Reverse Mortgage Information

Last month members of Congress reviewed the U.S. Department of Housing and Urban Development’s Home Equity Conversion Program (HECM) in an effort to determine how and when the program could be shored up. In December 2012 Federal Housing Administration (FHA) Director Carole Galante, responding to an actuarial report, testified before Congress that the HECM — also known as the Reverse Mortgage program — had a one billion dollar deficit due to foreclosures. Galante promised that changes would be forthcoming but some members of Congress are concerned that needed changes aren’t being implemented quickly enough.

In recent remarks Galante has questioned whether the FHA has the needed authority to implement the necessary changes that would shore up its insurance fund. Members of Congressional oversight committees seem to think that a mortgagee letter from the FHA will serve to begin the process of strengthening the Reverse Mortgage product and may forestall a possible move by the FHA to draw on a 2014 taxpayer bailout for the Reverse Mortgage program.

Congressman Randy Neugebauer (R-Texas), who chairs the Subcommittee on Housing and Insurance summarized the subcommittee’s feeling. “One of the troubling things is [borrowers] aren’t required to meet any income or credit qualifications. These lax standards have resulted in higher default rates, leaving seniors in financial hardship.”

In April 2013 HUD made the first change in its program following the 2012 actuary report. HUD eliminated the one-time draw option that had, until then, allowed HECM borrowers to access their loan funds in one lump payment. The HUD determined that accessing the loan funds in this way often left borrowers without sufficient funds to enable them to pay for their loan obligations. When borrowers couldn’t meet their responsibilities the lending institutions were forced to foreclose on the home, creating the HECM fund deficit.

Three additional changes that the FHA would like to implement include limiting the amount of the allowable draw as appropriate, running background checks on borrowers to determine their ability to maintain the loan’s expenses — home maintenance,  interest payments, property tax payments — and creating a borrower-escrow account into which a portion of the loan’s proceeds would be placed to cover future loan expenses.

HUD Secretary Shaun Donovan has assured Congress that the HUD intends to implement these changes as soon as it receives the authority to do so. Such changes, Donavan has stated, would protect borrowers and shore up the insurance fund. He hesitates to implement the changes through a Mortgagee Letter, however, because he feels that they would not be as effective as changes mandated by legislation.

Congressman Mike Fitzpatrick (R-Penn) and Congressman Danny Heck (D-Washington) of the Subcommittee on Housing and Insurance have drafted the legislation that the HUD is requesting.

Congress and the Obama administration have signaled that they are continuing to support the Reverse Mortgage product, even though insuring the loan has cost the Department of Housing and Urban Development (HUD) close to one billion dollars in losses due to defaulted mortgages. Instead of dropping the product the HUD and the Senate Transportation, Housing and Urban Development Subcommittee, which oversees HUD activities, are making changes in the product. Some changes have already taken effect while others are scheduled to take effect this summer, perhaps as early as July 2013.

The Reverse Mortgage was introduced in 1989 and its popularity has grown as many American retirees struggle to make ends meet during their senior years. According to figures from the Boston College’s Center for Retirement Research one third of all retirees now get 90 percent or more of their income from Social Security, leaving them with very little flexible spending money and no reserves to deal with any type of crisis. The Reverse Mortgage product was established to provide an option that can supplement Social Security and other income sources and alleviate the financial strain on elderly citizens.

The Reverse Mortgage operates as a mechanism that allows seniors aged 62 and older to access the equity that they hold in their house. Instead of taking out a mortgage and paying the lending institution, the Reverse Mortgage allows the borrower to mortgage their property to the lender, receive monthly payments from that loan and, when the borrower no longer lives in the house, allow the lending institution to take possession of the property which they can then sell to recoup their investment.

Borrowers can draw their funds as either a line of credit, as monthly payments or as a combination of these two alternatives. A fourth option, a lump sum draw, was recently eliminated because it proved to be a risky option that often left the borrowers without the needed funds to maintain their required insurance, property tax and loan interest payments.

Two other changes that seem certain to take effect in the coming months involve the requirement for the lender to establish an escrow account that will put aside funds for future loan-related expenses and the requirement for the lender to establish the potential borrower’s financial capability to maintain the loan.

While these changes were proposed when the Reverse Mortgage deficit first came to light in December 2012, they have not yet taken effect and in May 2013, in hearings before the Senate Transportation, Housing and Urban Development Subcommittee, Federal Housing Administration (FHA) officials, who administer the loan for the HUD, were asked to explain the delay.

The FHA’s Commissioner Carol Galante stated that guidlines have already been implemented in regards to the Home Equity Conversion Mortgage program for seniors, and new proposals are presently being created. Galante told the subcommittee members that she expects a revised HECM program proposal to be completed and presented to Congress sometime between July and August. She further noted that HECM loans are suffering because of a multitude of issues, including seniors’ longevity which presently exceeds the underwriting that was put in place when the loan was first mapped out.

The new changes may also include provisions that will provide non-borrower spouses protection under the HECM program.

Since Congressional hearings in the winter 2012/2013 highlighted the shortfall in the Department of Housing and Urban Development’s Reverse Mortgage program the media has devoted significant attention to the issue, including to the problem of rising loan delinquencies.

Renewed attention is now being focused on an often overlooked Federal guideline that can help steer borrowers out of trouble if they anticipate that financial difficulties will cause them difficulties in meeting their loan obligations.

The Reverse Mortgage, also termed a Home Equity Improvement Mortgage (HECM loan) allows individuals aged 62 and older to convert their home’s equity into cash. Homeowners can receive their payment as a line or credit or as monthly payments. (A lump sum payment option was once available but as of April 2013, this alternative has been cancelled). The Reverse Mortgage must be repaid when the borrower dies, sells the house or, for any reason, has not lived in the house for more than 12 consecutive months.

A default can occur when a borrower fails to maintain the house, pay home insurance payments, pay property taxes or pay the loan’s interest payments. According to the HUD a significant percentage of HECM loans are currently delinquent. These numbers are growing as borrowers, most of whom accepted lump sum cash payments when they took out their loan, did not properly plan for their retirement years and now find themselves unable to make their required payments.

In November 2012 the HUD warned Congress “For many homeowners, taking all eligible cash upfront results in insufficient cash flow in later years for property upkeep, taxes and insurance”

HUD is now reminding Reverse Mortgage borrowers that, according to guidelines that were released in 2011, lenders are required to notify borrowers who fall behind in their loan obligations of free financial counseling. They must notify the borrowers of this option before they initiate foreclosure proceedings. Such sessions can help the borrowers get themselves back on track by, among other things, tapping benefit programs that are available for some older individuals.

