seen as the ticket to helping the HECM ditch that “loan of last resort” reputation and be viewed as an integral part of an individual’s retirement planning. Associate professor of finance in the John E. Simon School of Business at Maryville University in St. Louis, Dr. David Johnson, comments “If you are talking about planning, then yes, that has to be the focus”

A  line of credit for a Reverse Mortgage offers borrowers who are planning for the long-run and not seeking a last resort peace of mind. With the line of credit they know that they will have needed funds at their disposal. The interest on the funds allows the kitty to grow and the borrower(s) can use those funds at their discretion — to supplement monthly income, pay for unexpected health emergencies or delay drawing Social Security benefits.

Dr. Johnson says that “clearly, there are so many different ways you can use that line of credit. I’m confident that if you do a reverse mortgage and have a line of credit - whether you access it or not - it still changes people’s minds and gives them peace of mind knowing they have money that they can access in a short period of time if they need to.”

Johnson demonstrates the various ways that borrowers can use the line of credit. “It’s almost like a nest egg that’s going to grow even if you may not need the funds right now.

In his paper titled “Retirement Trends, Current Monetary Policy, and the Reverse Mortgage Market” Johnson discusses current and future challenges with which retirees must contend. He demonstrates ways in which a reverse mortgage can be used to provide supplemental retirement income.

The standby reverse mortgage line of credit, he points out, aids in retirement planning as it benefits borrowers who are thinking of ways to fund their senior years.

Johnson commented that “We need to start thinking about and planning what we’re going to do in the future, because most of us are going to outlive our assets and if we don’t have some alternative, it’s going to be much tougher when it occurs.”

He acknowledges, however, that, while reverse mortgages have the potential to help many retirees, lack of education is still the biggest impediment to greater utilization.

“You can’t force people to become educated… If someone out there has a strong opinion that there’s something wrong about reverse mortgages it’s difficult to change their opinion… People don’t realize how creative you can be; how many different ways you can use it; and how it makes sense to set it up now even though you may not need it now, because you can use it in the future.”

Changes in Reverse Mortgage Rules Saves Homes for the Surviving Spouses

HUD has again changed its policy regarding the rights of surviving spouses in regards to Reverse Mortgages. Now loan servicers can assign a reverse mortgage loan, in which there is a surviving spouse, back to HUD. The lender can then make a claim for money owed against the FHA insurance fund.

Nation’s Housing

Following the passing of Gerald Marciano in March of 2014, his widow, Alva, got bad news. Her mortgage company informed her that if she didn’t come up with $118,000 –— the amount of principal, loan fees and accrued interest that had built up by the reverse mortgage on the home that she and her husband had owed for the past 22 years — they would foreclose on the home.

Alva didn’t have the money and there were no family members from whom she could borrow the cash so she got ready for eviction.

What happened? Alva’s situation is similar to that of an estimated 12,000 widows and widowers around the country. As a “surviving spouse” whose name does not appear on the reverse-mortgage contract, she had no rights to stay in the house once her husband, the sole signer on the HECM loan, had passed away. Alva and Gerald had been assured, multiple times that, in the event of her husband’s passing she would be able to live in the home indefinitely. In reality however Alva had no protection once the sole signee on the contact was no longer living in the house. .

Alva remembers that the mortgage company was sympathetic but unwavering. “They expressed their sympathies and said that they were sorry about my husband’s passing but the letter that they sent gave me no leeway. They demanded that I pay up what’s owed or they will foreclose. They noted that this is what is required under federal reverse-mortgage rules.”

If this had happened two years ago, Alva would have been out of luck. However, her husband passed away at a time in which the courts have taken an interest in this aspect of the HECM loan and have ruled that the FHA must do more to prevent these types of foreclosures.

Reverse Mortgages were created as a way to allow seniors 62 and older to withdraw funds against the equity that they have in their home. They do not have to pay back the debt until they die, move or sell the property.

For many years HUD enforced the section of the loan agreement that stipulated that the loan would be closed when the borrower died or left the house. But there have been lawsuits over the controversial rules regarding partners whose names were not included on the reverse-mortgage documents but who live in the home.

