This is a good question. The term "maturity event" triggers a repayment of the loan to the lender. 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 no longer the principal residence of at least one surviving borrower,
2. 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.
3. a borrower gives over title to the mortgaged property and no other borrower retains title to the mortgaged 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 property taxes and homeowner's insurance premiums.
Written into the HECM loan are the parameters that IF the last borrower was alive at age 150, the loan would then become due. So actually, with a HECM, there is no true maturity date, and the loan does not become due in the borrower's lifetime except for failure to pay property taxes, maintain insurance on the home, death, sale of the property, or no borrower occupying the property,
With all maturity events as regards mortgages, even non-HECM loans, a 30 day demand letter is sent for repayment to the lender within 30 days. Reverse borrowers will typically request an extension and almost always receive them.
When the last borrower passes away, heirs have a period of three months at a time (approved by the lender) and up to 12 months in which to sell the property. Communication is the key. Lenders need to see that the family is making attempts to sell the property in order to repay the loan. Please remember that the lender does not want your house. 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! Advisors Mortgage is here to help.
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 happen. But a lender can foreclose on your home if the terms of the reverse 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 action in order to repay the loan balance. You can choose to sell the home or deed it to the lender to repay the loan.
With the advent of the financial assessment and LESA (Life Expectancy Set Aside), setting aside the needed funds for property taxes and home insurance, the risk of foreclosure due to unpaid taxes and unpaid insurance has been greatly diminished.
HUD has made changes to protect borrowers and their biggest asset, their home. Welcome changes on the HECM have occurred over the years, and although at first many people wondered about the necessity of the LESA, we are happy about 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 program, please give Advisors Mortgage 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 loan officer 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 property taxes and homeowner's insurance. In the past, this has happened to HECM borrowers.
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 a LESA, Life Expectancy Set Aside, so there are monies set aside for the borrower’s real estate taxes and insurance.
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 sufficient funds to live on and enough funds to pay their real estate taxes and insurance. It 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.
After reviewing income documentation, lenders will decide whether it is necessary to set aside monies to pay for property taxes or other expenses for 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.
The LESA does not detract from the HECM but actually protects it from default. These changes will go a long way in protecting senior borrowers from the dangers of unpaid property taxes and home insurance simply because they just didn't have the money to pay them.
One of the most important safeguards to the HECM program is independent counseling by a HUD approved counselor. Getting your questions answered ensures you understand the step you are taking, and HECM counseling is required by HUD before the reverse mortgage can go forward.
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