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  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
More on “Kosher” Reverse Mortgages
Okay, so if you read the previous post, you are getting the idea behind Jack Guttentag’s suggestion, that somehow a certification be created that would label Reverse loans as “safe” for the consumer.
Jack Guttentag is known as The Mortgage Professor and has written a number of articles supporting the use of Reverse loans for retirement planning and covering the costs of aging in place.
This is a unique vision that he has suggested on how to improve the understanding of how Reverse loans function and especially why they should be considered safe and an option to fund longevity. After all, most people have not planned for future medical expenses and in many situations, will potentially outlive their financial resources.
Here is the remaining part of the summary, discussing his point of view.
“A kosher HECM, Guttentag writes, would be a transparent loan that doesn’t have unanticipated surprises down the road that could make the borrower regret taking out a HECM.
Among other features, the set of options for drawing funds would be the best of those available to the senior; the combination of interest rate and upfront settlement costs also would be the best available; and the final price set on the lock date would be immune to manipulation.
The product would be offered by kosher HECM loan advisers, much like a kosher butcher would sell kosher meat. These advisers would stress the importance of long-range planning, counter to the common senior bias toward excessive cash withdrawals, the article states.
Kosher loan advisers would also develop and demonstrate a unique plan for each applicant, providing price transparency and lock-price integrity.
It follows, then, that a kosher HECM system would provide full disclosure of the product’s features, giving seniors upfront comparisons of prices and available options.”
Written by Emily Study