CONSUMER SAFEGUARDS - ASSURANCE
Your most carefree years should be your retirement years It is possible to achieve this with a reverse mortgage. To help senior borrowers with a reverse mortgage, reverse mortgage safeguards were built into the loan by HUD. In my opinion, these safeguards make the reverse mortgage one of the safest mortgages in the industry.
The National Reverse Mortgage Lenders Association (NRMLA), a lobbying group based in Washington D.C., which Advisors Mortgage is a member of, is pleased to explain the numerous reverse mortgage safeguards built into today’s reverse mortgage programs. Broader understanding of these consumer protection features is responsible for wider acceptance of reverse mortgages. Among HECM’s consumer safeguards are several important features:
Standard & Capped Interest Rates. The interest rate is the same no matter which lender a senior chooses. On the HECM, interest rates are adjusted either monthly or annually and published weekly by the Federal Reserve. Both the monthly and annually adjusted rates have lifetime caps.
Limitation on Fees. Origination fees are set by HUD regulations and are financed as part of the Reverse Mortgage. This means a senior incurs very little out-of-pocket expense to obtain a reverse mortgage.
Independent Counseling. Before a reverse mortgage application can be processed, the prospective borrower must first meet with an independent HUD approved counselor and obtain HECM counseling. HUD oversees a network of counselors whose job is to review the transaction, answer any questions the borrower may have about reverse mortgages, and suggest alternative options. After the counseling is done, borrower's receive a HECM counseling certificate.
No Maturity Date. A reverse mortgage cannot become due during the homeowner’s lifetime. This is because the term of the loan is set to 150 years. The fact that there are no required payments and there is a lifetime right to occupy the home means the HECM provides great protection against unanticipated future circumstances.
No Prepayment Penalty. Although the loan is not due and payable until the senior permanently moves out of the home whether by selling the home or by their passing, the reverse mortgage can be paid off at any point prior with no additional fees or costs.
No Penalty for Canceling the Loan. After the loan closes, a borrower has up to three days to cancel the transaction for any reason whatsoever. This is called the “right of rescission”period,
Asset Protection. The HECM is a “non-recourse” loan. This means that the amount due can never exceed what the home is worth. When the loan becomes due, the lender is repaid the sum of funds advanced plus the accrued interest, but never more than the value of the house. If there is remaining value, it belongs to the homeowner or their estate. The lender cannot look to any other asset for repayment of the debt thereby protecting borrower's assets,.
No Shared Appreciation. No reverse mortgage product in the marketplace has “equity-sharing” or “shared appreciation” features. In some earlier reverse mortgage products, the senior could obtain more money in exchange for giving up a percentage of the future value of the home. Such products are no longer offered.
Another safeguard is FHA mortgage insurance. Mortgage insurance ensures you will never owe more than your home is worth; this is because of a feature called non-recourse which was mentioned above. Lenders can only recoup shortages or be made whole by putting in a claim to the FHA through mortgage insurance which is a feature of the Reverse Mortgage. In the documents you sign at closing (a blank is provided at time of application) called the Note, the Mortgage, and the Loan Agreement, there is a section called NO DEFICIENCY JUDGMENT. This means that if there is a deficiency in the payback to the lender (such as homes under water), the lender cannot recoup any of their loss from you but will instead use the FHA mortgage insurance to recoup their loss. FHA mortgage insurance protects you but also protects the lender.
In your closing documents, it states you are NOT personally responsible for the loan — meaning nothing other than the home itself can be attached should you default or the loan foreclose for any reason. Bank accounts, retirement funds, and other assets cannot be used to satisfy the loan. The home stands for the debt.
NEW YORK BORROWERS: You are required to obtain your own attorney to attend the closing and walk your through the process. You will be responsible for paying your attorney which can be included in your closing costs and added into your loan.
There are considerations you will make to ascertain if a reverse mortgage is right for you. You may have questions and your family may also be asking about how the reverse mortgage will work. Is it truly the right vehicle for you? The next link will provide even more information. Advisors Mortgage is here to help and answer any and all of your questions and concerns.
As mentioned in the "Is It Right for Me" page on this website, it used to be that if a borrower had a spouse who was under age 62 and that borrower was not on the reverse mortgage. once the borrower passed away, the spouse would eventually have to sell the home if they could not pay off the reverse mortgage. Death is considered a "maturity event" in the reverse mortgage world, and this was a tough situation.
Thankfully, all this has changed. Through the Mortgage Stability Act, there has been a change in reverse mortgage parameters. If there is a non-borrowing spouse, the reverse mortgage will not become due when the borrower passes away, and their spouses who are under age 62 will be able to remain in the home. However, the HECM line of credit would no longer be accessible and all monthly proceeds would end. Speak to your reverse mortgage professional about these issues to see if this is still a viable option for you and your spouse. You may refer to the HUD Mortgagee Letter # 2014-07 - April 25, 2014 regarding non-borrowing spouse parameters.
NOTE: Prior to getting a reverse mortgage, consult an attorney to obtain any necessary documents you have such as will, life estate, power of attorney, marriage certificate as these documents will need to be reviewed by the lender especially if there is a non-borrowing spouse.
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