Ramsey Alwin, senior director of economic security at the National Council on Aging has noted that many older borrowers don’t know about these programs, including programs that provide elders with free financial counseling.

Such free financial counseling programs can help borrowers locate cheaper insurance, set up automatic premium payments, negotiate repayment plans with the lender, and handle existing income in a way that will allow for the delinquent payments and future payments to be managed in a timely and efficient manner.

Borrowers can contact the National Council on Aging at 800-510-0301 and review its database of 2,000 government and nonprofit benefits programs to locate local resources.

In the future, with Congressional authorization,  the HUD plans to require lenders to set aside some of the Reverse Mortgage loan proceeds to cover future property taxes and homeowners insurance and to review borrower’s financial history to ascertain their ability to maintain the loan.

Financial consultants also advise seniors to access this kind of financial counseling before they take out a Reverse Mortgage so that they can better manage the income that the HECM loan offers.

The Reverse Mortgage loan allows retirees to turn their home’s equity into an annunity-like pension product that pays them a fixed monthly payment for as long as they live in the home. This loan, the Home Equity Insurance Mortgage (HECM) is federally insured and guarantees monthly payments.

This prospect is an attractive one because consumer analysts predict that the new generation of retirees, baby boomers, will face serious financial shortfalls as they move into retirement. The HECM loan allows them to access their home equity in a predictable and secure way, ensuring that they enjoy additional income in their senior years.

Under the HECM loan structure borrowers can mortgage their home to a lending institution while retaining the right to continue to live in the home. This turns into a Reverse Mortgage whereby the senior homeowner converts a percentage of the home’s value into either monthly payments, a line of credit or a combination of the two options. Under the terms of the HECM loan the proceeds from the reverse mortgage are first used to pay off any remaining mortgage balance on the home as well as the loan’s costs. The homeowner can then access a percentage of any remaining equity that they have in their home, using the funds at their discretion.

Other than the home equity there are no other assets that the homeowner needs to produce in order to prove eligibility for the HECM loan. There are specific requirements for the loan however, including the borrower’s obligation to stay current with his home’s home insurance and property taxes, maintain the home properly and maintain the loan’s insurance premiums. Borrowers do not need to meet any financial tests concerning their ability to meet their loan obligations before they take out the loan. Presently, the Federal Housing Administration (FHA) the office of the HUD that administers the loan, is working on a means test to ensure that borrowers have the ability to keep up with the loan requirements — failure to maintain those obligations can result in foreclosure which has, in the past, cost the FHA’s insurance program several billion dollars in insurance payouts.

Addition requirements for the loan include the loan applicant’s age (must be 62 or older) and the applicant’s obligation to attend a financial counseling session which is given by a Department of Housing and Urban Development (HUD)-approved counselor.

A minority of borrowers have, in the past, chosen the tenure payment loan option but financial consultants see the tenure payment alternative as the best alternative for meeting borrowers’ long-term needs. Analysts believe that the tenure payment option offers borrowers the opportunity to create a balanced retirement portfolio that includes an additional stream of income. In addition, the payout rules for tenure payments offer a healthier loan option, especially in today’s low-interest environment.

The share of a Reverse Mortgage borrower’s equity that is paid out in monthly tenure payments is tied to age. Older borrowers receive the highest percentages with the borrowers in their 70s receiving a 7.0% payout rate, making these payments highly competitive with other investments and enabling borrowers to turn their home into their personal pension that stays with them for as long as they live in the home.

The prototype of today’s HUD Reverse Mortgage was first introduced to the public in 1989. Since that time a number of changes have been implemented to strengthen the loan.

The American Association of Retired Persons (AARP) has been at the forefront of leading the challenge to improve the Reverse Mortgage product. In 2008, relating to one of the AARP’s most successful campaigns, the Department of Housing and Urban Development implemented a new rule that requires potential Reverse Mortgage borrowers to attend a counseling session with a HUD-approved counselor at which time the entire loan structure, lender obligations, borrower obligations and loan benefits are presented. Borrowers must attend the session and complete a questionnaire that indicates that they understand all of the responsibilities that the loan entails before they can proceed with their loan application.

One of the main reasons that the counseling session requirement was introduced was due to the fact that some couples had taken out a Reverse Mortgage on only one partner’s name, even though both partners were signed onto the house deed. This generally occurred in cases where one partner had reached aged 62, the age at which the option exists to secure a Home Equity Conversion Mortgage (HECM) loan.

The result of these types of HECM loans had resulted in one partner facing displacement when the other partner, the person who had signed onto the loan, was no longer living in the house. The AARP instigated a campaign to rectify this issue by requiring that all HECM applicants along with any other individuals who are signed onto a home’s deed attend a counseling session at which time this issue, along with other aspects of the loan, are discussed.

In 2012 AARP pushed the issue further by challenging the Department of Housing and Urban Development in regard to Reverse Mortgages which were acquired before the 2009 counseling requirement. Individuals who obtained these early HECM loans did not obtain the counseling that is given to today’s borrowers and may not have fully understood the implications of the loan, yet they are still be obligated to leave the home if the signee no longer lives in the house.

The AARP took the issue to court because, at the time, HUD allowed non-relative buyers to purchase the Reverse Mortgage property for the lesser of the reverse mortgage balance, meaning at only 95% of the home’s current value. While HUD reversed that rule in response to AARP pressure a U.S. Appeals Court has allowed the second part of the case, the challenge to the practice of displacing surviving spouses based on a Federal Law that prohibits displacements of a surviving spouse following the death of a borrowing spouse, to proceed.

The AARP’s present case revolves around Robert Bennett who did not sign onto the Reverse Mortgage that his wife took out on their joint home in 2008. When Bennett’s wife died suddenly, Bennett was approached by the lending institution which told him that he would need to either pay back the loan or leave the house.

Although HUD issued its new counseling guidelines within months of Bennett’s wife’s death, it did not impact on Bennett’s case since his wife’s loan was processed before the new regulations came into effect. Neither Bennett nor his wife were aware that, if one of them left the house for any reason, the other spouse would be required to pay back the full balance of the loan or leave the property to allow the lending institution to recoup its investment.

According to the U.S. Court of Appeals, even if the lending institution has the right to foreclose, HUD has the authority to take on the loans of a deceased homeowner, pay off the balance to the lending institution and allow the surviving spouse to remain in the home.

The Appeals Court has not returned the case to the lower court which will have the responsibility of deciding whether the practice of displacement violates Federal law. As the early loan borrowers age the question has increasing relevance to the lives of Reverse Mortgage borrowers who took out their loans prior to 2008.