Some loan brokers promised a higher payout if only the older spouse was listed on the note. In other cases one spouse had not yet reached the required borrower threshold age of 62. Many of these individuals believed that they could have their name added to the contract when they reached 62 but either didn’t follow through on it or didn’t want to pay the resulting fees which could reach thousands of dollars.

Now, non-borrowing surviving spouses are covered under the new HUD policy. The lender can assign the loan back to HUD and make a claim for money owed from the agency’s FHA insurance fund.

It looks like Alma will be able to stay in her house after all. 

Where does the HECM Non-Borrowing Spouse Rule Stand Today?

The Department of Housing and Urban Development (HUD) continues to look for ways to deal with Home Equity Conversion Mortgages (HECMs) mortgagees and servicers vis-à-vis non-borrowing spouses.

In an August 24, 2015, letter to the National Reverse Mortgage Lenders Association (NRMLA), HUD followed up on their January 9, 2015 letter by continuing to reject industry requests for a more precise definition of a Non-Borrowing Spouse vis a vis Reverse Mortgages. NRMLA had also asked for an explanation of the non-borrowing spouse’s “legal right” regarding his/her right to remain in the mortgaged property following the death of the spouse. Lenders have been asking HUD for more information for months as they try to determine if, when and how to grant Non-Borrowing Spouses a deadline extension that will allow them to stay in the home.

Since the early days of the HECM program, HUD has been interpreting the regulations strictly. Their interpretations indicated that, upon the death of the last surviving Reverse Mortgage borrower, the lender would be able to call the debt due. This would be indicated even when the borrower was survived by a Non-Borrowing Spouse. If necessary, foreclosure proceeding would be initiated.

However, the U.S. District Court for the District of Columbia determined that interpreting the rule in this was was inconsistent with the statute that authorized the HECM program. In 2013 and again in 2014 the court ordered HUD to develop a plan which would, allow Non-Borrowing Spouses to continue to live in the mortgaged property when their borrowing spouses died.

HUD’s first response was published in January 2015. It established the Mortgagee Optional Election Assignment (MOE Assignment). Under this clause, HECM servicers and mortgagees would be able to assign the loan to HUD. The conditions that the non-borrowing spouse was obligated to meet included lack of any other HECM default and the ability to obtain “good, marketable title to the property or a legal right. The non-borrowing spouse was expected to produce these within 90 days after the borrower’s death – a hardship for many grieving widows and widowers. In addition, in order to continue to live in the home, the non-borrowing spouse was obligated to make a  one-time “Principal Limit” payment,  calculated on the basis of the difference in age between the borrower and the Non-Borrowing Spouse. This could, in some cases, involve payments of  tens of thousands of dollars, and senior advocates objected that it was an effective barrier for many Non-Borrowing Spouses who didn’t have the cash to take advantage of the MOE Assignment and remain in the mortgaged property.

In the face of threatened court legislation, HUD rescinded the MOE Assignment option on April 30, 2015 and, on June 12, 2015, redesigned the rule so that Principal Limit payment was eliminated. As of today, non-borrowing spouses are required to show, within 90 days of the borrowing spouse’s death, documents that they have “good, marketable title to the property or a legal right to remain in the property for life.” These documents may include a court order or executed lease but other options exist as well, and, as of now, HUD has refused to detail alternate ways in which the non-borrowing spouse would be able to demonstrate — within 90 days after the borrower’s death – their legal right to continue to live in the house.

In addition, HUD has not been helping in providing information to lenders that would give them guidelines to grant Non-Borrowing Spouses an extension to this deadline (for example, in a case in which the borrower’s probate proceedings are contested or are taking longer than 90 days.)

At this point HECM lenders are making the judgment calls about whether a Non-Borrowing Spouse can remain in the mortgaged property. These calls are based on the nuances of each state’s real property law. Legal experts say that such individual calls will lead to inconsistent outcomes based on where the property is located and who is servicing the loan. Senior advocates are concerned that the HUD’s approach may prevent a Non-Borrowing Spouse from remaining in a mortgaged property for illogical reasons – due to court delays or incomplete paperwork.

