Reverse Mortgage Loans

Need income after retirement but can't afford to sell the home you are living in? Consider taking a reverse mortgage loan, FHA offers reverse mortgage. Home equity conversion mortgages (HECMs), which are commonly known as reverse mortgages and senior home loans, enable homeowners who are at least 62 years of age to withdraw some of the equity in their homes in the form of monthly payments, in a lump sum, or through a line of credit.

The reverse mortgage is different from traditional second mortgage or home equity lines of credit (HELOCs) in the respect that it is available regardless of your current income. Home equity loans require that you have sufficient income versus debt ratio to qualify for the loan. Then, you have to make monthly mortgage payments back to the lender. With the reverse mortgage, seniors receive a monthly payment instead of making a mortgage payment.

Home Equity Conversion by FHA
The FHA has had reverse mortgages for a long time. The FHA Modernization Act of 2008, just passed on July 30, 2008 under the Housing and Economic Recovery Act of 2008, and effective on January 1, 2009, has several new provisions for reverse mortgages that make the FHA reverse mortgage a very attractive option, including:

• Amendments to the HECM Loan Insurance Program (Section 122) - The amendments permanently remove the statutory limitation on the number of loans that could be guaranteed, set a single nationwide limit on the dollar amount of a HECM loan that would be tied to the conforming loan amount, limit the origination fee to 1.5 percent of the home's value (subject to a minimum allowable amount), and allow borrowers to use HECM loans to purchase a new home. HECMs will also be allowed to be used on Coops. Currently only single family homes are eligible.
• A new limit on premium increases for mortgage insurance - Currently, FHA has the authority to adjust fees for its mortgage insurance programs through administrative action. Section 120 would prohibit FHA from increasing fees through 2009 unless the increase is required to maintain the estimated credit subsidy for the program at zero, but not less than zero.

According to the National Reverse Mortgage Lenders Association (NRMLA) and other industry experts, the HECM program has risen in popularity in recent years. As more consumers are becoming aware of the product, more households are becoming eligible for the program (currently over 17 million households have owners who are age 65 or older, according to census data), and more seniors view the product as an alternative approach to financing home improvement projects, medical costs, and other needs. The number of HECM loans insured by FHA quadrupled from 2003 to 2006 (18,000 loans were insured in 2003, compared with 76,000 loans in 2006).

How does this Affect Seniors?
This means seniors may be able to borrow as much as $625,500 from the equity in their home to use any way they please! Seniors recognize the value of using this program to access the wealth they have accumulated in their homes to pay off existing mortgages and other debts (thus avoiding foreclosure in some situations), pay for healthcare, make needed repairs, or to supplement retirement income. This program is becoming a more mainstream financial planning tool for older homeowners. It enables older homeowners (generally age 62+) to convert part of the equity in their homes into income without having to sell the home, give up title, or take on a new monthly mortgage payment.