Reverse Mortgages How they Work

If you’re 62 or older you may be beginning to do some financial planning for your retirement years. This is the time to take a good look at your projected income and plan how you want to allocate your resources.

Many people are including a Reverse Mortgage in their retirement financial package. The Reverse Mortgage allows you to make the equity that you have invested in your home work for you. Looking at Reverse Mortgages how they work should provide you with a solid overview of the program so that you can assess your situation and decide whether a Home Equity Conversion Mortgage (HECM) loan will be in your interests.

History and Objectives

The government-insured HECM loan dates back more than 20 years to the first pilot program that was launched in 1988. The program was administered by the Federal Housing Administration (FHA) and its success led the FHA’s overhead agency, the Department of Housing and Urban Development (HUD) to expand the project.

The Reverse Mortgage was designed as a way for homeowners aged 62 and older to access the equity that they had built up in their homes by accessing the money in the form of a loan. In this way, homeowners are able to use the influx of cash in a variety of ways including paying off an existing mortgage, covering healthcare costs, undertaking home repairs or helping their children financially, all while aging in their own homes.

Borrower Requirements

When you’re investigating the Reverse Mortgage how they work you’ll need to start out with the issue of eligibility. You are eligible to apply for a HECM loan if you are 62 years of age or older, own your property outright or have already paid the majority of the mortgage, occupy the property as your principal residence and are not delinquent on any federal debt.

Your property must be a single family home or a 2-4 unit home with you living in one of the units. Alternate property options include manufactured homes (mobile homes) that meet FHA requirements or an HUD-approved condominium.

Equity Amount

The amount of equity to which you are entitled is based on the age of the youngest borrower (meaning, if you are taking out the loan with your spouse, the age of the youngest spouse will determine the loan amount), the current interest rate, the lesser of appraised value or the sales price of the home or the HECM FHA mortgage limit of $625,500 and the type of loan that you choose (HECM Standard or HECM Saver).

Payment Plans

You may choose your draw option based on one of the following payment plans:

• Tenure - equal monthly payments as long as at least one of the borrowers continues to occupy the property as a principal residence.
• Term - equal monthly payments for a specific period of months which the borrower selects
• Line of Credit - installments payments which can be paid whenever the borrower wises until the line of credit is exhausted.
• Modified Tenure - combination of scheduled monthly payments and line of credit for as long as you occupy the house as your principal residence
• Modified Term - combination of monthly payments and line of credit for a specific period of months as selected by the borrower.

Loan Costs

You are responsible for maintain the loan costs, both those which include one-time payments and those which continue through the life of the loan. Loan costs involve:

1. Mortgage Insurance Premium (MIP) insures that you will receive your expected loan payments. You can finance the MIP as part of your loan.
2. Third Party Charges Closing costs include an appraisal, title search and insurance, inspections, surveys, recording fees, credit checks and mortgage taxes.
3. Origination Fee compensates the lender for processing the HECM loan. A lender may charge a HECM origination fee of up to $2,500 if the home is valued at less than $125,000 or 2% if the home is valued at more than $125,000. If the home is valued at over $200,000 the lender can charge 2% of the first $200,000 plus 1% of the amount over $200,000. Origination fees are capped at $6,000.
4. Servicing Fee covers the servicing for the life of the HECM loan. This includes account statements, disbursing loan proceeds and monitoring compliance with loan requirements such as maintaining the home, paying real estate taxes and paying a hazard insurance premium. The monthly servicing fee is added to the loan balance monthly.

Counseling

Potential HECM borrowers must attend a counseling session with a HUD-approved counselor before submitting a formal loan application. At this counseling session the counselor will elaborate about the Reverse Mortgage how it works and can answer any questions.

In April of 2013 the Federal Housing Administration (FHA) suspended the most popular payout method of the HECM Standard. Lending institutions only had a few months to prepare for this change but most professionals believe that, in the long run, the HECM (Home Equity Conversion Mortgage) will be strengthened, although proper staff training will be essential to ensure that the lenders can adequately market the more limited HECM loan.

Reverse Mortgage lenders are aware of the impact that the changes will have on their business. Many lenders foresee an initial drop in sales followed by a strong rise as borrowers become used to the new HECM framework. Borrowers will quickly realize that, financially, the new structure is a healthier framework for long-term financial planning.

Up until April the ‘Lump Payout’ option was the  choice for the majority of  Reverse Mortgage borrowers. This enabled borrowers to access their loan funds as a one-time draw. A lump payout was particularly attractive to individuals who wanted to use their funds to take a trip, fix up their house or undertake other once-in-a-lifetime projects for which they required a large infusion of cash.

As of April, this option is no longer available. Congressional oversight questioned the FHA’s 16 million dollar shortfall which was due, in large part, to Reverse Mortgage foreclosures that were occurring when borrowers exhausted their one-time-draw funds and could no longer maintain their loan obligations. According to the HECM loan structure, if a borrower does not continue to maintain the home, pay home insurance and property tax payments and/or does not maintain the loan insurance payments, the loan goes into default and the lending institution forecloses on the home as the FHA absorbed the costs of those foreclosures. The Department of Housing and Urban Development, the parent agency of the FHA, agreed with Congress that changes had to be made and the first change involved cessation of the lump payment option.

Large lending institutions who use extensive marketing techniques, such as call centers, may see the steepest decline in product movement over the next year or so. The client base of these institutions often involved seniors who were attracted to the lump payment option because of the potential for a huge infusion of cash. They didn’t worry about the coming years and often found themselves in difficulties. Today, marketers believe that, as potential borrowers become more educated about the loan and its long-term effects, the market will bound back as seniors include the revised HECM as part of an overall financial plan for their future economic health.

Originators who have been marketing the entire HECM product as a whole should also not experience a severe shock to their marketing strategies as they will be able to more easily translate marketing and education efforts to explain the credit line feature.

Seniors who are considering taking out a HECM (Home Equity Conversion Mortgage) loan can now review any consumer complaints which were filed that relate to these loans. The Federal Trade Commission (FTC) maintains an updated list of consumer complaints about loan products, including the Reverse Mortgage. Reverse Mortgage complaints comprised only 272 of more than 5,000 reported mortgage complaints but accessing information about these loans can be of help to individuals who are considering applying for a HECM loan.

The Federal Trade Commission is the nation’s consumer protection agency. Its consumer complaints division was created to allow new borrowers to compare and contrast between different lending institutions and to ensure that consumers are appraised of their rights vis-à-vis mortgage servicers when they apply for a Reverse Mortgage loan. Mortgage servicers are responsible for the day-to-day management of the loan account which includes collecting and crediting the monthly loan payments. Some of those responsibilities include administering escrow accounts, transferring servicing and transferring loan ownership.