If HUD is interested in following the court’s directive to create regulations that adhere to the spirit of the HECM loan, they must work with the lenders.

A New Approach to Protecting HECM Consumers

Consumer advocates worry that HECM borrowers don’t really know enough about the loan, or how the loan works, when they sign on the loan. Reverse mortgages work differently and are much more complicated than forward mortgages – the typical type of mortgages that the people use when they purchase a home. The discrepancy between naïve borrowers and knowledgeable lenders worries many consumer advocates. Some steps which have been taken, and are still being taken, include:

Mandatory Counseling and Mandatory Disclosures

The Federal Government has attempted to educate potential HECM borrowers through mandatory disclosures and mandatory counseling. While consumer activists applaud the effort, they point out that these rules are limited and don’t adequately address the need to educate consumers.

Under the HUD’s directive, lenders cannot accept applications for HECM reverse mortgages until the potential borrower delivers a certificates which attests to his/her having been successfully counseled by a HUD-approved counselor. This counselor must be independent of the lender. Most borrowers find their counseling experience useful. However, critics note that it does not protect seniors from taking a Reverse Mortgage when they would do better without one. Few seniors opt out of the process as a result of counseling, suggesting that the process doesn’t push them to think about whether or not they really need a Reverse Mortgage.

Consumer advocates and senior advocates would like to see a counseling service that helps the individual decide whether or not s/he REALLY needs a Reverse Mortgage.


At present, the counselor advises the individual on certain aspects of the HECM transaction:

* Options for drawing cash upfront

* Amounts that can be drawn monthly for as long as the borrower lives in the home.

* Amounts that can be drawn monthly as a line of credit.

* Any combination of these draw options.

* How the loan will affect the borrower’s heirs

* How the loan will affect the borrower’s taxes and social security

* How the loan will affect spouses – both borrowing and non-borrowing

*  The borrower’s future financial status in connection with their draw decision.

* Initial and future costs to the borrower, including loan costs and future monthly fees and expenses.

* The combination of interest rate and origination fee

Avoiding a Second Counseling Session

It is advised that seniors combine counseling with financial advisors – specifically, financial advisors who specialize in senior finances – and HUD counselors to get a full picture of the HECM loan.

Reverse Mortgage to Purchase a Home: HECM for Purchase

Many seniors who investigate the options available to them for downsizing find that they have some hard decisions to make. They may have a substantial amount of equity in their current home and must then decide whether they should take out a loan and prepare to pay mortgage payments on their reduced retirement income or whether they should pay cash and tie up their liquidity.

HECM for Purchase

The FHA offers a solution to this quandary which can work well in certain circumstances. The HECM for Purchase is a reverse mortgage that allows you to purchase a home with the proceeds of your home sale through a reverse mortgage. This process gives you liquid income, together with your new home purchase, all in one transaction. Reverse mortgages allow the borrower to remain in the current home while also offering a good financial tool for retirement planning.

When you take out a HECM for Purchase, you sell your existing home and buy another home, all through the Reverse Mortgage procedure. You won’t have any principal or interest payment obligations. You then mortgage your new home to the lending institution but you retain the right to continue to live in that new home until you die or leave the home. No down payment will be required on your new home and your obligatory payments are limited to the Reverse Mortgage’s third-party costs, closing costs, home maintenance, home insurance, property taxes and loan insurance costs.

If there is equity left after you purchase your new home the lending institution will facilitate a line or credit or monthly payments to you. After you close the HECM loan the interest on the outstanding balance will accrue monthly, meaning that the loan balance grows over the years.

Loan Repayment

When you die, sell or move to a new home, or if you can no longer live in the home for a 12-month period (if, for instance, you move in with a child or move to a long-term care facility) the loan becomes due. Then there are different options available for you or your heirs.

