This is not your parent’s reverse mortgage

This is not your parents reverse mortgage; Reverse Mortgages, specifically the Home Equity Conversion Mortgage (HECM) insured by the FHA and governed by HUD, have come a long way from the wild west days.  Since when? Oh, prior to around 2011!

Here is just a brief list of what was wrong…

• There were little to no requirements to qualify… hence its reputation as a “loan of last resort”. Even if you couldn’t pay taxes, insurance and maintenance on a home, if you had equity in your home and could fog a mirror there was a good chance you could qualify!
• There was NO spousal protection… if the non-borrowing spouse was left off the title of the home and the borrowing spouse died? The loan had to be paid off, refinanced or plan on moving out of the house.  The old “they stole my parent’s house” story.
• There was a LOT of predatory lending… No question some lenders advised their borrowers to take out a HECM, draw 100% of the available cash and invest in other places that, shall we say, were often ill-advised
• Those old loans had very high borrowing limits… and there was no restriction on how much of the limit could be initially drawn. Again, bad investment advice usually followed.
• And, those were some very high cost loans… it could have been very unfortunate if the borrower met the wrong reverse mortgage originator.

So, what has happened to totally change a scary, buyer beware product into one of today’s safest long-term financial products available to borrowers 62 and over?

• Borrowers are required to now undergo a financial assessment… if you can’t prove you can pay for the ongoing costs of taxes, insurance and home maintenance, you could find yourself not being able to get a HECM.  Most importantly, if you have waited until it really is your “loan of last resort”, there’s a good chance you won’t qualify.
• HUD now requires an independent counseling session, from a list of HUD approved counselors… to make sure borrowers understand the ins and outs of a HECM. Mortgage originators provide the approved FHA list, but cannot provide any recommendations of any counselors on the list.
• Non-borrowing spouses can now stay in the home after the death of their spouse… if they are on title!  If not, there are still some risks, but it is relatively easy to add a non-borrowing spouse to title with the help of a real estate attorney.
• Lenders do not pressure you to maximize the balance on your line of credit… It’s your money, and it’s your long-term financial well-being at stake. Tap your equity when you think best.
• Thinking about using the money to purchase a financial product? Borrowers must now sign a form stating that is their intent…  and it cannot be a product related to the lender.
• And now, most closing costs are no more than a typical mortgage, with limits placed on how much you can pay in loan fees to insure you aren’t being overcharged. Where are the costs that are higher?  Mortgage Insurance is higher up front… which is what provides the most important benefits of getting a Home Equity Conversion Mortgage, the lack of personal guarantees, the non-callable feature on the line of credit and the automatic growth of the line of credit regardless of the value of the home that protects the borrower in the event of a market crash as happened in 2008.

Next Steps?

Still thinking the new HUD/FHA Home Equity Conversion Mortgage is too good to be true?  There are many more reasons anyone 62 and over should consider a HECM or other reverse products and, shile we cannot provide all of the information you need to make an informed decision in one blog post, simply reach out to us at Central Florida Reverse and let’s discuss any concerns you may have. Find out why what you thought you knew about reverse mortgages is keeping you from one of the best long term financial products on the market today.

Central Florida Reverse, empowered by NEXA Mortgage, NMLS 1660690, provides an Equal Housing Opportunity. Information is subject to change without notice. This is not an offer for extension of credit or a commitment to secure a loan. Some restrictions may apply. This material is not from HUD or FHA and has not been approved by HUD or any government agency.

Richard W. McWhorter, NMLS 1618644, is an independent reverse mortgage specialist and Certified Mortgage Planning Specialist® licensed in Florida (FL LO-44137) and Georgia (GA Mortgage Residential Licensee 57530), however can assist in your reverse mortgage needs in all states except MA and NY. Follow him on LinkedIn, the Central Florida Reverse website or contact him directly at rmcwhorter@nexamortgage.com