Escrow Accounts

HECM borrowers are obligated to maintain property tax payments and homeowners insurance. The servicer is responsible for using the escrow account to pay for the insurance and taxes as they become due during the course of the year. Borrowers who do not maintain an escrow account must make those payments on their own, but borrowers who do maintain an escrow account rely on the lending institution to make payments in a timely manner. If a mortgage servicer administers an escrow account for a borrower, federal law requires that the servicer make any escrow payments for taxes, insurance and other escrowed items on time. The servicer must provide a statement that clearly itemizes the insurance payments, tax payments and other anticipated amounts that must be paid within 45 days of establishing the account. This statement must be provided yearly and must include expected payment dates and totals for the payments. The servicer also is required to provide the borrower with a free annual statement which details the activity of the escrow account, including the account balance.

Service Transfer

If a loan is transferred to a new servicer the borrower receives two notices, one from the current mortgage servicer and the second from the new servicer. The current servicer must notify the borrower at least 15 days before the effective date of transfer unless a written transfer notice was provided at settlement. The transfer becomes effective on the date that the first mortgage payment is due through the new servicer. The new servicer must notify the borrower within 15 days after the effective date of transfer. There is a 60-day grace period after the transfer during this time the borrower cannot be charged a late fee if the mortgage payment is mistakenly sent to the old servicer.

Notices must include:

· the name and address of the new servicer

· the date the current servicer will stop accepting the mortgage payments

· the date the new servicer will begin accepting the mortgage payments

· telephone numbers for the current and new mortgage servicer regarding information about the transfer (toll-free or collect)

· options for continuing any optional insurance, such as credit life or disability insurance; actions to take to maintain coverage and whether the insurance terms will change

• a statement that the transfer will not affect any terms or conditions of the mortgage other than those directly related to the servicing of the loan.
• a statement explaining rights and what to do if there is a question or complaint about the servicing of the loan.

Transfer of Loan Ownership

The ownership and servicing rights of the HECM loan may be handled by one company or two companies. If ownership of the loan is transferred the new owner must provide a notice that includes:

• the name and contact information of the new owner of the loan
• the date that the new owner takes possession of the loan
• the contact person who is authorized to receive legal notices and can resolve issues about loan payments
• the location where the transfer of ownership is recorded.

The new owner must provide this notice within 30 days of taking possession of the loan. This is in addition to any notices that may be sent regarding the transfer of the servicing rights for the loan.

On April 10^th President Barak Obama submitted his new budget to Congress. Officials of the Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA), Home Equity Conversion Mortgage (HECM) industry professionals and seniors who are considering obtaining a HECM loan are among those who are closely monitoring the budget developments.  The expectation is that the budget will include changes in the HECM loan structure and implementation.

The HECM loan has come under criticism in recent months because the FHA’s annual report from 2012 showed an unprecedented $16.3 billion insurance-fund shortfall  – $2.8 billion of that amount is traced to the part of the fund that administers the Reverse Mortgage. This shortfall is due, industry analysts say, to a loan structure that presented too many possibilities for foreclosure.

Since the report was made public, both HUD and FHA officials have testified before Congress and have, in conjunction with Congressional leaders, developed a new format for the loan which is designed to bolster the loan’s structure. Some of these changes have already been instituted and others are anticipated. There is still concern, however, that the loan may be further affected by the new Obama budget.

Few people have seen the budget in its final form, but in general, analysts expect that the budget will maintain funding allocations for the FHA and the Reverse Mortgage product.

People familiar with agency discussions are preparing for the announced changes, which include a new loan structure that eliminates the option that seniors once had to draw all of their Reverse Mortgage funds in one draw. In addition, the Bloomberg Report notes the FHA “could institute further caps on the amount of equity borrowers are able to withdraw.”

One factor that may support the HECM’s position is the fact that a recovery in home prices is now clearly a trend, not a fluke, which has created stability in the housing industry in particular and in the economy in general. Mortgage industry officials believe that the budget will reflect this stability in relation to the HECM loan and may call for a taxpayer subsidy toward the future costs of the HECM loan. Other changes may include lowering the principal limits for the loan, raising insurance premiums and doing more to encourage the acquisition of the HECM Saver which is a lower cost alternative to the more popular HECM Standard but has less potential to create a shortfall for the FHA’s Reverse Mortgage fund.

For retirees who find themselves short on cash during their senior years, a Reverse Mortgage can provide a vital source of income that may make the difference between struggling to make basic payments and living a comfortable life. There are many benefits to a Reverse Mortgage, also called a Home Equity Conversion Mortgage (HECM) loan. Borrowers can access a significant portion of the equity that they hold in their home as they continue to live in their own house. The loan does not become “due” until the borrower no longer lives in the house — generally because the borrower has moved on to a long-term nursing facility or has passed away.

Borrowers can access their funds via a line of credit or through a monthly payment plan — the plan may include either a long-term payment plan that will continue through the lifetime of the loan or a short-term plan that will provide payments over the course of a specified amount of time.

There are, however, some disadvantages to the loan and potential borrowers should keep these factors in mind when they apply for the loan.

Foreclosure

As long as the borrower meets the terms of the Reverse Mortgage loan the loan will remain in effect and he can continue to live in the house. However, the Reverse Mortgage includes borrower obligations, and if the borrower does not fulfill his loan obligations, the lending institution may foreclose on the property.

Borrowers are required to keep the house in good repair and maintain all home payments including home insurance, property taxes, insurance on the loan, etc. throughout the duration of the loan. In addition, the borrower himself must maintain primary residence in the house. According to the terms of the loan, he may not have a primary residence elsewhere, even in a nursing home facility, for more than 12 consecutive months.

If the borrower fails to adhere to any of these terms, the lending institution can request that he repay the owed amount, and if he is unable to do so, the home may go into foreclosure.

Repayment

Repayment can also be a problem with a Reverse Mortgage. HECM loans are known as non-discourse loans, meaning that borrowers cannot owe their lender more than their home is worth. If, however, the borrower dies and his heirs wish to keep the home the lending institution can demand that they repay the full loan balance, even if that balance exceeds the value of the home. One solution, which is frequently employed, involves the heirs handing the home over to the lender who can then sell it to recoup the investment. In such a case the heirs would not have any responsibility to pay the entire balance.