If you are still alive or your heirs don’t have any interest in keeping the home, the lender will sell it and the loan and accrued balance are paid off. You and your heirs will never owe any money on the loan — if the proceeds aren’t enough to cover the cost of the sale and the accrued interest, FHA will pay off the difference from its insurance fund. This is a no recourse loan so, in such a case, there are no penalties levied against the borrower or his estate. If one spouse dies and the second partner is still living in the house, that second partner may continue to live in the home, provided that they had been listed on the original loan. Current court cases have left open the question of what will happen to non-borrowing spouses in the event that they were not on the loan from the outset.

If both spouses are deceased, their heirs have first rights to purchase the new home at 95% of the appraised value.

Prepare for the New HEMC Rules

As with a Standard HECM loan, HECM for purchase borrowers must demonstrate the ability and resources to meet HECM obligations (property tax payments, MIP insurance payments, home maintenance payments, home insurance payments). A standard formula, used by the lender, assesses the potential borrower’s readiness and willingness to pay loan costs. The lender checks the borrower’s liquid assets, income and past credit history. Seniors with a higher income require fewer liquid assets to qualify for the loan, those with more liquid assets require less income, etc.

If a potential borrower shows a chronic history of late payments, at a time that he had the ability to pay, his request for a HECM loan would undergo more scrutiny. If, however, his credit rating was impacted by a medical emergency or some other such sudden occurrence, the assessors will take that into consideration when deciding on his loan request.

Considering a HECM loan? Prepare Yourself to Get the Most out of your Reverse Mortgage

Imagine that you’ve been blessed with a wonderful family, good friends and a supportive community. Your children are off on their own and they’re not interested in living in your house when you no longer need or want to live there. You might want to leave it to the kids so that they can sell it and divide the proceeds among themselves. However, if you feel that you could benefit from an infusion of some extra cash of your own you can mortgage your home to a lending institution under the HECM program and continue to live in the home while you draw on the equity that you have in the house.

Types of Reverse Mortgages

There are two main types of Reverse Mortgages so it’s important to know the differences. Being prepared allows you to choose the option which is right for you.

Reverse Annuity and Home Equity Conversion Mortgages

Both the proprietary reverse annuity mortgage and the Home Equity Conversion Mortgage involve an agreement between you and the lender in which you borrow against existing equity in your home.

The Home Equity Conversion Mortgages (HECM). which is insured by the FHA, is the most common of the two.

HECM loans allow you to access a percentage of your home’s worth and draw the money in monthly payments or as a line or credit. This type of loan gives you the flexibility to have an infusion of ready cash. Your payments are delivered in increments to make sure that you don’t run out of income as you age. One of the biggest benefits of the HECM loan is that it is backed by the FHA which protects your investment.

The HECM program offers two options – you can access your home equity as cash (Standard HECM) or use your home equity to purchase another home (HECM for Purchase). Either way, you must meet the program’s guidelines which demand that you demonstrate that you are able and willing to meet your loan responsibilities. You will be obligated to pay the monthly interest payments, stay current on your homeowner’s insurance and property tax payments and maintain the home.

You must also pay the loan’s third-party costs which include an appraisal of the property, surveys, inspections, title search and insurance, recording fees, mortgage taxes, credit checks and monthly management fees.

The biggest benefit of this type of Reverse Mortgage is that you are protected, through the FHA’s insurance fund, if your lender is no longer able to carry your loan.

To qualify for a HECM loan you must

· be at least 62 years old.

· show proof that your home meets certain building requirements.

· have equity on your home.

· have undergone reverse mortgage counseling.

· show proof that you are able and willing to maintain the loan (good credit statement, past financial history, other income, etc)

Private (Proprietary) Reverse Mortgage

There are also non-FHA backed loans, commonly referred to as a private or proprietary reverse mortgage. These types of mortgages are solely based upon existing home equity and income and credit scores. They often come with higher interest rates and higher fees than the HECM loan because they are privately backed and are offered by private lenders.

Research all of your options if you are considering a reverse mortgage loan.

Consumer Financial Protection Bureau and Reverse Mortgage Advertising

Reverse mortgages are marketed to senior homeowners. These advertisements can be found on many major media channels including print, television, radio and internet. Oftentimes the advertisements feature celebrity spokespeople who describe these Reverse Mortgage loans in glowing terms.

