Reverse Mortgages

My limited experience with reverse mortgages has convinced me  that the upfront costs of acquiring such a mortgage,  are steep, making this financing mechanism unaffordable to most. The homeowners who desire such a mortgage, in my experience,  have usually been retired seniors who are at the point of needing cash for medical funds or home health care. These are people who want to stay in their homes, despite declining health,  in order to age “in place”. The FHA promises to help make this program more affordable with a product called Home Equity Credit Mortgage Saver, which will reduce it’s upfront fee to .01% of the property’s total value, but will this create significant demand for this product? Will this product become more available to seniors in the future? We would love to hear your experience with Reverse Mortgages.

The article below, by Jacob Gaffney and published by Housing Wire, outlines some of the proposed improvements to this program, which, in theory, helps Seniors stay in their homes.

The Federal Housing Administration (FHA) will modify its Home Equity Conversion Mortgage (HECM) product to provide a more affordable reverse mortgage for seniors looking to tap the equity of their homes, according to the National Reverse Mortgage Lenders Association (NRMLA).

An HECM is a reverse mortgage loan insured by the federal government, used by seniors to cover gaps in living expenses. The outstanding balance is not due until the last borrower leaves the home, sells or dies. With an HECM, if the balance due upon settlement of the loan exceeds the value of the home, the FHA insurance covers the difference.

According to the NRMLA, seniors often find the fees associated with a traditional HECM to be too high. The new “HECM Saver,” will provide seniors with a reverse mortgage option that significantly lowers upfront costs by virtually eliminating the upfront Mortgage Insurance Premium that is required under the standard HECM option.

Housing and Urban Development Deputy Assistant Secretary Vicky Bott reported accompanying changes intended for the existing HECM product, which will now be referred to as a “HECM Standard.” The introduction of the HECM Saver and changes to the HECM Standard are expected to be effective shortly after the new federal fiscal year begins this October.

According to HUD, under the HECM Standard option, the upfront mortgage insurance premium (MIP) will remain at 2% of the value of the property, or 2% of the maximum FHA loan limit of $625,500, if the property has a value greater than that. HECM Saver will have an upfront MIP of only .01% of the property’s value, significantly reducing upfront costs.

This cost savings in upfront fees is able to be achieved because the amount of money available to a borrower, an amount known as the “principal limit,” under an HECM Saver will be reduced, substantially lowering the risk to the FHA insurance fund. Borrowers will receive approximately 10% to 18% less under the HECM saver option, than they would under the HECM Standard option.

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