Reverse Loans VS Traditional Refinances

Over the last few years there have been numerous changes to the FHA Reverse loan program, the most recent one concerning the “Non-Borrowing-Spouse” and changes in the Principal Limit that determine how much money a borrower can receive from a Reverse mortgage.

The changes have been beneficial to the federal loan program and the intent as we move forward, is to be sure that there will always be sufficient   funds in the Mortgage Insurance Premium  pool and the Reverse loan program will maintain it’s stability and an option for seniors well into the future.

However, there is a new change taking effect next month that I just learned about this morning.   And that concerns any conventional, non HECM  liens on a property that a potential borrower for a Reverse loan, has taken out in the previous 12 months.

Effective December 15, 2014, there must be evidence that the homeowner has  made 12 consecutive and timely payments on the mortgage and or no more than $500.00 was used at any one time from “said” mortgage

If someone is putting off applying for a Reverse loan because they are concerned about the costs ( which have come down) and apply for a traditional loan or  HELOC ( And receive less money and have mortgage payments), they will not be eligible for a Reverse mortgage.

They will have to wait an entire year before they will be eligible for the federal loan program.This is serious and could have a devastating effect on someone that needs additional funds and will have to wait.

HUD Mortgagee Letter 2014-22 and New Seasoning Requirements

“In regard to these seasoning requirements, mortgagees may only permit the payoff of existing non-HECM liens using HECM proceeds if the liens have been in place longer than 12 months or if they have resulted in less than $500 cash to the mortgagor, whether at closing or through cumulative draws, ML 2014-22 [2] states.

The seasoning requirements are effective for all case numbers assigned on or after Dec. 15, 2014.

This guidance, and its timing, could make some prospective borrowers — who otherwise could have qualified — ineligible for a reverse mortgage, at least in the near term.”

Written by Emily Study


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