Recent Changes to Reverse Mortgages
Recently, there have been a lot of changes in the reverse mortgage market in Colorado, and other states in the U.S. This has led to speculations amongst people as to what the HECM home equity conversion mortgage – product will be like in 2013. The HECM mortgage product is programmed to undergo several changes within the near future, however, currently only a few of these changes are expected to take substance in 2013 in Colorado.
The forecasters consider the HECM product to be a stable alternative for reverse mortgage that enables the senior citizens to use or access part of their home equity and improve their income in the years of retirement. There will be no changes to the basic constitution of the reverse mortgage product in Colorado. Senior citizens of the age 62 or above, who have retired will be eligible to apply for a home equity conversion mortgage loan. This will allow them to advance their house to a lending organization.
The lending institution will acquire a certain portion of the home’s equity, which will be based on the calculations of the value of the property, and the lender will make payments for the portion acquired as a regulated loan amount, monthly payments or a line of credit. A third option that was introduced in 1989, since the inception of reverse mortgage, is now being phased out in 2013.
This option had allowed the borrowers to extract the loan funds in the form of a lump sum payment. The new changes will not affect the obligation of the borrowers to maintain all home upkeep and maintenance costs including home insurance payments, home repairs and property taxes.
Additionally, borrowers will also be required to make payments for the origination fees, third-party fees and servicing fees, including the monthly interest fee payments. The reverse mortgage loan will be insured with the FHA (Federal Housing Administration), and this will protect both borrowers and lenders. A new change, however, that is expected in 2013, will involve an escrow fund that the borrowers are required to set up with a certain portion of their funds from their reverse mortgage loan. This escrow fund will act as a guarantee that the obligations set out in the reverse mortgage agreement will be met throughout the term of the loan. For the predictable future, both the HECM Saver and HECM Standard will be the two available options in Colorado, which will enable the borrowers to select the loan framework that is most suitable to their needs.
Both these loan types are similar; however, the HECM Saver has lower costs as compared to the HECM Standard. This is because the former loan type places lower limits on the sum that the borrowers can access. The probable HECM borrowers will be required to be present at a counseling session that will be held by a certified HECM counselor. At this session, the counselor will give an explanation of the entire loan framework of the reverse mortgage, different situations or scenarios where a reverse mortgage will be and will not be in the best interests of the probable borrower. There will be no expected new changes to this regulation.
Presently, the Department of Housing and Urban Development is actively involved in a court case that will test the policy laid out by them that requires the elimination of the termination clause of reverse mortgages. Previously, a reverse mortgage would end when the borrower of the loan died, regardless of the fact whether he had dependents living in the house or not. The Department of Housing and Urban Development has proposed the cancellation of this clause. Therefore, this revision of the clause is another possible change that may take substance in 2013.
For more detailed information, and to find out if you qualify now for a reverse mortgage.
About the Author
Brian Quigley has been in the Denver mortgage industry since 2003. Customer satisfaction has been his top priority while guiding clients through the home loan qualification process. He is proficient in all types of mortgage financing including FHA/VA, Conventional, USDA, Jumbo, Portfolio, 1031 Exchanges, Reverse Mortgages, Refinancing, Construction loans, and FHA 203K loans.