The Consumer Financial Protection Bureau (CFPB) recently issued a report, based on their review of such advertisements. They examined marketing materials from a cross-section of lenders in five large urban U.S. markets. Among the CFPB’s findings:

Many of the ads were confusing and incomplete. They provided inaccurate information about borrower obligations, interest payments, government insurance, and general loan risks. In addition, many seniors who viewed the ads as part of the study’s focus groups were confused or had misconceptions about many of the features and terms of reverse mortgage loans.

For example, the CFPB study revealed that it was not clear to potential borrowers that the Reverse Mortgage must be repaid with interest. In addition, the role of the federal government, as an insurer of the reverse mortgage, was not understood, and many of the ads’ viewers believed, after watching the commercials, that the government offers protections for loan consumers that it, in fact, does not.

The report raised concerns among consumer advocates, specifically advocates for seniors. Reverse mortgages are complex loans and older, financially vulnerable homeowners can become trapped by the loan if they don’t understand all of their responsibilities under the loan and the loan’s implications. Reverse mortgages can help many older homeowners meet their financial needs. However, if used improperly, a reverse mortgage can jeopardize retirement security.

Reverse mortgage marketing promotes the use of mortgaging home equity as a way to supplement retirement income. It is, however, important that the advertisements not confuse or mislead prospective reverse mortgage borrowers, and that potential borrowers be fully aware of the terms and potential risks of the loans. In addition, there are costs to the loan which are not always spelled out. It can be difficult for even sophisticated consumers to estimate and understand the full implications of a HECM loan.

With the release of the report, the U.S. Department of Housing and Urban Development (HUD) began to take steps to address misleading or incomplete reverse mortgage marketing practices. HUD’s Mortgagee Letter 2014-10 (ML 2014-10), released in June of 2014, reminds lending institutions of the Federal Housing Administration’s (FHA) prohibitions of misleading or deceptive advertising.”

ML 2014-10 clarifies that the there are FHA prohibitions on using misleading or deceptive descriptions of Reverse Mortgages, also known as Home Equity Conversion Mortgages (HECMs).

The CFPB would like to see the following issues addressed:

1.The HECM loan is a LOAN, and, as with any loan, must be repaid. In the case of a HECM loan, the loan must be repaid when the borrower dies or leaves the property.

2. The borrower accepts obligations to maintain the loan. The borrower must commit to paying property taxes, homeowner’s insurance, home maintenance and the loan’s interest payments.  If the borrower does not maintain these payments, the loan may fall into default and the lending institution may foreclose.

3. There are third party costs to the loan, such as title search, origination fee, third party closing costs (title insurance, appraisal, recording fees, etc),  In addition, a credit check is done for every loan applicant, and the applicant must pay for this process as well.

4. Non-borrowing spouses may not automatically assume that they will stay in the home upon the death of the borrowing spouse. Presently, the process that a non-borrowing spouse must undergo to stay in the home is unclear and the matter is in the courts. It’s safe to say, however, that right now, the position of a non-borrowing spouse is not defined and the spouse’s position is shaky, at best.

Pay Attention to New Reverse Mortgage Rules, Protections and Cautions

The surviving spouses of HECM borrowers are now better protected against eviction. A rule, recently issued recently by the Federal Housing Administration, aims to clarify the steps that spouses need to take to prevent foreclosures. However, new study by the Consumer Financial Protection Bureau has determined that borrowers may still get into trouble due to potentially misleading advertising.

On June 12th 2015 the FHA announced a policy change that affects non-borrowing spouses of Reverse Mortgage borrowers. Potentially, any such spouse who is able to prove that s/he was legally married to the borrower, that s/he maintains primary residency in the home and has the legal right to stay in the home, will be able to continue to live in the home after the borrowing spouse dies. This is effective regardless of when the loan was made. According to the new rule, lending institutions can transfersuch loans to the Department of Housing and Urban Development upon the passing of the borrowing spouse. If the non-borrowing spouse agrees to accept responsibility for the tax, insurance and loan interest payments, s/he will be able to continue to live in the home. The surviving spouse must also commit to maintain the property as per the original agreement.

