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REVERSE MORTGAGE BASICS

(Issued by NRMLA)

Established in 1997, NRMLA is the national voice for lenders and investors engaged in the reverse mortgage business. NRMLA fulfills several roles, which include educating consumers about the opportunity to utilize reverse mortgages, training lenders to be sensitive to the needs of older Americans, developing Best Practices and enforcing a Code of Conduct to make sure lenders participating in the program treat seniors respectfully, and promoting reverse mortgages in the media.

NRMLA has issued the basic information for Reverse Mortgages, shown below, for all people who are interested in learning about reverse mortgages for themselves, or their parents, other elderly relatives, friends, neighbors or acquaintances.

All Reverse Mortgages—whether the government-insured Home Equity Conversion Mortgage (HECM) or a conventional product offered as a proprietary product by banks or savings and loans—share a set of common characteristics, which include the following:

§ You must be at least 62 years old and own a home. (Note: There are some conventional proprietary reverse mortgages that have differing age requirements.)

§ You ALWAYS retain title (ownership) to the home. The lender never, at any point, owns the home, even after you (or last surviving spouse) permanently vacate the property.

§ You must still pay property taxes and insurance, and keep the home well maintained. If you are unable to pay your property taxes and insurance, then a special set-aside from your reverse mortgage can be created.

§ Repayment of the loan occurs when you (or last surviving spouse) permanently vacate the home. You or your heirs (estate) then must facilitate the pay back of the loan using either private funds or selling the home. After the loan is repaid, all leftover proceeds from the sale of the home go to you or the estate. [ If your heirs inherit your home and want to sell it, they have up to 12 month or more (if the property is listed for sale) to repay the loan by selling the property or refinancing it. If the home is sold FHA will contribute up to 7% of the sales price to cover closing costs.]

§ The amount of funds you are eligible to receive depends on your age (or age of the youngest borrower in the case of couples), the value of the home, the interest rate and the upfront costs. With the HECM product, the county lending limit is a factor. With all products, the older you are, the more proceeds you are eligible to receive.

§ Loan fees can be financed, or paid out of the available loan proceeds. This means you incur very little out-of-pocket expense to get a reverse mortgage. In most cases, you only have to pay for the appraisal, which costs roughly $350 or more depending on your market.

§ The loan balance (amount owed) grows each time you access funds from your line of credit or receive a monthly payment. In addition, the lender is charging you interest on the outstanding loan balance as well as a monthly servicing fee.

§ Repayment of the loan is not required until you (or the last surviving spouse) permanently leave the home as a primary residence. For the HECM program, you can live up to 12 consecutive months outside the home, but this may vary for other products.

§ All reverse mortgages have a “non-recourse” feature, which means that the total amount owed can never exceed the appraised value of the home.

If the amount owed exceeds the home’s appraised value, then the lender or the federal government (in the case of the HECM product) will absorb that loss. No other assets of the borrower(s) can be attached or used to pay off the reverse mortgage; the house is the only security.

What does a reverse mortgage offer seniors?

§ The reverse mortgage, allows a homeowner to convert a portion of their equity in their home into a lump sum payment, a lifetime of monthly income payments, a line of credit or any combination of the above.

§ Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements, add safety features to the house, purchase automobiles, or RV's, take that "special" vacation or more.

§ How do you know if you’re eligible for a HUD reverse mortgage? The requirements are simple, you must be 62 years of age or older; own your home outright, or have a lower mortgage balance that can be paid off with proceeds from the reverse loan. You must live in your home and you’re required to receive consumer information from HUD-approved counseling source prior to obtaining the loan.

And, unlike a home equity loan or second mortgage there is no monthly payment, there is no asset, income or credit score requirement, the funds are tax free, and they do not affect your rights to social security or Medicare.

§ Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. It is possible for individual condominiums units to qualify under the Spot Loan program.

§ The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less.

§ Although you never have a mortgage payment, you, the homeowner, must keep the taxes and hazard insurance current, and keep the house in good repair.

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What Do People Do With A Reverse Mortgage?

A Few of Our Recent Reverse Mortgage Closings.

