This positive increase represents 150 percent of the Freddie Mac national conforming limit of $453,100.

Comparison of Principal Limit

This is good news for higher home value homes, especially since October 2nd changes have caused a reduction in principal limits. As you can see in the chart above, a 72 year old homeowner with a $680,000 home would receive about $22,142 additional proceeds over the prior limits (assuming a rate of 4.25%).

Brief Look at the HECM Lending Limit History

Prior to 2006, the HECM lending limit or MCA varied from county to county. In 2006, a national lending limit of $417,000 was established. Later, in 2009, Congress increased the HECM loan limit to $625,500. Then in 2017, the lending limit was increased to $636,150. Now, starting 2018, the new limit will be $679,650.

If you have questions on how the new reverse mortgage limit affects you, please don’t hesitate to call us toll free at 1-888-888-4834 or Apply Online!

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• 64 and older will be eligible for more funds.
• between the ages of 62 and 63 will be eligible for slightly lower funds. The chart below reflects  the dollar change in Available Funds based on different home values and borrowers ages using a 5% interest rate (PLF Tables Effective 8/4/2014)

The next chart shows the percentage change from the old limits to the new limits, also assuming a 5% interest rate. At age 90 and beyond, there has been an increase of 9% over what was previously available. This is great news especially for someone who may have tried for a reverse mortgage previously and was short to close.

Why was the change made?

HUD recently updated it’s policy regarding non-borrowing spouses on a reverse mortgage loan. With the new change, non-borrowing spouses receive additional protections, allowing them to remain in the home, even if the borrowing spouse passes away, as long as certain conditions are met at the close of the loan and throughout the life of the loan.

What do all these changes mean to you?

If you are in the process of obtaining a reverse mortgage or have been considering a reverse mortgage and you are 64 years or older, it’s good news as you will qualify for more proceeds than previously allowed.To find out exact details on how the changes will impact you, please call MLS Reverse Mortgage toll free at 1-888-888-4834 or apply online.

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The Fixed Rate Saver Program does not offer the same dollar benefit as the Standard Program, however does have some features that will make it attractive to many borrowers. Due to the lower risk of the program to HUD, the Upfront Mortgage Insurance Premium (UFMIP) is just 0.01% of the lesser of the appraised value or lending limit (currently $625,500) as opposed to the Standards 2% UFMIP. For example, a property valued $200,000 will have an UFMIP with the Saver Program of $20, while the Standard would have $4,000.

Use our reverse mortgage calculator to see how much you qualify for under either program.

For borrowers looking to maximize the amount of money available to them after March 31st, the Adjustable Rate Standard program will still be available and will provide borrowers with a greater draw amount than the HECM Saver Fixed. Some borrowers may also choose to utilize the adjustable rate standard when looking to do a purchase reverse mortgage. There has been some discussion of limiting draw amounts under the Adjustable Rate, but this current news does not address that concern.

According to Mortgagee Letter 2013-01, HUD states that the elimination of the fixed rate standard product is “to help sustain the HECM program as a viable financial resource for aging homeowners and to strengthen the Mutual Insurance Fund.” Other steps, such as financial assessments or limited draws may be on the table in the near future. It’s anyone’s guess what they think HUD’s next move will be to help preserve the Mutual Mortgage Insurance Fund.

For any questions or to get started today please call us toll free at 1-888-888-4834 or apply online. If you need the full ability and security of the fixed rate standard, now is your time to make your move.

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The quick answer to why reverse mortgage loans have 2 Deeds of Trust and 2 Notes is that the first deed of trust secures the lender’s position and HUD assumes the second position because HUD is insuring that the homeowner will continue to receive loan payments in the event that the lender becomes incapable of making said payments.

Going a little deeper into the explanation, the following quotes are direct from HUD Handbook 4235.1 REV 1. They discuss that every HECM reverse mortgage, fixed or adjustable, shall have a first and second Mortgage and Note. The borrower must only be presented with a copy of the first Note during the application process, but the existence and relationship of the second Note must be fully explained.