Payment Schedule

The monthly payment draw option is dependent on the borrower’s age. The payments are spread out according to a payment schedule which estimates the amount of time that a borrower will continue to live in the house. Seniors who access the loan at an earlier stage in their senior years will receive a smaller amount per month than those who access the loan at an older age. This may impact on whether the sum will be adequate for the borrowers in the future, especially if the money is designated to cover future health and nursing care needs. Financial advisors suggest that potential borrowers hold off on the loan for as long as possible to ensure that they receive more adequate monthly payments that will allow them to make their way through their retirement years with needed income.

Spouses

A final consideration involves spouses or other signees to the home’s deed. Eligibility for a Reverse Mortgage is dependent on the borrowers being 62 years of age or older. This means that if two partners own a home together, both partners must be eligible, age wise, and sign on the HECM loan together. Alternately, if only one partner is 62, the spouse may not sign on the HECM loan, even though that individual may be signed onto the home’s deed as one of the home’s owners. This means that if the older partner leaves the house or dies, the loan is completed and the second partner must then either repay the full loan balance or leave the house. Some couples are prepared to take the risk but it is a risk and should be considered before signing onto the loan.

A recent  Ameriprise Financial report states that almost half of American seniors are including plans to use their home equity as a factor in their financial retirement planning. Americans are less secure than ever about their ability to make ends meet by relying on only their Social Security and pension income. These seniors are increasingly examining options that will allow them to use the equity that they have in their homes to supply them with  needed  revenue during their retirement years. One of the most economical options, the Reverse Mortgage (also called the HECM - Home Equity Conversion Mortgage) continues to present a popular alternative that enables seniors to access the cash that they’ve invested in home ownership throughout their working years.

Many senior advocacy groups are concerned that individuals may not fully understand the scope of their rights and responsibilities when they apply for a Reverse Mortgage. They suggest that potential borrowers keep a couple of central points about the HECM loan in mind before applying for a Reverse Mortgage.

1. Who is Eligible?

The Department of Housing and Urban Development (HUD), whose member agency, the Federal Housing Administration (FHA) administers the loan, stipulates that only homeowners aged 62 and older may apply for a HECM loan.

If more than one homeowner is signed onto the home’s deed, both individuals must undergo a pre-loan counseling session with a HUD-approved counselor. One of the points that the counselor will make is that, even though they jointly own the house, if only one individual signs onto the HECM loan (for instance, if only one partner is over age 62), the lending institution will take physical possession of the house when that loan signee no longer lives in the home (for instance, if that person moved to a nursing home for long-term health care or passed away). The lending institution may then sell the home to recoup their investment, even if another individual, who may also be signed onto the home’s deed but is not signed onto the Reverse Mortgage, continues to live in the house.

2. What are the loan limits?

As a federally-insured loan, the HECM loan’s lending-limit enables borrowers to access up to $625,500 of the home’s value. This loan ceiling is applicable through 2013. This loan limit is a national limit and valid for all homes in the United States, regardless of where the home is located. The value of the home is determined by an independent evaluation.

3. Loan Costs

Borrowers are obligated to pay the costs of the loan. They may use the proceeds from the loan to pay for the loan costs. These costs include third-party costs such as value assessment by an independent assessor, background credit checks, flood certification, recording, courier insurance, title insurance, etc, processing fees, administrative costs, etc. In addition the loan includes an interest fee which is carried throughout the course of the loan’s lifetime. This yearly fee covers the FHA loan’s insurance.

4. Loan Alternatives — Standard, Saver and Purchase

There are several draw options for the loan. Borrowers who wish to use the proceeds of the loan to purchase a new home can apply for a HECM for Purchase which enables them to complete the loan transaction and the purchase of a new home (which is the property that is subsequently mortgaged to the lending institution) in one transaction. The adjustable-rate loan can be accessed as either a line of credit or as monthly payments and allows the borrower to withdraw loan funds as and when they are needed.

5. Loan Obligations

In addition to the monthly loan interest fee, borrowers must maintain home insurance payments, property tax payments and ensure that the home is kept in repair and properly maintained.

If you’re a retiree and are like most people your age, the equity that you have in your home is your biggest financial asset. So the decision of if, when and how to take out a Reverse Mortgage will be one of the most important financial decisions that you will ever make.

Financial planners always suggest that retirees attempt to pay off their home before they retire. It provides seniors with the comfort of knowing that they can live in their home indefinitely, removing, analysts note, a significant worry that often plagues the elderly. Additionally, the source of income that the eventual sale of a home will provide can cover the cost of eventual nursing home or assisted living care for several years.

Even the best laid plans, however, can be waylaid by unexpected health expenses, family difficulties, real estate values or reductions in retirement income.

That’s where the Reverse Mortgage comes in. The Reverse Mortgage, also known as a Home Equity Conversion Mortgage (HECM) is a lien taken against a homeowner’s property in return for the opportunity for the homeowner to access some of the equity that they hold in the home. When the home is sold by the homeowner or the homeowner’s heirs, or the homeowner leaves the home for more than 12 months, the HECM loan is repaid through the home’s sale.

The HECM loan is offered via the Department of Housing and Urban Development (HUD), through its member agency, the Federal Housing Administration. Borrowers can draw their funds by requesting equal payments for a fixed term, equal payments for life, a line of credit or a combination of equal payments (either for life or for a fixed term) and a credit line.

The life of a Reverse Mortgage loan extends throughout the lifetime of the borrower as long as the borrower maintains their obligations (interest payments, home maintenance, insurance payments). The loan remains in force regardless of the real estate market, fluctuations in the interest rates.

The cost of a Reverse Mortgage must also be taken into consideration when deciding whether or not a Reverse Mortgage is for you. The loan includes upfront costs, closing costs, third-party costs and interest payments which the borrower must maintain throughout the course of the loan’s lifetime. Although the main costs of the loan come from the loan proceeds, it is still a significant sum which must be factored into the final decision.

So when is the Reverse Mortgage loan the right step to take?

If you’re a young and active senior and aren’t desperate for the money, it’s best to hold off on the HECM loan. The older you are, the higher your monthly payments become. This may turn out to be important because, as you age, your expenses, particularly health-related expenses, may increase and you will be dependent on the extra income.

If you’re already having health-related issues and foresee the immediate possibility of extended nursing care, you may be better off if you sell your home immediately and downsize your lifestyle.

If you’re planning on long-term travel, you should hold off on your HECM loan. The loan specifies that the borrower will not be gone from the house for more than 12 months — if the borrower leaves the house for more than 12 months, the lending institution takes possession of the house and sells it to recoup their investment.

In general, a Reverse Mortgage makes the most sense for healthy seniors who are 70+ and don’t plan to travel or otherwise be away from the home for an extended period of time.