Reverse Mortgage Ads Continue to Confuse and Mislead

Reverse mortgages offer seniors, aged 62 or older, the opportunity to access the equity that they have on their home. Through the HECM loan the individual can take out a mortgage which is based on the equity.  Until the FHA revised its rule in June, Home Equity Conversion Mortgage contracts required that such loans be repaid upon death of the borrower. If only one spouse signed on the Reverse Mortgage, when s/he died, the house would revert back to the lender. If a second partner was still living in that house, the lender could foreclose on the mortgage and evict the non-borrowing spouse.

A Reverse mortgage loan can be a lifesaver. However, the costs of the loan, including origination fees, closing costs, and interest which must be paid monthly on the principal, make it questionable as to whether the loan is appropriate for everyone. In addition, there are still risks – if you don’t keep up on your property taxes, insurance payments or home maintenance, the lender may foreclose.

Recently, a Consumer Finance Protection Bureau study pointed out how reverse mortgage advertisements don’t fully disclose those risks. CFPB regulates loans and credit products and follows the process of the loans to ensure that they offer the public the best option possible for their needs. The CFPB report demonstrated that many ads for HECM loans are incomplete and sometimes don’t provide an accurate description of the loan. According to the report, key loan requirements “were often buried in fine print, if they were even mentioned at all.”

The CFPB report concluded that consumers have been – and still can be — misled into signing on a HECM loan even though they don’t fully understand all of the implications of the loan.

CFPB reminds potential borrowers to make full use of the counseling sessions, with HUD-approved counselors, that are mandated by the FHA. Read up on the loan even before you begin the application process so that you’ll know which questions to ask of the counselor.

It’s also a good idea to calculate your existing expenses. If a potential borrower can’t keep up with his property taxes, home maintenance and homeowners insurance, he could risk foreclosure by taking on a Reverse Mortgage.

New Forms and Rules are Designed to Protect Reverse Mortgage Borrowers Consumers

The Consumer Financial Protection has put together a summary of the new rules and forms that potential Reverse Mortgage borrowers will encounter, in order to better prepare these borrowers for the process ahead.

Some highlights of the new information:

New rules and forms are aimed at making mortgage information easier for borrowers to understand are scheduled. These new forms will debut on August 1st 2015. The new forms include a comparison of loan terms so that borrowers will be able to determine whether final terms are significantly different from a lender’s initial estimate.

The Dodd-Frank financial reform law, passed by Congress in 2013, directed the Consumer Financial Protection Bureau to combine older disclosure documents that had been required by two different federal laws. Forms based on the Truth in Lending Act and the Real Estate Settlement Procedures Act have not been organized anew and will be used for all HECM loan applications submitted on and after Aug. 1.

Andrew Pizor, a lawyer with the National Consumer Law Center,  said “The forms are going to look very different. They look a lot nicer and easier to understand.” Representatives of mortgage lenders also believe that the new forms are an improvement on the old forms because they have been designed to be complementary which allows borrowers to easily put them side by side for easy reference. “They can easily compare and see if anything has changed” one lender said when referring to these forms.

Under the new Reveres Mortgage rules, borrowers will receive a newly designed loan estimate no more than three days after submitting an application. The form with the estimate will include information such as the loan amount, interest rate, loan costs and monthly payment.

Then, at least three days before a closing is scheduled, applicants must receive a closing disclosure which will give them time to review the terms of the loan and ask questions. The five-page disclosure is intended to summarize the terms of the loan and list what the borrower will need to pay at closing. Currently, such information is often not shared with a borrower until just before or even at the closing, at a time when the borrower feels that he’s under pressure to sign documents and complete the loan and doesn’t have the time or the emotional strength to back out of the signing.

After that disclosure, if any items change — an increase in the annual percentage rate, an addition of a prepayment penalties or a move from a fixed-rate loan to an adjustable-rate loan — the borrower must be given an additional  three business days to review the loan terms.

