•    Be at least 62 years of age
•    Own the property outright or have a low enough mortgage balance that the mortgage can be paid in full at closing using proceeds from the reverse mortgage loan
•    Use the property as a full-time, permanent residence
•    Receive third-party financial counseling from a Department of Housing and Urban  Development-approved counseling agency
Reverse mortgages include no income or medical requirements, such as credit checks, income verification, or physicals.  Many seniors qualify for reverse equity mortgages; however, what if you are a senior homeowner who qualifies for a reverse equity mortgage, but doesn’t necessarily need one?

The following example serves as a guideline for senior homeowners who are contemplating a reverse mortgage loan for reasons other than home improvement, paying off their remaining mortgage, or helping with day-to-day expenses.

QUESTION: My idea is to take out a reverse home mortgage now, deposit 25 percent in a liquid account to draw on if needed and invest 75 percent in an insured account with high interest.  Is this a good plan?
ANSWER:  No.  If you don’t need the reverse home mortgage money yet, there is no reason to obtain one now and start accruing interest on money you really don’t need.  However, this might be a good time to shop around among reverse mortgage lenders to compare the FHA, Fannie Mae, and Financial Freedom Plans.

If you want to arrange a reverse mortgage now, the popular credit line alternative might be the best option.  The credit line makes funds available when you need them in the future, such as for a new roof or a trip around the world.  While interest doesn’t accrue until you start using the money, not using the available money is an expensive choice because the upfront loan fees and other costs begin accruing interest whether you use any funds or not.

Since 1934, the FHA has helped more than 34 million families purchase homes with affordable mortgages and fair payment terms. Still, many experts feel that the agency needs to adapt to today’s market place. The ultimate intent of the Expanding American Homeownership Act is to enable to FHA to use risk-based pricing to reach underprivileged borrowers more effectively. The act, or bill, specifies three main amendments to the National Housing Act:

1. Modify guidelines governing the maximum principle on loan obligation.

2. Extend the mortgage term.

3. Revise requirements for cash payments by the borrower in the eligibility criteria for mortgage insurance.

So, what does this all mean, and how does the Expanding Homeownership Act apply to the typical American homeowner? More importantly, how does the Act relate to reverse home mortgages and FHA reverse mortgages?

The following two specifications of The Expanding Homeownership Act relate specifically to reverse mortgage loans and reverse equity loans:

1. The Act eliminates the current statutory three percent minimum down payment, reducing a significant barrier to homeownership.

While many more citizens can now own homes, lowering down payment requirements may also increase monthly mortgage payments for many borrowers. High mortgage premiums will ultimately lead to more senior homeowners who struggle to pay their mortgage premiums after retirement, thus raising the number of seniors who contemplate applying for reverse mortgage loans.

2. The Act increases and simplifies the FHA reverse mortgage loan limits. FHA’s loan limit in high-cost areas would rise from 87 to 100 percent, and in lower-cost areas from 48 to 65 percent of the conforming loan limit.

The FHA reverse mortgage limits used to be a very worrisome for people who wanted to borrow against their home’s equity. This change is crucial in today’s housing market. In many areas of the country, the existing FHA limits are lower than the cost of new construction, eliminating FHA financing as an option for buyers of new homes in those markets. Again, more federally insured homeowners will ultimately result in more senior owners who will consider taking out reverse mortgage loans later.

]]> http://www.reversemortgagehelp.com/requirements/the-expanding-american-homeownership-act-and-reverse-mortgage/feed/ http://www.reversemortgagehelp.com/consumer-information/marketing-reverse-mortgages/ http://www.reversemortgagehelp.com/consumer-information/marketing-reverse-mortgages/#comments Thu, 04 Sep 2008 14:32:55 +0000 info http://reversemortgagehelp.com/?p=100 With the growing popularity and number of people taking out reverse home mortgages on the rise, marketing strategies are becoming more uninhibited. With more companies using tricky and ill-intended marketing tactics, some older homeowners may find themselves unable judge the credibility of a lender or company by its advertisements.