The HECM loan structure is changing in 2013 but the HECM for Purchase is, as of now, stable with no changes expected anytime in the near future.

FHA-insured HECM loans became available in 1989 when the US Department of Housing and Urban Development (HUD) initiated the Reverse Mortgage option which enables senior homeowners to access the equity that they hold in their homes. Most of the Home Equity Conversion Mortgages (HECM) loans are approved as HECM Standard loans, in which the homeowner can draw the equity in payments. Some loans are issued as HECM Saver loans which carry lower up-front costs than the HECM Standard Reverse Mortgages but limit the amount that the homeowner can access.

The third option, the HECM for Purchase, was approved in 2009 when the FHA decided to structure an alternate version of the Reverse Mortgage to allow people age 62 or older to use their Reverse Mortgage income to purchase a new home. Up until that time, the main option for seniors who wanted to use a HECM to facilitate a new home purchase involved buying the new house and then applying for the Reverse Mortgage to pay off the mortgage.

The HECM for Purchase was established to allow elderly homeowners the option of using the HECM loan to finance a home purchase in one single transaction, saving them a considerable amount of money on costs which are generally a part of any mortgage transaction.

The HECM for Purchase has never been as popular as the HECM Standard or, even, the HECM Saver, but today, with the growing retiree population, the HECM for Purchase is enjoying increased popularity. More and more 60somethings are looking for cost-effective opportunities that allow them to move closer to their families or, alternatively, to a comfortable retirement community.

In short, the HECM for Purchase allows seniors to use the equity from the sale of a previous residence to buy their next primary home. The transaction can take place with one initial down payment investment towards the purchase which eliminates monthly mortgage payments while preserving existing income and savings.  Buyers’ purchasing power is increased which makes moving to a more suitable retirement home easier and more efficient.

HECM loans provide income for borrowers during their retirement. The HECM for Purchase option presents seniors with increased flexibility as they look for ways to lower their cost of living during their retirement.

Accessing an HECM loan involves the same commitments and obligations that are required by a HECM Standard and HECM Saver loans. The Federal Housing Administration (FHA) requires that each applicant complete a counseling session with a HUD-approved counselor who will provide detailed information about the loan. The borrower must maintain all property tax and insurance payments on the new home, which will become the mortgaged Reverse Mortgage property, as well as home maintenance and loan interest payments, throughout the lifetime of the loan.

The Reverse Mortgage is changing but savvy consumers who keep up with the new innovations will be prepared to meet the new realities and protect their most valuable investment — their home.

The Reverse Mortgage — also known as the Home Equity Conversion Mortgage (HECM) was launched in 1989 as an option for seniors aged 62 or older to access the equity that they held in their homes. The program, insured by the Federal Housing Administration (FHA) offers homeowners the option of mortgaging their homes to a lending institution even while they continue to live in the home. When the borrowers no longer live in the home, the lending institution which grants the HECM mortgage can take possession of the home and is then able to sell it to recoup its investment.

Since its inception the program has included costs to the borrower, including the obligation to maintain property taxes, home maintenance payments and home insurance. In addition, borrowers are responsible for yearly interest payments on the loan. Failure to maintain any of these obligations can result in a foreclosure.

The original HECM loan presented three draw options for borrowers. Borrowers could draw the funds as a one-time cash payment, take the payment as a line of credit to be used as needed or receive the loan’s funds as a monthly payment which would supplement their expenses. Over the years the one-time cash payment became the most popular alternative.

Eligible homes are single family or a 2-4 unit homes with one unit occupied by the borrower, HUD-approved condominiums and HUD-approved manufactured homes. The amount that can be borrowed is dependent on the age of the youngest borrower, the current interest rate, the lesser of appraised value of the sales price or the HECM FHA mortgage limit of $625,500.

Recent changes in the loan’s structure should be carefully reviewed by new borrowers in order to ensure that they are fully aware of the features and obligations of the loan.

There are two main choices for an HECM loan, the HECM Standard or HECM SAVER. The HECM Saver was launched in 2010 and allows for a lower loan percentage while also reducing the loan’s upfront fees. The Saver eliminates the upfront mortgage insurance premium. A third choice, the HECM for Purchase, is a new product which enables borrowers to use the proceeds of an HECM loan to buy a new property — generally used for seniors who want to move closer to family or to a seniors community.

In 2009 the Department of Housing and Urban Development (HUD) introduced a regulation that mandates that potential borrowers attend a counseling session with a HUD counselor before they begin the loan process. This regulation grew out of a concern that lenders were not providing potential borrowers with unbiased, needed information that would enable them to make a clear decision about the loan.

In February 2013 the HUD removed the one-time payment option as a draw alternative. Borrowers may presently draw their HECM funds as either a line or credit or as monthly payments.

It is anticipated that another change will be initiated in August 2013, mandating that an escrow fund be established with part of a loan’s proceeds to ensure that all needed payments including interest payments, insurance payments and property taxes will be paid in a timely manner.

The Senate Banking Committee has recently expressed concern over the latest announced changes in the Home Equity Conversion Mortgage product (HECM). Following an audit which showed that the Federal Housing Administration (FHA) was 16.5 million dollars in the red due to losses incurred as a result of its insurance of HECM loans, the FHA’s parent agency, the Department of Housing and Urban Development, announced changes in the loan structure.

The HECM loan is a federally-insured loan which allows seniors aged 62 or older to access the equity that they hold in their home by mortgaging the home to a lending institution even while continuing to live in the home. Until last month, borrowers could access the funds via one of three draw plans — drawing the funds as a line of credit, as monthly payments or as a lump sum payment. There was also an option to combine the methods, with part of the funds to be drawn through one method while part of the funds could be drawn through a second method.

New changes, implemented in February 2013, effectively removed the lump sum draw option. The revision in the Reverse Mortgage structure came about as a result of studies which showed that many borrowers who chosen the lump sum draw option exhausted their loan funds quickly, leaving no money for future HECM loan expenses (interest payments, home insurance payments, property tax payments and obligatory home maintenance). By not meeting their loan obligations these borrowers faced foreclosure, necessitating the FHA insurance payments which have, in a large part, put the FHA in the red.

National Reverse Mortgage Lenders Association President Peter Bell noted that lenders feel that the change has been “a good stop gap measure for the time being” though “there is a place for the full draw [fixed rate] loan in a number of circumstances.”

Additional anticipated Reverse Mortgage changes include a requirement that a portion of the proceeds from a HECM loan be placed in an escrow account to pay for the loan’s long-term costs. The FHA estimates that these changes can be made as early as August 2013 but Senator Bob Corker (R-Tenn.) ranking member of the Banking, Housing, and Urban Affairs Committee wants to see the change made sooner, and he is prepared to use Congressional support to grant authority to the the FHA authority to implement these changes. “In the last couple of months, we were able to do away with an entire program—the full draw fixed rate reverse mortgage—by mortgagee letter. Why can’t we make the other changes in that regard now?”