Elderly Couple Immigrant Citizens and the SubPrime Loan:

This couple, in their late 70's had recently and tragically lost their 37 year old son to a sudden brain anurysm when in grief and under emotional and financial duress signed documents which was represented to them as a 30 year fixed rate loan. Within 2 1/2 years their payment went from $1700 a month to $3450 a month. The 76 year old husband, in spite of back and severe kidney problems continued to work as a gardner since his social security is less than $650 a month. Unable to make the mortgage payments they sought relief with a reverse mortgage.

But, they did not qualifiy for enough reverse mortgage money to pay off the subprime loan. They still needed another $46,000 to add to the reverse mortgage. Not being able to do this, and knowing that Congress and FHA were going to raise the lending limits to $417,000, and then they could pay off the subprime loan. They notified their lender and worked out a temporary payment adjustment.

But, when the FHA Reverse Mortgage cap was raised to $417,000 so much time had passed that, in our declining market, their home value had fallen so much that even with the new reverse mortgage level they still needed to come up with over $20,000 to pay off the subprime lender.

At this time they have submitted their approved reverse mortgage commitment letter, a statement of hardship, a budget to the subprime lender requesting a short-payoff. If the subprime lender does not approve the short payoff, then they will have to file for bankruptcy and put their hopes in a court order requiring the lender to accept the short-payoff.

And, we (at BeaconReverse Mortgage/American Home Bank, N.A.) will be at their side, assisting in every way we can until the matter is settled in the borrower's favor.

Southern Virginia Couple:

This couple was lucky in that they had no mortgage, and their property had increased greatly in value. But they did suffer from some early retirement health problems. He needed two knee replacements; and she had a stroke that affected her legs making it painful to walk. They needed additional funds so he could retire from his plumbing business, and to pay for their medications and food. They opted for monthly tenured payments, along with a credit line and a minimal initial payout of funds for current bills.

Fairfax Woman:

A single woman, a prior real estate agent, living on a small income from social security. She had no mortgage, some savings, but needed more cash flow. She loves her home and is doing a lot of home improvements (even laying her own kitchen floor - although she did allow workmen in to put in the new kitchen counter and sinks). For her 75th birthday this last April she went out skydiving (strapped to the instructor, thank goodness). She opted for lifetime (tenured) monthly payments.

Mother and Son:

This borrower, 86, was quite ill, and deemed legally blind. In spite of her high equity, due to her loan payments, extremly high medical and credit card bills she was facing foreclosure. Her son was determined that his Mother be able to stay at home as she wished, instead of going to a nursing home.

He had been caring for her, but his car repair business and his own ill health suffered, too.

With her approval and Power of Attorney he arranged her Reverse Mortgage. . The approved Reverse Mortgage paid off all lienholders, gave her cash to pay off all her bills and set up a credit line account for possible future emergencies. The unused portion of the creditline will grow each year.

Now she has no mortgage payment or medical bills, and her spendable income has increased considerably allowing her to pay for daily in-home care. Her son has now seen doctors and with improved health and care for his mother, has been able to return to work and restore his business.

Maryland Couple:

A couple with a wide disparity in age. He wanted to make sure that should something happen to him, his wife would have funds available to her immediately. In addition they wanted to travel and pay for their daughters wedding. They had no mortgage, good savings and opted to take all their funds in a Reverse Mortgage credit line. And the unused portion of their credit line will grow each month at an annual rate of over 6%.

Unmarried Woman:

A woman with a beautiful home fully paid for, but a minimum of savings and a medium-income. Her desire was to increase her monthly income, pay off some bills for home improvement and to pay for her dreams of traveling throughout the United States - especially Montana - and ride, ride, ride the most beautiful horses there. She opted for an initial payout and lifetime monthly payments.

Update: After one trip West, she came home and bought two puppies, who are being lovably spoiled.

The Italian Sisters:

Two widowed Italian sisters who live close together in Fairfax, VA. They live in condos, have strong savings but small incomes from their husband’s social security. The daughter of one is an Elder Attorney/CPA, who recommended they get tax-free Reverse Mortgages, instead of using their savings (which were partially taxable) to meet everyday expenses, entertainment, travel and medical costs, such as long term care insurance.