New rules rev up reverse mortgages
Belling agrees. "We urge people
to make sure they really need the loan now,"
she says. In some cases, she says, what a
homeowner really needs is help with home repairs,
taxes or utility bills. And often, there are
local programs that can provide that assistance,
so that the retiree might not have to resort
to a reverse mortgage.
to the confusion ...
There are two different types of reverse mortgages,
and that can make the topic confusing. Federally
backed Home Equity Conversion Mortgages, or
HECMs, are guaranteed and regulated by the
federal government. Private or proprietary
loans aren't required to follow the same regulations.
"But up to this point, private
lenders have, by best practices, complied
with the same regulations," Hicks says.
Because the HECM loans are government-backed,
the rates tend to be lower than with proprietary
loans, Hicks says. In the past, when the amount
of homeowners' equity in their homes was higher
than local lending limits, they sometimes
turned to proprietary loans, he says.
These days, there are not that many lenders making proprietary loans.
In the current economic climate,
"at least 90 (percent) to 95 percent of the
market" is composed of government-backed HECM
loans, Belling says. Many of the companies
that offered private loans "are not making
them at this time," she says.
"The market really has changed," she says.
Reverse mortgage lenders don't consider your
credit history. They will pull a credit report,
but only to see if there are any outstanding
liens that could affect the title to your
home, Hicks says. Instead, they look at your
age, life expectancy, any existing mortgage
and the value of your house. They will calculate
that, along with their standard interest rate
and fees (including $30 to $35 per month to
service your account), and make you an offer.
Borrowers seeking federally
backed reverse mortgages are required to take
a counseling session (usually about one hour)
before they apply for the loans.
For a reverse mortgage, "the
only out-of-pocket costs for consumers are
the home appraisals and the counseling," Hicks
says. In some cases, the counseling is offered
free or at a low cost, but it can run as high
as $125. FHA home appraisals generally run
Problems discovered during the
inspection must be corrected, but they can
be taken care of before or after the loan
closes. If the homeowner chooses to do it
after, money is set aside for that purpose.
Updated: Dec. 30, 2008