Bell, in an exchange with Corker, noted that additional changes can be effected by way of a mortgagee letter. Regarding the option of rescinding the HECM program altogether, Bell said “It would be a shame to take the fixed rate option off the table, because it gives peace of mind at a time when people need peace of mind.”

Seniors who have been considering taking out a Reverse Mortgage may want to review the new changes that have been implemented in the Home Equity Conversion Mortgage (HECM) loan structure before signing onto the loan.

This is the assessment of financial consultants who see the changes as a positive step for the economy, the Department of Housing and Urban Development (HUD) and, ultimately, for the lending institutions and the seniors themselves.

The changes came about due to an unprecedented Federal Housing Administration (FHA) $16.3 billion insurance-fund shortfall. The shortfall, analysts say, was due to a loan structure that presented too many possibilities for foreclosure.

The Standard HECM loan, the most popular Reverse Mortgage product, was offering Reverse Mortgage borrowers three distinct alternatives in which they could draw their loan funds. Borrowers could access their money through a line of credit, as monthly payments (which would extend through their lifetimes) or as a lump sum payment.

Over the years, the lump sum payment option proved to be the most problematic. Borrowers would often spend the money quickly, leaving no reserves for the loan’s monthly interest payments, loan maintenance costs (home maintenance and property tax upkeep) or even for the borrowers’ continued living expenses. The FHA was obligated, by the terms of the federally-insured loan, to make up the shortfall and the resulting foreclosures drained the FHA’s insurance fund.

In February 2013 the Department of Housing and Urban Development released new guidelines which are intended to make needed changes that will shore up the loan.

Over the years, over two-thirds of borrowers have chosen to take their loan proceeds in a lump sum payment rather than as a steady stream of monthly payments. As of 2013 HECM borrowers are restricted in the amount that they can access up front.  The FHA suggested this change when it was revealed that one in 10 Reverse Mortgage loans was delinquent and at risk of foreclosure in 2012 because borrowers ran out of money and failed to pay their tax and interest payments.

Carol Galante, Commissioner of the FHA and Assistant Secretary for Housing announced these changes in January 2013, noting that “it will take immediate action to better align the program with its objective of enabling seniors to age-in-place. These changes will protect FHA from losses and reduce the likelihood of borrower defaults due to nonpayment of property taxes and insurance.”

Other anticipated changes to the Reverse Mortgage loan include:

• New incentives which may persuade executors of the estates of deceased borrowers to sell the HECM-mortgaged properties rather than convey them to the FHA
• Financial assessments to try to ensure that a Reverse Mortgage loan is suitable alternative for each potential borrower.

The Consumer Financial Protection Bureau has launched a prototype for a consumer hotline in Newark, New Jersey. The goal of the hotline is to enable consumers to report financial product and service abuse to the CFPB directly by phone. The hotline will operate with a four-digit number and will also serve as a vehicle for consumers to ask questions about a wide range of consumer issues.

For Reverse Mortgage borrowers and potential borrowers, this hotline will mean the ability to ask their questions about the Reverse Mortgage product to an impartial third-party CFPB staffer who has the knowledge and background to provide a full picture of the mortgage and add to existing information.

According to Housing of Urban Affairs guidelines, before submitting a formal application for a Reverse Mortgage, also known as a Home Equity Conversion Mortgage (HECM), potential borrowers must attend a counseling session with a HUD-approved counselor. These sessions, however, are a one-time occurrence and many borrowers find that they have further questions as they move through the process of securing a loan as well as after the loan has been granted. While the staff of the HECM lending institution is available to answer questions, some borrowers may prefer to speak to an impartial third-party advisor.

Additionally, the requirement for a counseling session was instituted in 2009. Seniors who acquired their HECM loan before that time did not attend a counseling session and many have lingering questions about their loans. The CFPB hotline will be of great service to many Newark HECM borrowers and, if it expands, may aid Reverse Mortgage borrowers throughout the country.

CFPB Director Richard Cordray said that “the CFPB’s job is to help consumers navigate the often confusing financial marketplace and to hold financial institutions accountable. Through this coordination, we will be able to reach and to help consumers who may not have found us otherwise.”

The Newark hotline is a joint effort between the CFPB and the City of Newark. Callers will be connected directly to a CFPB staff person who can collect complaints and provide advice regarding Reverse Mortgages plus an additional array of financial products.

If the caller wishes to lodge a complaint the CFPB staff member will forward to complaint to the relevant financial institution and will then track the complaint to verify that the complaint has been addressed. In addition to Reverse Mortgages, other complaints and queries that the hotline addresses include bank products, student loans and credit reporting.

In recent months the Department of Housing and Urban Development has received complaints about prohibited marketing practices employed by some Reverse Mortgage counseling agencies. HUD requires that all applicants for a HECM loan attend a counseling session with a HUD-approved counselor. Counselors receive certification from HUD after they complete the HUD HECM Counseling Exam as required under HUD Rule FR-4989-F-402.  Counselors may work as part of a counseling agency or independently.

HUD recently released several Advisory Letters to emphasize HUD regulations regarding Reverse Mortgage Counseling Sessions.

HUD reports that they have seen a rise in the number of counseling agencies that market their services directly to borrowers via lending institutions. The counseling agencies request that the lending institution place their agency name at the top of the list of approved counseling options that lenders then provide to borrowers.

This practice, called “steering” contravenes HUD Mortgagee Letter 2011-26 which states that lenders are prohibited from promoting any particular HECM agency or counselor for HECM counseling. HUD notes that “Marketing to lenders in this manner is a violation of program requirements….This marketing gives an appearance of a conflict of interest between the HECM counseling agency and the lender.”

According to HUD guidelines lenders must present potential borrowers with a list of counseling providers which includes the national intermediaries, such as the AARP, as well as five local agencies, including one agency which is within driving distance of the applicant.  Lenders are prohibited from promoting one particularly counseling agency or counselor.

Some counselors charge for their services but there are seniors’ rights organizations and consumer advocates who provide the mandated counseling session for free. HUD wants to ensure that seniors are aware of free available counseling options.

In addition to the violation of Mortgagee Letter 2011-26, HUD has noted that a percentage of seniors who attend counseling sessions are not receiving adequate counseling. HUD’s recent advisory letter notes that counseling sessions should run at least 60 minutes in order to adequately cover all of the material pertaining to borrower rights and obligations. HUD’s letter of warning was spurred by reports that some HUD counseling sessions were running as little as 30 minutes which is not enough time to provide an adequate presentation of all of the intricacies of the Reverse Mortgage.