“A. Mortgage and note. The lender must provide a copy of the first mortgage and the appropriate first note (fixed or adjustable rate) for review by the borrower during the application process (see Paragraph 4-7), but not later than when the borrower signs the URLA.

B. Second mortgage and note. The lender must complete a second mortgage and second note (fixed or adjustable rate) to secure any payments made by HUD to the borrower. A copy of the second mortgage and second note need not be provided for review by the borrower during the application process, however, their relationship to the first mortgage and first note should be fully explained. The second mortgage and second note secure any mortgage payments which might be made by HUD to the borrower in the event that the lender fails to make the payments under the loan Agreement.”

What the above quote says is that if the lender is unable to make payments to the borrower, then due to the second mortgage and note, HUD can step in and continue making the payments.

Additionally, the lender has the right to assign the reverse mortgage to HUD when the outstanding balance is equal to or greater than 98% of the Maximum Claim Amount, or when a request for a line of credit draw will cause the outstanding balance to equal or exceed 98% of the max claim amount. After assignment, HUD will be responsible to making all future loan advances. The second Note and Deed make this assignment possible.

Without having 2 mortgages and notes, HUD would not insure the loans and without HUD insuring the loans, lenders would not be willing to make them.

Moving on, the reason for the larger loan amount on the loan docs is that due do the fact that there is no maturity date with a reverse mortgage, HUD has designed a calculation by increasing the amount on the deed of trust by 150% of the maximum claim amount or appraised value, whichever is less.

Since reverse mortgages require no payments and the loan balance increases over time, HUD policy does not require a maximum mortgage amount to be stated in the mortgage; however most states do require an amount be stated. If the beginning balance of the loan was stated, then no amounts beyond this balance could be forwarded to the borrower.

Using an example, if a home appraised at $300,000, the amount recorded on the Note and Deed would be for $450,000. Similarly, if a home was valued at $625,500, the amount on the Deed would be $938,250. Since the current lending limit is $625,500, any home that appraises beyond $625,500 will also have $938,250 recorded.

The most important item to note is that the amount of money you owe on your reverse mortgage is equal to the money you borrow plus and accrued interest, mortgage insurance and financed fees.

So, when you go to sign your final paperwork remember that reverse mortgages have 2 Notes and 2 Deeds of Trust (or Mortgages), the amount on the loan documents will be equal to the 150% of the lesser of the maximum claim amount or appraised value and you owe only what you borrow, plus accrued interest, mortgage insurance and financed closing costs.

If you’re interested in finding out more about a reverse mortgage don’t hesitate to contact us by calling 1-888-888-4834.

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A recent study from Genworth Financial found the median monthly cost of an assisted living facility is $3,300 and has increased 6% since 2011. In contrast, the national median hourly rate for personal care providers is $18 with licensed home health aide services averaging $19 per hour and remaining the same year-over-year.

If you’re looking for a way to pay for care in the home, a reverse mortgage might be a good tool to help you age in place.

How Can Reverse Mortgages Help?

More than 75% of people ages 45 and over say they would like to remain in their homes for as long as possible, according to a recent AARP study. Reverse mortgages can help make that happen, even if homeowners do need additional care.

Borrowers who obtain a Home Equity Conversion Mortgage (HECM) have several different payment options they can use to fund care at home. Borrowers can choose to receive all loan proceeds as a lump sum upfront, as a line of credit, term, tenure, or a combination of the payment types.

What Types of Services are Available?

Home care providers typically offer help with bathing, getting dressed, cleaning, cooking and laundry, as well as nursing services that are provided by a registered nurse, or by a home health aides.

Home care providers work with the client to determine the services that are needed, and can adjust them accordingly.

Borrowers can also use the funds to make improvements to their home and make it easier to age in place. This may be through the addition of wheelchair ramps, grab bars in the bathroom, or improved lighting around the home.

There is also a specific type of reverse mortgage, the Reverse Mortgage for Purchase, that allows a borrower to get a reverse mortgage and buy a new home all in a single transaction.

