Reverse Mortgage Senior Safeguards
A Reverse Mortgage is a very important decision for any senior. Most likely you have never applied for any loan like this. Most people are cautious or apprehensive because of possible misconceptions regarding a Reverse Mortgage.
Recent changes to guidelines make the current Reverse Mortgage more beneficial than ever. Being that a Reverse Mortgage is typically a FHA (Government Insured Product) it is heavily regulated.
Bottom-line is because the FHA regulates the industry, a HECM has many more reverse mortgages protections for consumers than will be found in most mortgages or other financial transactions. Any senior that would derive a benefit from a HECM can enter the transaction having received full disclosure, and knowing that the program insures them against nearly all the risks that are erroneously thought to be part of doing a reverse mortgages
Reverse Mortgage Counseling
Getting a 3rd party’s help isn’t suggested, it required. No lender is permitted to begin processing a reverse mortgage application, refinance or purchase, for any borrower until they have completed mandatory reverse mortgage counseling. This is conducted by a HUD approved counselor, and they have received their Certificate of HECM Counseling.
This is checks and balances system to make sure the borrower completely understands the loan they are getting. These counselors are there to make sure the loan officer have explained everything in detail and to make sure the borrower is aware for their responsibilities.
The most common misconception is that when senior does a reverse mortgage, they are giving the lender the house. This is just not true.
A reverse mortgage is a first deed of trust mortgage, like most any other mortgage they have ever had. In all cases, the borrower remains the owner of the home. The owner can even keep the house in their Living Trust. All that happens is the lender simply has a lien on the property that is used to secure the mortgage. Just like every mortgage they have had in the past.
The homeowner is free to do any improvements on the house they want. Sell the house at any time with no pre-payment penalty.
The owner can leave the house to any heirs of their desire. And at no point, is a house taken out of a living trust if there is one in existence. And one can be created and recorded at any time.
Insured by FHA Mortgage Insurance
The main protection this is involved with a Reverse Mortgage is the FHA Mortgage Insurance. (MIP) This protects the homeowners, Heirs and Lenders. Basically everyone involved. This is how the Government can regulate the reverse mortgage industry so well. In signing this mortgage, neither the borrower, nor the heirs or estate, has any personal liability. Regardless of how long the borrower remains in the home, and despite the final balance due on the mortgage, the borrower is never liable to repay more than the value of the home at the time of sale.
The homeowner is protected, because the government oversees the lending guidelines from everything from fees to making sure the borrower can live in the house for as long as they reside it. The FHA guidelines also help with qualification if there is any negative issues on the credit report.
The Heirs are protected because the FHA insurance makes a reverse mortgage a non-recourse loan. Namely if for some reason due to the economy there is no value in the house, the Heirs have the right to turn the house over to the lender with no fee, tax or penalty to their credit.
The Lender is protected by having the ability to collect any financial losses from the government.
In signing this mortgage, neither the borrower, nor the heirs or estate, has any personal liability. Regardless of how long the borrower remains in the home, and despite the final balance due on the mortgage, the borrower is never liable to repay more than the value of the home at the time of sale.
Rates and Fees
A combination of Federal statutes and HUD mandates control how Reverse Mortgage Rates are determined, and what fees can be charged to the consumer. In fact, the reverse mortgage may be the only mortgage with an origination fee formula that was determined by Congress. Conventional loans often include a variety of fees that HUD does not permit a lender to pass on to the reverse mortgage borrower. With the amount of disclosure that is required in a reverse mortgage, there should never be any doubt about the cost of doing the loan.
The Government understands that this is a necessary tool in some homeowner’s retirement. FHA has done their best to make sure that this product is there for the benefit of the homeowner.