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gage Lenders Association (NRMLA). Seniors whose incomes are fixed may turn to reverse mortgages as their expenses and the cost of living increase. “In my experience, most people use a reverse mortgage to improve their cash flow and eliminate their mortgage payment,” said Hutchins. Then there are those “who want to remain in their home but need help and access the equity to pay for a caregiver.” An HECM, the most popular type of reverse mortgage and the only one insured by the federal government, allows borrowers 62 or older to cash in on a portion of the equity in their house without having to sell the property, move out of it or make monthly loan payments, according to NRMLA. The loan comes due upon the death of the borrower or when the borrower sells the house or has not lived in it for a year. The final loan balance includes the amount borrowed, plus annual insurance premiums, servicing fees and interest. So, by the time the borrower sells or leaves the house, the amount owed is more than what originally was borrowed. But, no Gazette.Net
matter how large the loan balance grows, the total that must be repaid may not exceed the appraised value of the home or sale price. Any loss is absorbed by the federal government. More than 800,000 HECMs have been made since the program began in 1990. The number of loans peaked at 114,692 in 2009. That’s when the economic recession led to “demographic and behavioral changes” among borrowers that increased loan defaults and threatened the viability of the HECM program, according to HUD. As a result, the agency modified several of the program’s financial components in September and added a financial assessment requirement as of Jan. 13. The purpose of the financial assessment is to identify prospective borrowers who may have difficulty paying property taxes and homeowners insurance (T&I), which can lead to default. “This is not a pass or fail test, the way I see it,” said Miller. “What HUD is trying to do is find borrowers who may need to set aside funds to
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