For people who may be looking to move into a new home that is more equipped for their retirement living needs, the HECM for purchase allows them to do so.

Things to consider

In using a reverse mortgage to pay for in-home care, it’s important to recognize how much care you need. If it is a small amount, such as a few hours or days per month, a reverse mortgage may be a good way of paying for it.

Some borrowers may ultimately need more thorough or around-the-clock attention. If the borrower is not likely to be able to remain at home because of escalating medical costs or a need for more immediate help or hospital visits, it may be more economical to sell the home and move into a community that can provide a higher level of care.

To find out more or to speak with a reverse mortgage professional, contact us.

Everyone’s situation is unique, so if you are considering a reverse mortgage to pay for in-home care please be sure to contact a reverse mortgage advisor at MLS Reverse Mortgage at 1-888-888-4834 who can help navigate you through the reverse mortgage process and help you decide which program may be right for, if any. Use our free reverse mortgage calculator for an instant estimate.

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But that may change, and some lenders have already implemented—and then revoked—guidelines determining applicants’ eligibility for this type of loan. Reverse mortgage financial assessment stems from ongoing discussion about ways to protect HECM borrowers from defaulting on their homeowners insurance or property taxes, which they’re required to keep up-to-date (as with any type of home mortgage) as a term of the loan.

What does that mean for you? Most lenders’ efforts toward a borrower financial assessment, if they’re any indication of what’s to come, have examined applicants’ credit history and monthly cash flow, among other factors, in an attempt to determine willingness and ability to keep up with recurring financial obligations.

What Might a Financial Assessments Look Like?

The Department of Housing and Urban Development (HUD), which administers the federally-insured Home Equity Conversion Mortgage (HECM) program, has long stated its intentions to dispense guidelines for lenders to use in considering a reverse mortgage applicant’s financial capacity and credit history, among other relevant indicators.

In the absence of an official rule, the National Reverse Mortgage Lenders Association released guidance in June 2011 encouraging lenders to conduct a monthly debt-to-income ratio test on applicants, along with assessing a prospective borrower’s willingness or ability to keep up with ongoing financial obligations, like tax and insurance. Determining this information could include checking credit history or documenting income.

Who is Conducting Financial Assessments?

MetLife was the first lender to implement a financial assessment for its reverse mortgage borrowers, based on NRMLA’s suggestions. Their assessment included three criteria that examined an applicant’s residual cash flow, credit history, and principal limit usage (PLU).

Prospective borrowers’ PLU is determined by looking at their outstanding mortgage balance, other debts, and repairs they must do to their home as a term of the HECM program. Simply, it is the percentage of the Initial Principal Limit used to satisfy mandatory payoffs when the loan is funded. For applicants to qualify for a HECM Standard, their PLU must be less than or equal to 75%. For borrowers who want to take out a HECM Saver, which offers smaller upfront origination fees in exchange for a smaller loan amount, their PLU must be less than or equal to 90%.

MetLife introduced these borrower qualifications in November 2011, but later suspended the qualifications after other reverse mortgage lenders failed to implement similar guidelines.

Several other lenders have stated plans to introduce some sort of financial assessment, and some may have their own eligibility requirements they’re already reviewing. But at this point, the HECM program doesn’t have an official financial assessment.

What Do You Need to Know as a Potential Reverse Mortgage Borrower?

Right now, you don’t have to worry about a financial assessment or the documentation it could require. However, you may want to be prepared in the event HUD does begin requiring lenders to conduct certain evaluations of prospective borrowers, or if lenders independently begin introducing their own versions of a financial assessment.

Based on what the industry has already seen in terms of NRMLA’s guidelines and MetLife’s suspended financial assessment, you might need to show proof that you’ve had homeowners insurance for the past 12 months. You may also be asked to provide documentation that you are current on your property taxes.

Some lenders may seek to assess your monthly cash flow, which will depend on factors such as the loan amount for which you qualify, and how much outstanding debt you have, including an existing mortgage balance.

