Borrowers control risks associated with reverse mortgages [feedly]

Q: "It seems to me that you are writing a lot about reverse mortgages recently ... is the subject really worth the time you are spending on it?"

A: I think so. I view the home equity conversion mortgage (HECM) program as an important, if partial, solution to a critical problem: an increasing concern among people looking ahead that their living standards won't be maintained after they stop working.  Read more...  http://feedproxy.google.com/~r/inmannews/~3/QBYWWurF2nU/borrowers-control-risks-associated-with-reverse-mortgages

Understanding HECM loan's dual interest rates | Inman News

This is a great time for senior homeowners to take out a home equity conversion mortgage (HECM), especially if they don't need the extra money now! Sounds crazy? It isn't, so read on.

The federal HECM reverse mortgage program allows seniors 62 or older who own and occupy their homes to take out a mortgage against it. What makes it a "reverse mortgage" is that the amount owed tends to rise over time, whereas on a standard mortgage it tends to decline.  Read more.   http://www.inman.com/buyers-sellers/columnists/jackguttentag/understanding-hecm-loans-dual-interest-rates?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+inmannews+%28Inman+News+-+Headlines%29

A reverse mortgage can add up

Question: My wife and I are in our 60s, our house is paid off and we have no plans to move. What do you think about a reverse mortgage?

—Dave Cole,

Phoenix

Answer: Reverse mortgages are available to homeowners age 62 and older. The mortgage relationship is reversed; the mortgage company pays you every month and then gets its principal plus interest back when your heirs sell the house. You are essentially drawing on your home’s equity while still living in it.

Typically, the loan doesn’t need to be repaid until after your death. If the house sells for more than the loan balance, your heirs keep the difference.

Reverse mortgages are expensive. You pay a loan origination fee, closing costs and insurance. If you fail to maintain your property and pay homeowner’s insurance and taxes, you risk foreclosure.

Consumer Reports estimates that 54,000 reverse mortgages are in default, mostly due to homeowners’ inability to pay taxes and insurance. Before you call any lender, talk with a counselor approved by the U.S. Department of Housing and Urban Development. It’s free, and counseling is required by law to get these loans.

The counselor can help you figure out if you qualify and if a reverse mortgage is right for you.

By Dave Cherry Calll 12 for Action Mon Nov 12, 2012 A reverse mortgage can add up

HUD Sued by AARP Over Reverse Mortgage Rule Change

The Department of Housing and Urban Development was sued this week by the American Association of Retired Persons (AARP) on behalf of three homeowners facing foreclosure on HUD guaranteed reverse mortgages that were issued to their late spouses.

The Foundation claims that the surviving spouses are facing
"imminent foreclosure and eviction from their homes" because HUD abandoned
federal rules and violated protections assigned to those spouses.

The suit, which was filed in the filed in U.S. District Court for the
District of Columbia, seeks an injunction against pending foreclosure and/or
eviction actions and prohibits HUD from abandoning long-standing rules that would allow foreclosure on the surviving spouse of a deceased reverse mortgagor. That action it says does not just violate
HUDs own rules but violates existing contracts between borrower and lender and negates a
key purpose for which those borrowers had been paying an insurance premium to
HUD.
The three litigants, who reside in Indiana, New York, and Maryland, are all
69 to 79 years of age and of "modest means." For various reasons and in one case what appears
to be lender error none were parties to their spouse's mortgage.

Home Equity Conversion Mortgages (HECM), or reverse mortgages, are popular financial
planning mechanisms for equity-rich senior citizens. Arranged through private lenders but
guaranteed by HUD, they allow homeowners to draw out the equity in their homes
through either a one-time lump sum payment or periodic cash installments. While
interest accrues and increases the principal balance of the loan, payments are
not required until ownership of the home is transferred. The intent of Congress in setting up the
program was to allow seniors to remain in their home and still have spending liquidity rather than be forced to sell it for financial reasons.

Borrowers must be at least 62 to qualify for the program and because of their
age and other considerations several protections are in place. The first is that the payoff of the mortgage may not exceed the market value of the house and the second major rule protects
homeowners from being displaced from their homes as long as they own and physically
occupy it. HUD has specifically extended the term "homeowner" to the spouse of the borrower even if that spouse is not party to the mortgage.

Loans are limited by a somewhat modest LTV to buffer it against an underwater mortgage and borrowers pay an annual premium to HUD for guaranteeing the loan and its protections.

The spousal inclusion information has appeared in HUD promotional materials
since 1994 but despite the clear language, AARP's attorneys maintain HUD has
never recognized the protection this non-displacement provision affords the
spouse of a homeowner and abandoned it in 2008, stating that if spouses or
heirs wished to retain the house after the death of the mortgagee they had to
purchase or refinance the house at the full mortgage value. This, plaintiffs say, means that the effect of this change is that a stranger can purchase the property for its appraised
value, but a surviving spouse cannot and in the current depressed market a
family member who wishes to retain the property may not be able to obtain
financing sufficient to pay off the HECM loan.

It also means that the surviving spouse, if he or she cannot pay the
full value of the mortgage, may be displaced from the home.

"HUD has inexplicably turned existing reverse mortgage policies upside
down," said Jean Constantine-Davis, a senior attorney with AARP Foundation
Litigation, in discussing HUD's actions. "These are older individuals
with limited means who have been blindsided by arbitrary, retroactive decision
making."

Steven A. Skalet, of Mehri & Skalet PLLC, the Foundations attorneys, stated,
"Rather than protecting borrowers, HUD retroactively changed the terms of the
loans to make these elderly borrowers' spouses and heirs pay more to keep their
home than an unrelated purchaser would have to pay to purchase the property."
He added: "This is shameful and we intend to make HUD honor the
representations and promises they made to borrowers when they signed up for
these government-insured loans."

HUD has not yet commented on the suit.

By Jann Swanson Mortgage News Daily March 9, 2011

http://www.mortgagenewsdaily.com/03092011_reverse_mortgages.asp?utm_source=twitterfeed&utm_medium=twitter