This is a good question to ask in light of the media's articles on how reverse mortgages end and reverse mortgage foreclosures, an event that is rare but can and does happen. The term "maturity event" triggers a payment of the loan to the lender. It's also called maturity for all mortgage loans. It's the end of a term. But with the FHA HECM, it happens when the following events occur:
1. a borrower passes away, and the property is not the principal residence of at least one surviving borrower,
2. a borrower gives title in the mortgaged property and no other borrower retains title to the mortgaged property,
3. the property is no longer the principal residence of the borrower for reasons due to the borrower permanently moving out of the residence via a sale of the property.
4. the borrower no longer occupies the property for a period of more than 12 consecutive months due to physical or mental illness. In this case, the property is no longer the principal residence of at least one other borrower.
5. the borrower fails to perform any of the required obligations under the HECM mortgage such as the borrower failing to make certain repairs to the property (not minor repairs) or the borrower failing to pay taxes and hazard insurance premiums.
Written into the loan are the parameters that IF the last borrower was alive at age 150, the loan would become due. So actually, with a HECM, there is no true maturity date. That's pretty amazing.
With all maturity events or maturity dates and with every lender, a demand letter is sent out for payment to the lender within 30 days. Reverse borrowers will typically request an extension and almost always get them. With reverse and forward loans, even though you are selling the home, letters for payment will still arrive from your lender in your mailbox.
When the last borrower passes away, heirs have periods of three months at a time (approved by the lender) and up to 12 months in which to sell the property. Communicating is key. Lenders need to see that the family is making attempts to sell the property in order to repay the loan.
And further, please remember that the lender does not want your house. Lenders are willing to work with you whatever the situation. The key is staying in touch with your lender. Never ignore communications from a lender whether by phone or by mail. If you have further questions about the maturity date for a reverse mortgage, please don't hesitate to ask!
Once you understand the ins and outs of the HECM program, your fears and apprehensions will be replaced by a solid knowledge that the reverse mortgage is admittedly one of the most protected mortgages out there. At least I think so! Continue learning through this website, and be sure to write down any questions you may have.
Most people are surprised to hear that the HECM term is actually 150 years. Basically, this is a loan you will not pay back in your lifetime unless you move from the residence and sell or refinance. If you pass away, your estate will pay back the loan and keep the difference. The word foreclosure, though a scary word, is not an event any borrower or lender for that matter wants to ever happen. But a lender can foreclose a reverse mortgage if the terms of the mortgage are breached.
When an event such as failing to pay property taxes or keeping the home in obvious disrepair occurs, the lender can take possession of the home through a foreclosure to repay the loan balance. You can choose to sell the home or deed it to the lender to repay the loan.
Lenders in the past have purchased insurance for those who did not continue their own and billed the borrower a monthly fee. At other times, lenders paid the property taxes for the reverse borrower. However, with the advent of the financial assessment and LESA (Life Expectancy Set Aside), setting aside the needed funds (see next section), the risk of foreclosure due to unpaid taxes and insurance has been greatly diminished if not eradicated.
HUD has made changes to protect borrowers and their biggest asset, their home. Welcome changes occur over the years, and although at first some wondered about the necessity of the LESA, we are happy for this change. Change is good. It's yet another safeguard which protects your property. In fact, it's been long overdue. If you have questions about LESA, financial assessment or any aspect of the HECM, please give Kathie Adler a call.
HUD Announced in 2015 the start of Financial Assessment Requirements for all Reverse Mortgage borrowers. (HUD Mortgagee Letter # 2015-06 dated February 26, 2015).
Every lender who does reverse mortgages is required by HUD to conduct a financial assessment for every HECM borrower. The reason? HUD is trying to limit the number of defaults for non-payment of real estate taxes for reverse mortgage borrowers where there were foreclosures.
Will I get rejected? If underwriters find that a borrower does not have the capacity to pay their real estate taxes and homeowner’s insurance, the lender will set up what is called a LESA, Life Expectancy Set Aside, so there are monies set aside for the borrower’s real estate taxes and insurance. Many will be thrilled about this
What does a lender look for? Lenders look for employment, pensions or social security and investments which can all be used to substantiate income and show that the borrower has enough money to live on and enough funds to pay their real estate taxes and insurance on the home. It just makes sense that if you want to prevent senior homeowners running into financial trouble (much like you would qualify any other borrower for a mortgage), doing a financial assessment is a protective measure and should be welcomed.
Lenders will decide (based on income documentation) whether or not the lender will need to set aside monies to pay for property taxes or other expenses throughout the life of the loan. Naturally, the LESA, life expectancy set aside, will be deducted from the lending limit of Maximum Claim Amount and reduce the borrower's proceeds.
All these things do not detract from the HECM but actually protect it from default, at least in regard to property taxes, insurance, and even condo fees. Lenders and HUD both feel these changes will go a long way in protecting seniors from the danger of letting taxes or insurance go simply because they just didn't have the money to pay them.
One of the most important safeguards is independent counseling by a HUD approved counselor. Getting your final questions answered ensures you understand the step you are taking.
KATHIE ADLER, SENIOR REVERSE MORTGAGE SPECIALIST - RESIDENT OF LONG ISLAND FOR OVER 50 YEARS CAN HELP! Member of Sun Suffolk - and NRMLA
KATHLEEN ADLER'S NMLS ID: 65780 - NMLS Consumer Access Site, go to: www.http://nmlsconsumeraccess.org
Reverse Mortgage Helpline - Answering Your Questions about Reverse Mortgages
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KATHLEEN ADLER, Mortgage Loan Originator, NMLS Identifier 65780, Licensed by the New York State Department of Financial Services, Licensed by the New Jersey Dept of Banking and Insurance. This Website maintained by Go Daddy, Copyright 2014 - Website name obtained in 2008. All Rights reserved.
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