Reverse Mortgages, specifically the Home Equity Conversion Mortgage (HECM) insured by the FHA and governed by HUD, have come a long way from the wild west days. Specifically when? Oh, prior to around 2013!
Here is just a brief list of what was wrong…
- There were little to no requirements to qualify… hence its reputation as a “loan of last resort”. Even if you couldn’t pay taxes, insurance and maintenance on a home, if you had equity in your home and could fog a mirror there was a good chance you could qualify!
- There was NO spousal protection… if the non-borrowing spouse was left off the title of the home and the borrowing spouse died? The loan had to be paid off, refinanced or plan on moving out of the house. The old “they stole my parent’s house” story.
- There was a LOT of predatory lending… No question some lenders advised their borrowers to take out a HECM, draw 100% of the available cash and invest in other places that, shall we say, were often ill-advised
- Those old loans had very high borrowing limits… and there was no restriction on how much of the limit could be initially drawn. Again, bad investment advice usually followed.
- And, those were some very high cost loans… it could have been very unfortunate if the borrower met the wrong reverse mortgage originator.
So, what has happened to totally change a scary, buyer beware product into one of today’s safest long-term financial products available to borrowers 62 and over?
- Borrowers are required to now undergo a financial assessment… if you can’t prove you can pay for the ongoing costs of taxes, insurance and home maintenance, you could find yourself not being able to get a HECM. Most importantly, if you have waited until it really is your “loan of last resort”, there’s a good chance you won’t qualify.
- HUD now requires an independent counseling session, from a list of HUD approved counselors… to make sure borrowers understand the ins and outs of a HECM. Mortgage originators provide the approved FHA list, but cannot provide any recommendations of any counselors on the list.
- Non-borrowing spouses can now stay in the home after the death of their spouse… if they are on title! If not, there are still some risks, but it is relatively easy to add a non-borrowing spouse to title with the help of a real estate attorney.
- Lenders do not pressure you to maximize the balance on your line of credit… It’s your money, and it’s your long-term financial well-being at stake.
- Thinking about using the money to purchase a financial product? Borrowers must now sign a form stating that is their intent… and it cannot be a product related to the lender.
- And now, most closing costs are no more than a typical mortgage, with limits placed on how much you can pay in loan origination fees to insure you aren’t being overcharged. Where are the costs that are higher? Mortgage Insurance is higher up front… which is what provides the most important benefits of getting a Home Equity Conversion Mortgage, the lack of personal guarantees and the non-callable feature that protects the borrower in the event of a market crash of values as happened in 2008.
There are many more reasons anyone 62 and over should consider a HECM or other reverse products. But, still thinking the new HUD/FHA Home Equity Conversion Mortgage is too good to be true? While we cannot provide all of the information you need to make an informed decision in a post, give Richard McWhorter of McWhorter Reverse Mortgage a call, text (404-313-9785) or email ([email protected]) and find out why what you use to know about reverse mortgages is keeping you from one of the best long term financial products on the market today.