Depending on what’s allowed in terms of assessments and financial requirements, some lenders may require you to set aside funds specifically for paying your tax and insurance. These are costs you’re required to pay anyway, and earmarking funds for these obligations could help make sure you won’t default on your loan for not keeping up with their taxes and insurance.

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The Players:

HECM or Home Equity Conversion Mortgage is a Government insured reverse mortgage program that allows senior homeowners aged 62 or older to convert the equity in their homes into cash flow, either by a line of credit, monthly draws, lump sum of cash or a combination of the options. With a HECM, there are no credit or income requirements.

HELOC or Home Equity Line Of Credit is a mortgage that allows the borrower to draw on a line up to a limit approved by the bank. There are no age restrictions; however, this loan does require that the borrower meet certain credit and income requirements.

Round 1: Qualifying For the Loan

HECM: Qualifying is simple. All borrowers on title must be 62 or older. The property should be in good repair, although repairs can be made after closing. The home must be the primary residence. Borrowers must undergo an independent HUD counseling session that lasts about 45 minutes. Currently there is no income or credit qualifying.

HELOC: Qualifying for a HELOC requires an analysis of income, assets and home value. The lender will look at current debt to income to determine if the borrower can afford to make payments on the new loan.

Round 1 goes to HECM reverse mortgage for minimal credit and income qualifying requirements.

Round 2: Cost of Reverse Mortgage vs. HELOC

HECM: The costs involved in a reverse mortgage include an origination fee, an upfront Mortgage Insurance Premium (MIP) and other costs such as title, escrow and appraisal. The maximum origination fee on a HECM is $6,000, however borrowers have the option to choose a rate that may lower these fees. The upfront MIP on the new HECM 0.50% of the maximum claim amount (lesser of the sales price, appraised value, or FHA mortgage limit of $625,500) if less than 60% of available proceeds are used or 2.5% of the max claim amount if more than 60% of available proceeds are used. Other fees vary based on property value and location but are in line with what one would expect on a typical “forward” mortgage.

HELOC: The costs involved with a HELOC are minimal. Typical fees run around $500 and are often times waived. Many HELOCs will have an early closure fee which is designed to recoup any upfront costs the bank may have paid on the borrowers behalf to originate the loan.

Round 2 goes to HELOC for lower costs.

Round 3: Amount of Money That Can be Borrowed

HECM: Proceeds for a reverse mortgage are based on age, property values and existing interest rates. The factor currently ranges between 52.4% loan to value (LTV) for a 62 year old to 75% LTV for a 90 year old when utilizing a 5.0% interest rate. Our reverse mortgage calculator will give more specifics.

HELOC: Most current HELOCs will not lend beyond 80% of the value of the home. However, borrowers will need to qualify using income and debt, so many will not qualify for an LTV that high.

Round 3 is a tie.

Round 4: Loan Terms

HECM: A reverse mortgage has no set “due date.” The loan is payable at a maturity event such as the passing of the last surviving spouse, if the home is sold or if the home is no longer the borrowers primary residence.

HELOC: A HELOC is typically due at the end of 10 years, after which the loan needs to be repaid or refinanced.

Round 4 unanimously goes to HECM.

Round 5: Line of Credit Behavior and Unused Lines

HECM: Both the reverse mortgage and HELOC will only accrue interest on the money drawn or borrowed. Only the reverse mortgage’s line of credit will allow the unused portion to grow at the same rate the borrower is paying on the used portion of the line.  This will give the borrower greater borrowing power.

HELOC: A HELOC can be drawn on and repaid over the life of the loan. The downside is that with the current housing market, many lenders are closing borrower’s lines of credit so they can no longer access the funds that were once available to them. A HECM line will always remain open as long as the homeowner continues to meet the guidelines.

Round 5 goes to HECM for the credit line growth rate and the fact that the line cannot be closed like a HELOC at the banks discretion.