The bureau finalized the new rules in late 2013 but delayed implementation until August 1st 2015 to give the mortgage industry time to prepare. Some lenders and other industry participants have indicated that they are worried that adoption of the new forms and rules may cause delays for borrowers. The CFP, however, believes that any disadvantages that are caused by the new forms and rules are more than compensated for by benefits to potential borrowers. Bureau director, Richard Cordray said that “most market players have put themselves in position to be ready by August, and others are getting ready as well.” Relating to lenders who are asking for a grace period to allow them to get used to these new rules, CFP officials are unsympathetic. “They have had a lot of time to get ready,” Pizor noted.

Don’t Apply for a Reverse Mortgage Until You Fully Understand the Loan’s Pros and Cons

You have probably seen ads that promote Reverse Mortgages. These ads seem to promise the moon, with headlines such as “A Reverse Mortgage Can Provide Financial Freedom for Your Retirement” and “A Reverse Mortgage can Revolutionize your Senior Years.” For individuals who are exploring the options of taking a Reverse Mortgage, it’s important to remember that ads are just that – advertisements which purport to provide potential borrowers with all of the reasons that they need to take out a Reverse Mortgage.

Many potential borrowers are so bowled over by the thought of obtaining cash based on the equity that they hold in their home that they forget that the ads only tell half the story. According to a recent study by the Consumer Financial Protection Bureau, most reverse mortgage ads leave out important information about the loan. In the best circumstances, seniors are confused, while in the worst case scenario, they think that the loan offers benefits which in reality are unattainable. These individuals aren’t sufficiently prepared for the obligations that they assume under the loan’s terms.

Here’s a summary of the Reverse Mortgage, including the pros and cons that you should consider before obtaining such a loan.

A reverse mortgage is a special type of loan which is available to homeowners aged 62 years or older. The loan allows borrowers to convert their home equity into cash. The loan’s balance becomes due, with interest, when the borrower dies, moves, or sells his/her house.

Some important points about the Reverse Mortgage:

*A reverse mortgage is a loan, not a benefit. The CFPB study shows that many seniors don’t understand this point, mainly due to the ads which imply that obtaining a Reverse Mortgage can assure the borrower financial security for the rest of his/her life. It’s important to understand that the terms of the loan state clearly that Reverse Mortgage borrowers maintain responsible for paying  homeowner’s insurance and property taxes after they’ve taken out the loan. They are still responsible for maintaining their property. Failing to meet these requirements, along with failure to pay the loan’s monthly interest charges, can trigger a loan default that will result in foreclosure.

*A reverse mortgage is not a government loan. Ads often leave seniors with the false impression that a reverse mortgage is a risk-free government benefit with federal protections. The lending institution, which is a commercial enterprise, originates the loan and collects its fees. The loan is insured by the Federal Housing Administration. This insurance protects the borrower in case a lender goes bankrupt and protects the lender in case the borrower defaults. But the FHA DOES NOT originate the loan, nor does it accept responsibility for borrowers who don’t meet their loan obligations.

*The requirements of the HECM loan are often unclear to the potential borrower. Many of the reverse mortgage ads that were reviewed by the CFPB did not mention critical information about the loan such as interest rates and repayment terms.

As you can see, it’s important that potential HECM (Home Equity Conversion Mortgage) borrowers and their families educate themselves on how the reverse mortgage really works. These mortgages are fairly complicated, and it’s important to understand the terms and risks.

Reverse Mortgages are particularly appropriate for:

1.A person who doesn’t qualify for a home equity loan or a line of credit – the looser credit and income requirements make it easier to get a reverse mortgage.

2.A person who has medical bills or other high expenses. A HECM loan can provide the cash flow needed to navigate such situations.

3.A person who has significant equity in his/her house and is older than the minimum eligible age. The more equity the person has in his house and the older he is at the time that s/he signs for the loan, the more money s/he can draw from a reverse mortgage.

4.A person/couple who have no heirs who will want the house upon the owner’s passing.

Reverse mortgages are complex but with proper understanding of the loan’s ins and outs, a borrower can make the Reverse Mortgage work for his/her benefit.

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?


  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