How will the new HECM program changes affect my ability and eligibility to get a reverse mortgage?
On September 3, 2013 FHA released it’s newest mortgagee letters detailing the upcoming changes to the HECM program. The changes are many and fairly complex, which could make it more difficult for senior homeowners to understand this already complex product. Here’s my shot at simplifying it. (sort of). There are basically 4 major changes to the program.
Loan amounts (LTV)
Disbursement Limits - How much cash can I get?
TIMING - Some of the changes take place on October 1 and some take place on January 14.
PRODUCT -Beginning October 1, 2013, there will no longer be two reverse mortgage products. Currently we have a HECM Standard and a HECM Saver. No longer - on October 1 there will only be one type of reverse mortgage. The HECM 2013. (I just made that name up, not sure what FHA will call it, probably just HECM)
INCOME QUALIFYING -Beginning January 14, borrowers will have to “qualify” for a reverse mortgage with underwriting requirements similar to traditional mortgages. Rather than using ratios though, we will be using “residual income”. This means that after all a homeowners expenses do they have enough residual income to live on. I’m sure will will have charts and guidelines likely based on home size, county, number of occupants as to what an acceptable dollar amount is required for “residual income”. Clients whose residual income is not sufficient will be required to have funds from their reverse mortgage “set aside” to provide for life expectancy payment of taxes and homeowners insurance. Quote: “Key components of underwriting HECM transactions include a credit history analysis, a cash flow/residual income analysis, analyzing compensating factors and extenuating circumstances and determining if the HECM applicant is eligible for the loan.”
CREDIT QUALIFYING - We will also be qualifying homeowners based upon their credit history. Do they have a good history of paying their property taxes and keeping the home insured. Here’s what the underwriters will be evaluating when looking at a credit history and analysis:
In-depth review of all components of the mortgagor’s credit report to evaluate mortgagor debts, obligations and payment history to determine if they have a satisfactory credit history that demonstrates ability to manage
finances and credit.
Identify debts/obligations that must be included in the residual income analysis.
Determine if mortgagor has a demonstrated history of timely payments of property taxes.
Determine if mortgagor has maintained property and flood insurance on the subject property.
LOAN AMOUNTS - How Much Can I Borrow? FHA has lowered the loan amounts on HECM’s. Currently on the HECM Standard the loan to value runs from 61.0% - 77.6% depending upon age and interest rates. Beginning October 1, 2013 those loan to values will be reduced about 10%. As rates rise, the loan to values will decrease even more. (If the expected interest rate were to be 7%, the loan to value for a 62 year old would only be 34.3%.)
What does this mean for senior homeowners considering a reverse mortgage? The obvious answer is - Get your reverse mortgage as soon as possible. I know we cannot predict interest rates, but they have been historically low for a few years now and a lot of folks think they only have one way to go.
DISBURSEMENT LIMITS - How much cash can I get? On October 1, 2013, FHA will begin limiting the amount of funds you can take at closing and for the first year of the loan. Homeowners will be limited to taking on 60% of the Principal Limit/Loan amount; or, if they have a mortgage payoff greater than 60% of the loan amount they can get an additional 10% of the Principal Limit. (it’s kind of confusing) but basically you can only get 60% of the available funds during the first year.
FEES - Are the fees changing? Yes, based upon how much of your funds you access. For senior homeowners who do not need to access all of their available loan proceeds they may qualify for a reduced upfront Mortgage Insurance premium. Seniors who take 60% of the available funds or less in the first year of their reverse mortgage program will have an upfrom MIP fee of .5% of thier home value. (Example: $1500 on a $300,000 home) Seniors who need to access more than 60% of the available funds will be charged an upfrom Mortgage Insurance Premium (MIP) of 2.5% of the home value. (Example $7500 on a $300,000 home) Currently those rates are .01% of home value for a HECM Saver or 2% of home value on a HECM Standard.
This was a long post, but I hope it is helpful to you as you consider whether or not a reverse mortgage suits your needs. Change is always difficult, but I believe these changes will help to keep reverse mortgages a viable product for senior homeowners to “Use Their Home To Stay At Home” for a long time to come. What do you think?
To see what you qualify for on a reverse mortgage please email me at email@example.com the following information. Your age and your spouse's age, your home value, and your approximate current mortgage balance. Thanks!
By Deborah Nance
Your Local Southern California Reverse Mortgage Professional
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iReverse Home Loans, LLC, NMLS#810502 originates reverse mortgages in Alabama, Alaska, Arizona (MB-0919584), California, Colorado, Connecticut, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon (ML-5378), Pennsylvania, South Dakota, Tennessee, Texas, Utah, Vermont (1164-MB), Virginia, Washington and Wisconsin.
Important Information: Reverse Mortgages are neither "endorsed" nor "approved" by the Federal Government. The FHA (Federal Housing Administration) provides certain insurance benefits for lenders and borrowers in connection with the lender’s HECM loans; the FHA does not make or originate loans. The owner(s) retain title to the property that is the subject of the reverse mortgage until the person sells or transfers the property and is therefore responsible for paying property taxes, insurance, maintenance and related taxes. Failing to pay these amounts or failure to maintain the condition of your property may cause the reverse mortgage loan to become due immediately. A reverse mortgage is a complex loan secured by your home. Whether such mortgage makes sense for you depends on your financial situation and needs. For these reasons, we strongly recommend that you consult with a qualified independent housing counselor, family members and other trusted advisers before making this decision. This website is not from HUD or FHA and was not approved by HUD or any government agency.