HUD related to a third practice regarding a concern that lending institutions are providing potential borrowers with copies of the exam that they must pass after their counseling session in order to apply for their loan. The exam was initiated to ensure that HECM borrowers understand all of the elements of the loan including its costs and borrowers’ continued responsibilities.

HUD wrote, in part “The Department has received reports and concerns regarding FHA-approved Reverse Mortgage Lenders steering potential borrowers to specific Home Equity Conversion Mortgage (HECM) counseling agencies, lender representatives being present or even participating in counseling sessions, and lenders providing advance copies of borrower review questions used by counselors with potential HECM borrowers.”

For their own protection borrowers should ensure that their counseling session adheres to all of the HUD’s requirements.

Retirees who want to move to a different home, perhaps to downsize or relocate and move closer to family or friends, can take advantage of a unique Reverse Mortgage for Purchase. The Home Equity Conversion Mortgage (HECM) for Purchase enables individuals aged 62 or older to access the equity that they have in their current home and use it to pay for a new home without the difficulties of marketing their home through a real estate agent, waiting for a buyer and anticipating what the available funds will then allow them to purchase.

HECM for Purchase reverse mortgages followed the success of the HECM Standard. The Federal Housing Administration (FHA) recognized that many seniors who were interested in taking out a Reverse Mortgage wanted to do so in order to move to a different home. The HECM for Purchase product enables Reverse Mortgage borrowers to direct the proceeds of their Reverse Mortgage loan toward the purchase of a new home, thus eliminating many of the “middle-man” procedures of selling a house, buying a new one and then applying for a HECM loan.

In general, Reverse Mortgage borrowers are allowed to live in their home during the course of the HECM loan as long as they maintain the house and all obligatory loan payments such as the loan’s interest payments, homeowner insurance, property taxes and home maintenance. When a Reverse Mortgage borrower sells his or her house, moves or dies the home’s ownership reverts to the lending institution which then sells it and recoups its investment.

The Department of Housing and Urban Development introduced the federally-insured HECM loan in 1989 but until 2009 borrowers were obligated to remain in their home during the course of the loan. Seniors who wanted to buy a new home would be obligated to close on a traditional mortgage, buy a new house and then apply for a second, reverse mortgage. In 2009 the HUD launched the HECM for Purchase as a way for seniors who currently own a residence to buy their new home and obtain a Reverse Mortgage on that home within one single transaction.

The Reverse Mortgage for Purchase is not as popular a HECM loan as the Standard HECM or even the newer Saver HECM. The FHA believes that this is due to the fact that many seniors are not aware of the option.  In addition to the convenience of the HECM for Purchase, borrowers can use the loan proceeds to buy a more expensive house than they may have been able to do otherwise. The proceeds of a Reverse Mortgage for Purchase enables seniors to buy their new home without the need to make monthly mortgage payments, leaving pension and Social Security funds available for improvements on the new home, day to day purchases and a better standard of living.

As with traditional Reverse Mortgages, HECM for Purchase borrowers are obligated to live in the house and maintain all mandatory loan payments and home maintenance requirements. In addition, applicants must attend a HECM counseling session with an approved HUD counselor before their HECM loan application may be processed. When the borrower no longer lives in the home the new home reverts to the lending institution but neither borrowers nor their heirs will be liable for loan balances that exceed the value of the home. If that happens, as a federally-insured loan, the Federal Housing Authority will pay the difference.

With recent changes that have taken place in the Reverse Mortgage market, many people are now asking what the Home Equity Conversion Mortgage product will look like in 2013.

Although the HECM mortgage is scheduled to undergo some changes in the near future, at the present, there are only a few changes which are anticipated in 2013. Analysts see the HECM product as a stable Reverse Mortgage alternative which enables senior citizens to access part of the equity that they hold in their home and increase their income in their retirement years.

The basic structure of the Reverse Mortgage program will remain unchanged. Retirees, age 62 and older, will be able to apply for a HECM loan which will allow them to mortgage their property to a lending institution. Based on calculations of the property’s value, a portion of the home’s worth will be acquired by the lending institution for which the lender will pay, according to a regulated loan amount, as a line of credit or as monthly payments.

A third drawing option which allows borrowers to draw the loan funds as a lump sum payment has been available since the Reverse Mortgage was introduced in 1989 but is being phased out in 2013.

As in the past, borrowers will be obligated to maintain all maintenance and other home upkeep costs including property taxes, home insurance payments and home repairs. In addition borrowers must factor in the costs of the loan itself such as the origination fees, servicing fees and third-party fees while staying current with the monthly interest fee payments. The loan is insured with the Federal Housing Administration to protect both lenders and borrowers. One new 2013 change involves an escrow fund which borrowers must set up with a portion of their Reverse Mortgage loan’s funds to ensure that these obligations continue to be met for the lifetime of the loan.

For the foreseeable future both the HECM Standard and the HECM Saver will continue to be available HECM options, enabling borrowers to choose the loan framework that best suits their needs. The two loans are similar, but the HECM Saver, which places lower limits on the amount that borrowers can access, carries lower costs than the HECM Standard.

Potential HECM borrowers must attend a counseling session with a certified HECM counselor at which time the counselor will explain the entire Reverse Mortgage loan framework, different scenarios and various situations in which a Reverse Mortgage is and is not in the best interests of a potential borrower. All individuals who are signed onto a home’s deed must attend the counseling session, even if only one individual is actually signing onto the HECM loan. The counselor will help individual(s) assess which Reverse Mortgage option is the best alternative according to the borrower’s specific circumstances. These counseling sessions have proven themselves since they were first introduced in 2009, as a way of ensuring that HECM borrowers understand exactly which options they have when they sign up for a Reverse Mortgage. The HUD is not expected to introduce any new changes to this regulation.

The Department of Housing and Urban Development is presently involved in a court case which tests its policy of terminating the HECM loan when the loan’s borrower dies, even if a spouse is still living in the house. The Federal Appeals Court has strongly suggested that the HUD revise its policy for HECM borrowers who signed onto a Reverse Mortgage before September 2010 when the regulation mandating Reverse Mortgage counseling sessions took place. Many borrowers who did not attend such a session did not have an opportunity to learn about this clause. The revision of the “spouse-in-the-house” clause, at least for Reverse Mortgage borrowers who took out their HECM mortgages prior to September 2010, presents another possible change which may take place in 2013.