Many companies have started using direct mail pieces with flashy slogans such as “Don’t pay the bank, have the bank pay you” and so forth. These types of advertisements gloss over the risks involved with reverse mortgages.
Some lending companies have also begun to provide “Free, no-obligation” seminars and speaking appearances throughout the country to “spread the word” about reverse mortgage solutions. A few topics you may have seen or will see include:

• Using a reverse loan to pay for long-term care
• How reverse mortgage programs can reduce estate taxes
• Maximizing estate value with a reverse loan
• Supplementing your monthly cash flow

Homeowners should be extremely wary of such reverse mortgage marketing schemes. Do not attend seminars or reply to any lending companies that contacts the homeowner directly; as these lenders often use inaccurate and misleading data to persuade potential borrowers. To illustrate this point, observe that each of the above seminar titles contains incorrect or misleading data. For instance, using a reverse mortgage to pay for long-term care is not practical because homeowners must reside in their home on a full-time basis to qualify for a reverse mortgage. Furthermore, reverse mortgage loans do not affect your real estate taxes one way or the other; nor do they affect the value of your home.

While true that reverse equity mortgages supplement your monthly cash flow, this statement is critically oversimplified, because a reverse mortgage will ultimately be paid back to release a lien placed upon the borrower’s property.

The best advice to any senior homeowner who is interested in a reverse equity mortgage is:
1. Attend the FHA required counseling session, and
2. Know your rights and responsibilities.
Reverse equity mortgages can be an attractive option for some seniors, but this type of loan does come with a specific set of requirements and regulations. Any consumer considering using a reverse loan to the equity in his or her home should carefully examine the terms of the mortgage before committing.

Because of the many desirable aspects of reverse mortgages, this type of loan tends to be a hot item these days. Inadequate retirement funding, as well as problems within the traditional mortgage market, makes reverse mortgages a smart choice for the senior homeowner.

So, who is securing all of these reverse mortgages? This article provides some interesting, current statistical data concerning reverse mortgages. These statistics take into account several demographical criteria in order to provide an up-to-date and comprehensive look at the reverse mortgage market.

The following data comes from HUD, or US Department of Housing and Urban Development, studies, and provides information that is current to April 2008. The data is based on HECM, or Home Equity Conversion Mortgages, which constitute 90% of all reverse mortgages secured overall.

Interest Rates

Current HCEM Rate: 3.57%

Highest Rate (since 2001): 6.77%

Lowest Rate (since 2001): 2.45%

The Typical HECM Borrower
Age	75
Home Value	$289,000
Principal Limit	$159,000
Single Male	17%
Single Female	44%
Couples	39%
HECMs Lasting Under 7 Years	60%

*Percentages indicate number of specified borrowers versus total HECM borrowers

While each borrower is an individual with unique needs, this statistical data is not only interesting, but also can be helpful when contemplating a reverse mortgage. The larger reverse equity mortgage picture can provide confidence to the borrower that he or she is making a wise decision when securing a reverse mortgage.

The statistics confirm that reverse loans are an attractive option for senior citizens ages 62 and older who want the benefits of liquidity but have a large amount of their financial assets tied up in their home. The data also provides important principal limit data, which infers that most reverse mortgage customers only borrow about 55% of their home’s value. This data may work well to serve as a guide for the interested homeowner who is unsure of how much to borrow because even though a reverse mortgage loan works differently than most loans, the principal will still have to ultimately be repaid.

Consumer safeguards are in place to regulate the reverse mortgage industry and protect the interests of senior citizens and their families. One of these consumer safeguards is mandatory reverse mortgage counseling sessions. The FHA requires counseling sessions to inform older homeowners on their options when opening a reverse mortgage account, as well as identifying specific borrower responsibilities throughout the life of the loan.