Round 6: Interest

HECM: Reverse mortgages have the option of a fixed rate or an adjustable rate. Only the adjustable rate will allow for a line of credit. The rate is based on the 1 month LIBOR plus a margin. The loan has a life cap of 10% above the start rate. So, for example, if the starting rate is 2.50%, the max the interest rate can go to is 12.50%. Interest paid on a reverse mortgage is only tax deductible the year it’s been paid, which for most people will not be until the loan is paid off. Consult a tax adviser.

HELOC: HELOCs are typically tied to Prime plus a margin. Many have a life cap like the HECM, however not all HELOCs are created equal. Many offer a lower introductory rate, which will increase shortly after closing. Be sure to read the fine print. Some HELOCs may allow interest rates to climb to 18%. Interest paid on a HELOC may or may not be tax deductible. Your CPA will know that answer.

Round 6 goes to HECM due to more specific terms.

Round 7: Required Loan Payments

HECM: A reverse mortgage requires NO monthly mortgage payments until the loan terminates. This is one of the main reasons seniors will choose a HECM over a HELOC. No payments frees up much needed cash for day to day living expenses.

HELOC: Typical HELOCs will require that at minimum an interest only payment be made. Payments will increase as the loan balance increases.

Round 7 goes to HECM for no monthly payments. Both loans require that taxes and insurance be paid.

Round 8: Annual Fees to Keep Account Open and Active

HECM: A reverse mortgage will not charge a fee to keep the loan open.

HELOC: Many HELOCs charge an annual fee to keep the line of credit open.

Round 8 goes to HECM for no additional annual fees

Who won the bout in your eyes? Each individual’s situation is unique and can’t be addressed by blanket statements. In general, the main benefit of a HECM reverse mortgage over a HELOC is that reverse mortgages do not require monthly mortgage payments, while a HELOC does. A reverse mortgage need only be paid back at a maturity event such as the death of the last surviving spouse, if the property is no longer the borrowers primary residence, the borrower fails to pay taxes and insurance and/or fails to maintain the property. With a HELOC, the bank has the right to close the line anytime they choose.

The main advantage of a HELOC is the lower upfront costs. Although, the reverse mortgage has evolved to include the HECM Saver, with reduces upfront Mortgage Insurance Premiums (MIP), lowering the overall cost.

When trying to decide between the two loan types, the first question you should ask yourself is if you have the financial capacity to make monthly payments on a HELOC. If the answer is no, then odds are, you may not even qualify for the loan in the first place. Another important question is how long you plan on staying in your home. A short-term solution may be a HELOC. A HECM may be better for homeowners who plan on staying in their home for longer periods of time.

Ultimately, the decision rests in your hands to determine which loan best meets your needs.

Updated July 16, 2014 to reflect the changes to the new reverse mortgage.

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Let’s address the pros first:

Wide range of available rates

As I write this article, interest rates on the HECM fixed standard product are ranging from 4.0% – 5.75%. This gives borrowers the ability to choose a rate that best fits their needs. For example, someone who is concerned mainly with the increasing loan balance over time would more than likely choose a rate of 4.0% and pay a higher origination fee. The result is higher costs at closing, but a slower growing loan balance over time.

HECM saver

Reverse mortgages have always been expensive. Granted with the strong secondary market, brokers have been able to cover a lot of costs for their borrowers. Now there’s a new option. In October of 2010, HUD released the HECM Saver. This program dramatically reduces the upfront cost of reverse mortgages, which is why it’s the biggest reverse mortgage pro to come out of 2010.

The HECM Saver is for borrowers who do not require as much money at closing and were turned off by the high closing costs of the Traditional HECM. HUD’s upfront mortgage insurance on a traditional reverse is 2% of the appraised value or HUD’s lending limit ($625,500), which can equate to as much as $12,510. The HECM Saver only charges 0.1%, which means the maximum is $62.55. This is perfect for borrowers who wanted to leave their money in a line of credit or didn’t want all the funds. It is available in both adjustable and fixed rates.

Higher Loan Proceeds

HUD also lowered the interest rate floor, which is one factor in determining the amount of money available under the program. The new floor is at 5.0% and with most lenders offering rates at 4.0% – 5.06%. that’s a pro for borrowers looking to get additional monies from their reverse mortgage. Since the floor is at 5.0%, the amount of benefit will be the same with any rate from 5.06 and lower.

