Breaking FHA Reverse Mortgage News
by Lou in PA, LeeAnne in OR, Christina in MI, Rob in CA, and Jay in NY
Ask Kate reports breaking FHA reverse mortgage news: Effective October 1, 2013, the Department of Housing and Urban Development (HUD) will begin tightening up on the requirements for the FHA reverse mortgage (Home Equity Conversion Mortgage, HECM for short). The goal of the Reverse Mortgage Stabilization Act of 2013 is to ensure the program remains strong enough to aid future generations of senior homeowners.
New restrictions include a reduction of proceeds (approximately 15%) that can be withdrawn at closing and during the first year. There is also an increase to mortgage insurance premiums.
A second overhaul of the program includes the financial assessment of senior applicants. Homeowner funds must also be set aside to meet property tax payments and homeowner insurance premiums. These noteworthy changes are effective January 13, 2014.
Homeowners ask Kate about Reverse Mortgage Requirements 1. Lou in Glen Mills, Pennsylvania:
Hi Kate, What if, along with a 72 year old on the deed, there are also 2 younger sons on the deed. How would that work? Is it still possible? 2. LeeAnne in Springfield, Oregon:
My father took a reverse mortgage on his home in 2006, he is 93 years old now and recently had a fall that will make it necessary for him to go to a nursing home for care.
I have been living with him in his home and providing in home health care for the last 6 years. What happens to his reverse mortgage if he is admitted to a nursing home?
Do I need to move out immediately? With recent home value recessions, he now owes more on his home than it is worth. I have a Power of Attorney (POA) for him in the event he becomes incapacitated. What will happen next? Thank you for your help. 3. Christina in Michigan:
Hi Kate, My husband and I have been thinking about doing a reverse mortgage. I would like to know if my husband should die before me in a reversed mortgage would I have to move out of our home because I'm not 62.4. Rob in Delhi, California:
I have question about reverse mortgage eligibility. My sister age 62 lives in a home which is paid off. Her husband is only 54 years old which normally means they cannot do a reverse mortgage.
However this house is not owned by them jointly, it is owned by 3 people: my sister (62), myself(62) and my brother (63). Neither me nor my brother live in the house (we have are own homes and lives elsewhere).
If both me and my brother deed her (an individual) the house for minimal amount (say $1), then can she qualify for a reverse mortgage by herself, not jointly with her husband.
All of the above live in California.5. Jay in Bethpage, New York:
Is it possible to get a reverse mortgage in my name only with a current outstanding home equity loan in my wife's name?
Kate Answers: Conventional and FHA Reverse Mortgage Programs
What's a reverse home loan? They are mortgages for homeowners who are at least 62 years old.
Senior borrowers can use the program to tap into the current equity in their homes without having a mortgage payment. Repayment is deferred until the time of death, sale of the home, or a 12 month period passes without the borrower living in it as a principal residence.
Note, Lou and Rob
, the youngest
borrower in the transaction must be at least
62 years old and all borrowers must live in the home as a primary residence.
Reverse Mortgage Trivia
A reverse mortgage never becomes underwater. This means the estate will never owe money when a reverse mortgage is paid off, even if the home has decreased in value.
Interestingly, in the case of a lender-default (not farfetched considering the demise of many banks after 2007), FHA will make continue making payments to the borrower.
Conversely, when the reverse mortgage becomes due and payable, lenders are paid in full regardless of the borrowers' home equity via the required FHA mortgage insurance. Homeowners are off the hook!
Reverse Mortgage Implications for Non-Borrowing Spouse and Relatives
To answer more of above questions, what about spouses or relatives of reverse mortgage borrowers who are not co-borrowers yet live in the house? Are they at risk of losing their homes?LeeAnne and Christina
, as it still stands today, if the borrower dies or has not lived in the house for 12 months as a principal residence, the home must be sold. Of course this displaces non-borrowing surviving heirs.
However, a 2011 lawsuit filed by AARP argues that spouses should be granted the same protection as those named on the home title. In response, HUD revised its guidelines to clarify that a surviving heir of a reverse mortgage borrower is entitled to repay the reverse home mortgage after the borrower no longer meets occupancy requirements.
Note though that HUD released this statement on September 3, 2013:
More often than not, the surviving nonborrower spouse, who is not on the deed, may not be able to pay the balance due or meet the criteria to qualify for a HECM of their own on the property in order to remain in the property. During counseling, all parties must be made aware that the HECM cannot be assumed by the non-borrower spouse.
So it seems, regardless of the AARP lawsuit, pressure by the media, and current changes updating reverse mortgage, the majority of non-borrowing spouses and heirs will be displaced after the borrowers on a reverse mortgage no longer meet the occupancy requirements.
When Your Reverse Mortgage Application Is Not Cookie Cutter Jay
, it makes sense based on my experience in mortgage lending that a borrower getting a reverse mortgage cannot use the proceeds to pay off a loan in the name of anyone other than the borrower.
However, I will preface this by saying never be afraid of asking for an exception. If you decide to go this route, line up your ducks first. Write a letter explaining whose name the house and the mortgages are in and why. Details help. Back up your statements with paperwork.
In 2008, Congress authorized the HECM for Purchase program. Jay, find an extremely experienced Reverse Mortgage Lender and ask if this program would fit your circumstances.
Keep in mind, you are nothing but a pile of paperwork in a folder to the underwriter who grants mortgage approval. In that light, make sure your paperwork is heads and shoulders above the others. Use the paperwork to set yourself apart!
Is doing so a hassle? Yep! But it could be worth it and you'll never know unless you try! Go here for Kate's personal mortgage planner checklist
Best wishes to reverse mortgage borrowers and their heirs,
Insist on using an authentic RM counselor before beginning the loan process. The $125 to $150 spent is well worth the cost and then some.
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