Lenders also have many responsibilities when originating a reverse mortgage loan, as well as continued lender responsibilities designed to maintain the integrity of the loan. These responsibilities include:

• A reverse mortgage lender must give the borrower a statement prepared by the local or county office on available independent counseling and information services.
• The lender must also give the borrower a description of the relevant features of the reverse mortgage being offered. This should include the following information:
o The interest rate to be charged and whether the rate is fixed, variable or both;
o Interest accrues from the time monies are advanced to the borrower and the interest is compounded;
o All reverse mortgage fees and costs that must be paid by the borrower;
o A description of any refinancing features that have been discussed with the borrower;
o Any events that could terminate the reverse mortgage such as death or moving from the residence;
o A description of any shared appreciation or equity participation features; and
o A toll-free telephone number and the name of a contact person who can answer any questions, comments or complaints that the borrower may have. If there is no toll-free telephone number, the lender must accept collect calls.
When the borrower understands the reverse mortgage lender’s responsibilities, the reverse mortgage application process becomes less confusing. Educated borrowers are also better able to spot any immoral practices by the lender, who may have assumed that the older borrowers do not know or understand their rights.

While a reverse mortgage “appreciates,” however, there are also a few, limited additional reverse mortgage costs that the lender can either charge you, or that naturally incur due to the requirements of the loan. Borrowers may be able these directly or add some reverse mortgage fees to their loan balance.
The only reverse mortgage fees, costs and payments that a reverse mortgage lender may charge during the loan are:
• The cost to maintain the structural integrity of the property.
• The cost of any appraisal used for refinancing or extending the loan.
• The cost of property taxes and real estate insurance.
• A monthly servicing fee with a cap of $30.00.
• Interest on the loan monies
• The cost of additional mortgage insurance (which is under the discretion of the borrower and is NOT required).
At the End of the Loan
At the end of the reverse mortgage loan, there may be additional fees, costs, or payments. The lender may charge a termination or maturity fee. This fee could be the actual cost of arranging the sale of the property in order to remove the lien. Costs may include broker’s fees, advertising costs, moving and/or storage costs and legal and other fees incurred by the lender. There may or may not be a flat percentage fee.

Equity Participation / Shared Appreciation
The lender and borrower may agree to “shared appreciation” or “equity participation” in exchange for a lower interest rate. Participation mortgages got their name because the lender “participates,” or has the right, to a share in any increase in the value of the borrower’s home.

A Shared Appreciation Mortgage (SAM) is based on the appreciation in value of the property during the time between loan origination and loan termination. The lender receives a percentage of the appreciated value of the property, which is agreed-on at the onset of the loan, when the loan is terminated.

The convenience and flexibility of these features have made reverse mortgage loans hugely popular among senior homeowners in recent years.

This article provides some interesting data about why older homeowners ultimately decide to take out a reverse mortgage loan. The following list defines the top ten reasons why homeowners took out a reverse loan in 2007:

1. Pay off mortgage (20%)
2. Home repairs/improvements (18%)
3. Improve quality of life (14%)
4. Everyday expenses (10%)
5. Emergencies/unexpected (9%)
6. Pay off non-mortgage debts (7%)
7. Health or disability (5%)
8. Property taxes/insurance (5%)
9. Financial help to family (2%)
10. Investments, annuities, or long-term care insurance (1%)

There are no big surprises on this list. Most of the reasons given could be categorized under ‘financial necessity,’ which confirms the beliefs that reverse equity mortgages are generally used as a ‘last resort’ measure. This fact actually reaffirms the benevolent nature of reverse mortgage loans, because the loans provide help and positive financial options for seniors.

Number three on the list, however, being ‘improve quality of life,’ implies that a significant number of senior borrowers are taking out reverse mortgages for luxury items such as travel, RVs, and even small everyday luxuries like entertainment.

The fact that this list is not very “top-heavy” reinforces that every borrower is unique. The funds from the reverse mortgage can be used in anyway the homeowner the homeowner deems fit. The entire loan disbursement can be moved into investments, or the borrower can spend the money any way they wish.

One of the main reasons that many older homeowners are wary of taking out a reverse mortgage, however, is because they want to pass their home on to their children. A reverse mortgage loan seems to conflict with inheritance aims, because often the reverse mortgage balance matches or even exceeds the value of the home. Even though the principal of the loan can never exceed the home, the reverse mortgage is usually repaid using the proceeds from the sale of the house.

Fortunately, there is a way in which senior homeowners can secure a reverse mortgage and still leave their home to their children.