$625,500 Limit Extended for 2011

In 2009, Congress passed the American Recovery and Reinvestment Act. One of the provisions is that it increased the HUD lending limit on reverse mortgages from $417,000, set by the Housing and Economic Recovery Act of 2008, to $625,500. Congress recently voted to extend the temporary increase through 2011. This is a big pro for those will higher home values.

New Counseling Protocol

HUD has made changes to the required counseling protocol that overall is a positive change. Counseling is required as a safeguard for those obtaining a reverse mortgage do to the complex nature of this financial instrument. The idea is to make certain that borrowers completely understand the nuances of reverse loans. The new protocol tests the borrowers knowledge of the product and digs in a little deeper to their personal finances, and delves in further to reverse mortgage alternatives.

Now let’s explore the cons:

Reg Z

The current changes to Regulation Z completely impact the way we do business with fixed rate reverse mortgages. The adjustable rate product isn’t affected by the change since it’s open ended credit. So, what’s negative about the change? The main reason is it makes it difficult for us to negotiate with borrowers in regards to the origination fee. We can no longer give a special deal to one borrower and not offer it to all borrowers. This really hurts those who are short funds to close. In the past, we have closed reverse mortgages with next to zero origination fees in order to help someone who really needed it. Now we can’t offer that anymore.

Falling home values / increased foreclosure rates

A major con for the reverse mortgage industry in 2011 is the fact that many housing markets have not recovered from the mortgage melt down.  Nationwide foreclosures are still high, which directly affects market values and as we all know, the amount of money available from a reverse mortgage is based on the value of the home, the borrowers age and the expected interest rate.  As home values decline, borrowers are limited in the amount of money they can borrow.

This con does not affect those homeowners who have already taken out a reverse mortgage. Reverse mortgages are not affected the same way that Home Equity Lines of Credit (HELOC) have been affected. What I mean is that once a line of credit is established with a reverse mortgage, the amount is guaranteed, even if home values decline. Borrowers must still live in their home.

Appraiser Independence (AMC’s)

Fannie Mae (FNMA) and Freddie Mac (FHLMC) enacted the Home Valuation Code of Conduct (HVCC) in May of 2009 as a result of New York Attorney General, Andrew Cuomo. The idea of HVCC  is to remove the broker from contact with the appraiser. The goal is to provide for appraisals without influence on value from the originator. FHA followed suit and named it Appraiser Independence.

This sounds like a great idea, and in theory it is. The con comes into play when we examine how most Appraisal Management Companies (AMC) pay appraisers. Brokers order their appraisal through an AMC who then assigns the appraisal order to an appraiser. There currently is no regulation on the AMC when it comes to paying appraisers. So, often times, appraisers will be paid half (or even less) of what they would typically earn. As such, the quality of the appraisal is directly affected. In addition, many reverse mortgage appraisers are refusing to take the assignment due to the decrease in income. Often times appraisers will bid for jobs, so the lowest bid wins. For example, if an appraiser bids $100 that’s all he/she will receive from an appraisal where the borrower pays $450. The result is that inexperienced appraisers and appraisers from out of town often earn the jobs. By the way, the AMC keeps the difference for doing nothing more than hiring an appraiser on behalf of the broker.

Reverse mortgage appraisal values are often coming in low and there’s little that brokers can do to refute. Brokers are allowed to send a rebuttal to the AMC, who will then forward the information to the appraiser. More often than not the rebuttal is denied.

New Monthly Insurance Factor

A reverse con is that the new monthly Mortgage Insurance (MI)is now 1.25%. Before October of 2010, it was 0.50%. That’s a huge increase. The impact is seen over time when looking at the amortization schedule since the monthly MI is added to the balance.

Summary

All in all, 2010 and the first half of 2011 has turned out to be a very positive period for reverse mortgages, especially in the area of decreasing reverse mortgage closing costs. So, now is the time for you to explore your low cost reverse mortgage!

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