|HUD No. 10-205
September 22, 2010
HUD ANNOUNCES NEW REVERSE MORTGAGE OPTION
Lower upfront premium makes FHA Home Equity Conversion Mortgage more affordable
WASHINGTON - The Federal Housing Administration (FHA) today announced a new modified version of its Home Equity Conversion Mortgage (HECM) product. The HECM loan is a reverse mortgage insured by the federal government. It allows older home owners to tap into their equity to cover living expenses and health care costs while continuing to live in their home without having to make the mortgage payments that are required with a traditional mortgage or equity loan.
FHA designed HECM Saver as a second reverse mortgage option for the purpose of lowering upfront loan closing costs, for homeowners who want to borrow a smaller amount than what would be available with a HECM Standard loan. This option will be available for all HECM case numbers assigned on or after October 4, 2010.
"Despite the popularity of our HECM loan product, we have noted concerns that some senior citizens find that our fees are too high for them," said FHA Commissioner David Stevens. "In response, we created HECM Saver which will provide seniors with a reverse mortgage option that significantly lowers costs by almost eliminating the upfront Mortgage Insurance Premium (MIP) that is required under the standard HECM option."
HECM Saver will have an upfront premium of only .01 percent of the property's value. Under the HECM Standard option, the upfront premium will remain at 2 percent. The MIP for both HECM Saver and HECM Standard will be charged monthly at an annual rate of 1.25 percent of the outstanding loan balance.
The reduction in upfront fees will be accomplished while substantially lowering the risk to the FHA insurance fund because the principal limit or amount of money available to a borrower under theHECM Saver program will be reduced. Borrowers will receive approximately 10 to 18 percent less under the HECM Saver option, than they would receive under HECM Standard.
HECM borrowers may opt to receive funds as a lump sum at loan origination, establish a line of credit or request fixed monthly payments that are disbursed for as long as they continue to live in the home. Funds are advanced to the borrower and interest accrues, but the outstanding amount does not have to be repaid until the borrower dies, leaves the home or sells the property. At that time, if the balance due on the loan exceeds the value of the home, FHA insurance pays the difference.
For more information on FHA HECM Saver option, read FHA's mortgagee letter 2010-34.
By Deborah Nance
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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.