Seniors’ Guide to Reverse Mortgage: Part I

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Making a decision is easy. Making a smart decision is difficult.

All it takes to make a decision is to choose what seems right at the moment—one that makes luring promises — and then bank on that promises for gains, not on the actual accomplishment.

On the other hand, making a smart decision involves defining the subject properly, and then producing a well-researched and well-developed action plan to address the subject.

This is true with reverse mortgage.

In the past, some seniors got into trouble due to insufficient information about reverse mortgage products. Thus, whether a senior's interest on reverse mortgage is driven by financial trouble or not, it is always wise to make a smart decision, and smart decision-making will be a starry-eyed pursuit without accurate information.

This article series aims to provide must-know about reverse mortgage loan. This article will be a 5-part series of nuggets of information for your mom, dad, auntie, uncle, grandma, grandpa, or any senior you would like to be empowered prior jumping on the reverse mortgage bandwagon.

On reverse mortgage history:

1.)  The Home Equity Conversion Mortgage (HECM) program was launched in 1989 as a small pilot program. It was not made permanent until 1998. The program insured about 70,000 reverse mortgage loans per year. According to the U.S. Census Bureau, there were 40.3 million Americans age 65 and older in 2010. Of the said count, more than 80% are homeowners. A senior has to be 62 to be able to qualified for a reverse mortgage. This means that reverse mortgage has barely tapped its target market.

2.)  The housing counseling notification requirement was reinstated in 2002. Under this provision, lenders must notify all eligible delinquent reverse mortgage borrowers of the availability of homeowners’ counseling. This means that the Federal Housing Authority (FHA) through the Housing and Urban Development (HUD) has been instituting guidelines that will ensure senior-borrowers are treated fairly. Before a lender can order foreclosure, other avenues must be exhausted first.

3.)  To simplify both the origination and loan processing, HUD stopped issuing paper Mortgage Insurance Certificate (MIC) in 2004 and settled for screen prints. Aside from fairness, government entities involved in the reverse mortgage program are also committed to simplifying the loan process making it more workable for the majority of seniors.

4.)  To reduce the occurrence of identity theft and fraud in FHA programs, photo identification requirement for loan applicants was eliminated in 2006. Aside from fairness and simplicity, security is also another feature of HECM.

5.)  HECM borrowers were afforded the option to meet face-to-face with the lender and/or HECM counselor or to participate in loan origination and counseling activities by telephone in 2007. This move is still part of the goal to simplify the process in securing a reverse mortgage product.

6.)  Lenders began offering fixed-rate HECMs in 2007. Fixed-rate HECM is the dominant product of reverse mortgage.

7.)  FHA issued guidance in 2008 making fixed-rate HECMs structured as closed-end loans paving for the development of a fixed-rate, lump-sum product.

8.)  Congress increased the loan limit on HECM loans to $625,500 in 2009.

9.)  HECM Saver was introduced in 2010. It is the lower-cost version of HECM Standard with lower upfront mortgage insurance premium (MIP) equivalent to 0.01% of the value of the property as opposed to the 2% MIP for HECM Standard.

10.) Home Equity Reverse Mortgage Information Technology (HERMIT) was utilized in 2012. HERMIT automates the claim process in reverse mortgage. Lenders are required to enter information like expenses, dues and payable notifications and other data in the system. This means that senior-borrowers’ information are safer, faster to process, and can be stored and retrieved anytime.

As you can see, the FHA and HUD have been fine-tuning policies since reverse mortgage’s institution to ensure that seniors are served well. Armed with knowledge on reverse mortgage history, seniors now can formulate smart and educated decision for they have a basic understanding of the product. Complemented with information from a variety of sources, seniors and their trusted loved ones can make an informed decision easier when presented with a variety of mortgage options. The second part of this series will focus on current issues hounding the reverse mortgage industry.

 

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