retirement
Rules rev-up reverse mortgages

Adding to the confusion ...

There are two different types of reverse mortgage 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," says Darryl Hicks, vice president of communications for the National Reverse Mortgage Lenders Association.

Because the HECM loans are government-backed, the rates tend to be lower than with proprietary loans, says Hicks. In the past, when the amount of a homeowner's 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, says Belling. Many of the companies that offered private loans "are not making them at this time," she says.

"The market really has changed," she says.

The trade-off

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 title to your home, says Hicks. 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.

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Borrowers seeking federally backed reverse mortgages are required to take a counseling session (usually about one hour), before they apply for the loans.

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