Life Insurance
If homeowners want their home to be passed onto their children, they should take out a life insurance policy that will pay off their mortgage, thus allowing the entire value of the home to pass to their children. In this situation, consider having your children own the life insurance policy, because, if the parent(s) become institutionalized, the cash value of this policy will be includable in their assets and may have to be withdrawn, or the policy surrendered in order to pay for long-term care expenses. If the children own the policy, there is a substantial likelihood that the life insurance premium will not be included in the parents’ countable assets, which is also beneficial in terms of Medicaid eligibility requirements.

Substantial life insurance policies written in the heirs’ name safeguards the borrower and their heirs, reducing an exposure many have not recognized in non-recourse loans. The property heir(s) can use the proceeds of the homeowners’ life insurance policy to pay off the reverse mortgage principal, and thus the loan is paid in full and the lender removes the lien from the property.

Today the FHA protects the interests of lenders and borrowers alike. The organization supports lenders by insuring bank loans, which guarantees lenders that loans will be repaid in the event of borrower default. Providing insurance on bank loans also supports borrowers because consumers are guaranteed loan funds even if the financial institution from which they borrowed folds before the end of an agreement.

The FHA federally insures HECM reverse mortgages (Home Equity Conversion Mortgages), the most popular type of reverse mortgage loans. Much like the federal government insures student loans, the federal government, guarantees these reverse equity mortgages, thus alleviating the risks for lenders and borrowers. The federal government regulates HECM reverse mortgages, capping fees and interest rates.

In the past, the agency’s reverse mortgage loan limits have been significantly lower than those of Freddie Mac and Fannie Mae. Recent reverse mortgage loan increases have changed those limits. The FHA has lost some hold on the housing market, due to slides in the market and increasing home prices. Still, many say the FHA are the safest bet because of their strict underwriting policies.

The limits set by the FHA differ for each county. HUD’s (U.S. Department of Housing and Urban Development) website lists the FHA limitations for all counties. In Missouri, the mortgage limits were between $271,000 and $521,000 depending on how large the home (one to four families). The limit can be increased to $625,000 if the borrower lives in a high-cost housing area. The limits are between 125% and 175% of any given property’s county median price value.

While the government is pounding away at laws to protect seniors and set up limit regulations, the FHA has the final say on each county’s current limits. You can find the FHA reverse mortgage maximum loan limit for your area by visiting HUD’s website.

Because of the recent surge in reverse mortgage loan popularity, many seniors are jumping on the reverse mortgage bandwagon. This is not a bad thing. In fact, reverse home mortgages are advantageous because all loan payments are deferred as long as the property remains the borrower’s primary residence. There is absolutely no obligation to repay the loan until the owner dies, the home is sold, or the owner otherwise vacates the property (for example, to move into an assisted-living facility).

Despite these advantages, there are many unscrupulous lenders out there waiting to prey on unsuspecting senior homeowners. Potential borrowers can avoid being taken advantage of by doing their research before applying for a reverse equity mortgage. One way to ensure success and satisfaction with a reverse mortgage is to borrow only from a HUD, (U.S. Department of Housing and Urban Development) approved reverse mortgage lender.

Interested homeowners can find many resources online that list HUD-approved lenders. One good site is www.reversemortgagepage.com, which has an easy-to-use interactive map that lists approved reverse mortgage lenders by state.

Top Lenders
Another good way to find a government-approved lender is to know which reverse mortgage lenders are most successful and have the highest success rates. The following is a list of the top 10 reverse mortgage lenders of 2008, based on volume:

1. Wells Fargo Bank NA
2. Financial Freedom Senior Fund
3. Countrywide Bank FSB
4. World Alliance Financial Corp
5. Omni Home Financing Inc
6. First Mariner Bank
7. Liberty Reverse Mortgage Inc.
8. Bank of America NA Charlotte
9. Everbank Reverse Mortgage LLC
10. Urban Financial Group
Of course, this list does not mean that these are the best institutions with whom to obtain a reverse home mortgage, only the most popular. The list and the website are only intended as springboards for the educated consumer.