CONSUMER SAFEGUARDS - ASSURANCE
Your most carefree years should be your retirement years It is possible to achieve this with a reverse mortgage. To help senior borrowers with a reverse mortgage, reverse mortgage safeguards were built into the loan by HUD, a part of the executive branch of the United States federal government. In my opinion, these essential safeguards make the reverse mortgage one of the safest loan products in the lending industry.
Capped Interest Rates.
The interest rate caps with the HECM ARM are the same no matter which lender a senior chooses as they are set by HUD. The 1 YR CMT rate which is what the HECM ARM is based on is published weekly by the Federal Reserve. Annually adjustable interest rates cannot vary by more than 2 percentage points per year, or 5 points over the life of the loan. These limits are called "periodic" and "lifetime" caps.
Limitation on Ouf-of-Pocket Fees. Origination fees are set by HUD regulations and are financed as part of the Reverse Mortgage. This means a senior incurs very little out-of-pocket expense to obtain a reverse mortgage.
No Maturity Date.
A reverse mortgage cannot become due during the homeowner’s lifetime. This is because the term of the loan is actually set to 150 years. The fact that there are no required payments (and there is a lifetime right to occupy the property as your primary residence) gives borrowers peace of mind.
No Prepayment Penalty.
Although the loan is not due and payable until the borrower permanently moves out of the home whether by selling the home, passing away, or leaving the premises longer than 12 consecutive months, the reverse mortgage can be paid off at any point with no fees or costs as there if no pre-payment penalty.
The HECM is a “non-recourse” loan. This means that the amount due can never exceed the value of the home. When the loan becomes due (whether by the borrowers passing away, refinancing, or the heirs selling/buying the home), the lender is repaid the sum of funds advanced plus accrued interest and any fees. If there is remaining equity in the home, this belongs to the homeowner or their estate. The lender cannot look to any other asset but the home for repayment of the debt which is the collateral for the reverse mortgage.
FHA mortgage insurance. FHA mortgage insurance ensures that you will never owe more than your home is worth. This is because of a feature called non-recourse which was previously mentioned. Lenders can only recoup shortages or be made whole by putting in a claim to the FHA through mortgage insurance which is a feature of the reverse mortgage. Nothing other than the home (which was the collateral for the loan) can be attached. Bank accounts, retirement funds, and other assets cannot be used to satisfy the loan. The house stands for the debt.
In the documents you sign at your reverse mortgage closing called the Note, the Mortgage, and the Loan Agreement, there is a section called NO DEFICIENCY JUDGMENTS contained in the Uniform Covenants section of the MORTGAGE. This means that if there is a deficiency in paying back the debt to the lender (such as homes under water), the lender cannot recoup any of their losses from you personally but will instead use the FHA mortgage insurance to recoup their loss. FHA mortgage insurance protects you but also protects the lender.
"NO DEFICIENCY JUDGMENTS: "Uniform Covenants, 11: No Deficiency Judgments. Borrower shall have no personal liability for payment of the debt secured by this security instrument. Lender may enforce the debt only through sale of the Property. Lender shall not be permitted to obtain a deficiency judgment against Borrower if the Security Instrument is foreclosed."
NO DEFICIENCY JUDGMENTS CONTINUED:
If this Security Instrument is assigned to the Secretary upon demand by the Secretary, Borrower shall not be liable for any difference between the mortgage insurance benefits paid to the Lender and the outstanding indebtedness, including accrued interest, owed by Borrower at the time of the assignment."
No Penalty for Canceling the Loan.
After the loan closes, a borrower has up to three days to cancel the transaction for any reason. This is called the “right of rescission” period and is an important safeguard. Your reverse mortgage loan will not fund until after three days have passed (which includes Saturdays),
NOTE TO NEW YORK BORROWERS:
If you live in New York state, you are required to obtain your own attorney who is required to attend your closing and walk you through the process. The borrower's attorney can be financed along with the various closing fees and paid to the attorney at closing out of the reverse mortgage proceeds.
There are considerations to make in order to ascertain if a reverse mortgage is right for you. You may have questions and your family may also be asking how the reverse mortgage will work for you. Is it truly the right vehicle for you? Advisors Mortgage is here to help answer your concerns.
Questions? Call Advisors Mortgage! 888-843-9797 or 631-804-9044
Independent Counseling. One of the most important safeguards to the HECM program is independent counseling by a HUD-approved counselor. HECM counseling is required by HUD before the reverse mortgage application can be processed. The borrower must meet with an independent HUD-approved counselor (usually by phone) and obtain HECM counseling. HUD oversees a network of counselors whose job is to review the transaction, answer any questions the borrower may have about reverse mortgages, and suggest alternative options. After the counseling has been completed, borrowers receive a signed HECM counseling certificate from the HECM counselor which is passed onto the loan officer, the borrower retaining a copy.
As mentioned in "Is It Right for Me" on this website, in the past if a borrower had a spouse who was under age 62 and that borrower was not on the reverse mortgage. once the borrower passed away, the spouse would eventually have to sell the home if they could not pay off the reverse mortgage. Death is considered a "maturity event" in the reverse mortgage world, and this was a difficult situation.
Through the Reverse Mortgage Stabilization Act signed into law in 2013, there has been a change in the reverse mortgage parameters. If there is a non-borrowing spouse, the reverse mortgage will not become due when the borrower passes away, and their spouses who are under age 62 will be able to remain in the home. However, the HECM line of credit would no longer be accessible and all monthly proceeds would cease. Speak to your reverse mortgage professional about these issues to see if the reverse mortgage is still a viable option for you and your spouse.
NOTE: Prior to getting a reverse mortgage, consult your attorney to obtain any necessary documents (if requested by your loan officer) such as life estate, power of attorney, and guardianship as these documents need to be reviewed by the lender especially if there is a non-borrowing spouse.
ADVISORS MORTGAGE GROUP, LLC., WE TAILOR LOANS TO MEET YOUR NEEDS -Branch NMLS 1833015, 3265 Merrick Road, Wantagh, NY 11793 - Phone: 888-843-9797 or direct: 631-804-9044 - Licensing: CA: Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act; FL; GA Residential Mortgage Licensee; NJ: Licensed by the New Jersey Department of Banking and Insurance; Licensed Mortgage Banker –OH; PA; TX. www.nmlsconsumeraccess.org