A Reverse Mortgage? What the “HECM” is It? By Charlotte Knott HECM is the acronym for FHA’s Home Equity Conversion Mortgage, more commonly known as a reverse mortgage. Much has been written about reverse mortgages, both pro and con. The best known advantages are that the loan allows people to remain in their homes without having to pay a mortgage. It’s a non-recourse loan which means that the borrower or their heirs can never owe more than the home is worth. The basic requirements are that the borrower: • be 62 years of age or older • live in the home as a primary residence • have enough equity in the home to pay off any existing mortgages or lines of credit Recently, lenders have been required to consider how well loan applicants have handled home payments, credit cards, and installment loans, as well as ensuring that they have enough funds to continue paying property taxes and home insurance. The borrower must complete HECM counseling successfully. Counseling begins with a phone call to a HUD approved counseling agency with a HUD listed HECM counselor. The intake includes many questions about the demographics of the borrower or borrowers. The counselor must get specific information about the value of the property, the balance of any mortgages or liens on the property, the cost of property taxes and insurance, and whether or not the borrower has any outstanding federal debt. These facts are used to prepare the loan estimate. The counselor is required to send the applicant this estimate and several brochures about reverse mortgages. The counseling appointment is scheduled at this time. The counseling session can be done face-to-face or by telephone. The cost can range from free to $125 or more. Thorough counseling usually requires more than one hour and can easily last two hours. It should never be rushed.
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Prospective borrowers are often in a big hurry. They want to rush through this requirement and just get to the bottom line. How much can I get from the loan? Because this is a complex loan, the required counseling includes the financial implications of the loan and repayment conditions. The costs incurred and the obligations of the borrower are specified. The counselor will cover the financial details, but it is the questions with answers that are not quantifiable that really need to be considered. Why does the borrower want a reverse mortgage? Do they need the money now or do they have a specific expenditure in mind? Sometimes people are motivated because they have received so many ads by mail, or several calls from lenders that they feel pressured to get a HECM that they don’t want or need. It’s like hearing that the lottery is now $500 million so you just have to buy a ticket. The borrower should consider if now is the best time to get a reverse mortgage. Waiting a few years usually increases the amount of money available to a borrow because the borrower is older and the value of the home may have appreciated. When the borrower is on the younger side, there is a risk of outliving the equity in the home. The balance owed on a reverse mortgage increases constantly because of accruing interest and mortgage insurance. Waiting to take a reverse mortgage until it’s needed will decrease the amount that eventually needs to be repaid. The prospective borrower also needs to consider his/her comfort level with this ever increasing debt. If the borrower needs more income now, are there other options available? Would selling and moving to a different type of housing be a better option? Would renting a part of the home be an option? Are there other possibilities to supplement monthly income? Some borrowers are concerned about what will be left for their heirs and how a reverse mortgage will impact their estate. These questions are just as important as the financial consid-
erations. When the answers are explored frankly and supportively with a counselor, the HECM borrower is more confident about their decision. This is especially true when the counseling is done face-to-face with someone who will still be available to answer questions after the appointment. The HECM experience is much easier when the applicant has a thorough understanding of how it works. n This article is for informational purposes only and is not a solicitation. Charlotte Knott is a HUD listed HECM Counselor with Housing Counseling Ser vices, Inc. (www.housingetc. org) where HECM counseling is made available free of charge.
THINKING ABOUT A REVERSE MORTGAGE? GOT QUESTIONS? WE’VE GOT ANSWERS!
Housing Counseling Services, Inc., a HUD approved non-profit housing counseling agency is one of the few housing counseling agencies in the DC metro area that also has certified Reverse Mortgage, also known as Home Equity Conversion Mortgage (HECM), counselors on staff. This resource has been valuable for the individuals we counsel and we want to make this resource available to as many people as possible. HCS have two educational options for homeowners and their family members: • The first option is for those who have never had a reverse mortgage and want to learn more about them. On Tuesday, June 14th, 2016 at 2:00 PM we will have a workshop called “Reverse Mortgages for Beginners, How to Apply?” • The second option is for those who have a reverse mortgage but need a refresher on how it works. The “Reverse Mortgage Refresher Workshop” will be held on Tuesday, June 21st, 2016 at 2:00 PM. The workshops will be held at Housing Counseling Services, Inc., 2410 17th Street, NW, Suite 100, Washington, DC. All HCS workshops are available in English and Spanish. Pre-registration is requested at our website, www.housingetc.org. Other languages are available with advance notice. For more information contact us at (202) 667-7006 or training@housingetc.org.
THE WASHINGTON INFORMER HOMEOWNERSHIP SUPPLEMENT – JUNE 2016 / www.washingtoninformer.com