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Real Estate Matters

By Terry Farrell

Real Estate Matters

By Terry Farrell

What Is a Reverse Mortgage?

A reverse mortgage is a special type of loan that enables older homeowners

to stay in their home and maintain a comfortable lifestyle. It allows these homeowners to

convert the equity in their home to cash without selling the property or giving up title.

The loan is called a reverse mortgage because the direction of payments is

reversed — the lender pays the borrower rather than vice versa. The loan provides

funds to the homeowner as a one-time lump sum payment, a line of credit (the

most popular method), or fixed monthly payments for life (called tenure) or a

shorter period chosen by the borrower. The loan amount is based on the owner’s

equity in his or her own house, the value and location of the property, current

interest rates, and the owner’s age at the time of application. The older the

borrower, the larger the loan amount. Single-family one-unit dwellings are

eligible properties for all reverse mortgages. Some programs also accept 2-4 unit

owner-occupied dwellings and some condominums and manufactured homes.

Cooperatives are ineligible.

There are no credit or income requirements to qualify for a reverse mortgage.

Instead, the borrower must be at least 62 years old and, in general, the borrower

must receive counseling or consumer education in advance. The maximum loan

amount is larger if the home is debt-free or nearly so, but this isn’t required to

obtain a reverse mortgage. Although age affects the size of a loan, medical

history does not – applicants are NOT required to furnish medical records or undergo an

exam.

A reverse mortgage does not have to be repaid until the death of the last

surviving borrower, the sale of the home, or a permanent move out of the home

by the borrower. And the home does not have to be sold to repay the loan. The

loan can be repaid using other sources of funds and the home kept, if the heirs or

estate desire.

Several Products Available

Four types of reverse mortgage products are available today. These include:

the federally insured Home Equity Conversion Mortgage (HECM); the Fannie

Mae Home Keeper reverse mortgage; and the Financial Freedom Equity Guard

and Cash Account Plans, two proprietary "jumbo" products.

The HECM is a reverse mortgage, made by private lenders, that is insured by

the Federal Housing Administration, an arm of the U.S. Department of Housing

and Urban Development. First offered in 1989, the HECM is the oldest nationally

available reverse mortgage product. More than 40,000 have been originated

to date, including 8,000 in the federal fiscal year that ended September 30, 1999.

The Home Keeper loan is a reverse mortgage product designed by Fannie

Mae, a national company that invests in home loans. Fannie Mae is the largest

investor in reverse mortgages and has a current portfolio of over 35,000 reverse

mortgages. Of this total, about 90% are FHA HECMs and 10% are Home

Keeper mortgages. Home Keeper mortgages offer

some different features than FHA HECM loans

and can be larger in size, particularly for couples.

Home Keeper mortgages are originated by private

lenders.

Fannie Mae also offers a unique program

called Home Keeper for Home Purchase. This

allows a senior to obtain a Home Keeper reverse

mortgage to help finance the purchase of a new

home. The advantage of this arrangement is that a

senior can purchase a new home with less out-of-pocket

cash, keep more of the sales proceeds from

the old house, and avoid taking on a monthly

mortgage payment.

HECMs and Home Keeper mortgages are now

available in every state but Texas, where they are

expected to become available sometime in the year

2000.

The Financial Freedom Equity Guard and Cash

Account Plans are two proprietary "jumbo" reverse

mortgage products offered by Financial

Freedom Senior Funding Corporation, a private

firm in Irvine, CA. These products have some different

features than HECM or Home Keeper loans,

including a larger maximum loan size. They are

available in a limited number of states.

About NRMLA

Established in January 1998, the National

Reverse Mortgage Lenders Association is a non-profit

trade association that represents lenders,

financial services, and other professionals involved

with reverse mortgages. NRMLA’s member firms

originate and service more than 90% of all reverse

mortgages.

NRMLA promotes public awareness of the

reverse mortgage product; keep its members

informed of new legislative, regulatory, and market

developments; represents the industry in Washington,

DC; and holds periodic national conferences

on reverse mortgage topics and trends. The

Association held its first meeting in May 1998, in

Chicago. The next meeting will be the 2000

Annual Meeting to be held in the fall of 2000.

The Association has been actively involved in

a number of legislative, regulatory, and market-

oriented projects in its first year, with considerable

success. Results include the passage of federal

legislation making positive improvements to the

federal reverse mortgage insurance program; steps

toward enhancing the quality and availability of

consumer counseling as it relates to reverse mortgages;

and the creation of a Code of Conduct for

Association members.

NRMLA’s Web site (see address below) has

extensive information about reverse mortgages.

Jim Mahoney, of Financial Freedom Senior

Funding Corporation, Irvine, CA, is Chairman of

NRMLA. Day-to-day operation of NRMLA is

managed by President Peter H. Bell.

1625 Massachusetts Ave., NW, Suite 601

Washington, DC 20036

Tel: 202-939-1760 / 202-265-4435 (fax)

Web site:http://www.reversemortgage.org

Fannie Mae

Toll-Free 800-732-6643.

Consumers can obtain information on HECMs and

Home Keeper mortgages and a list of lenders around

the U.S. offering these reverse mortgages.

Web site: http://www.fanniemae.com

HUD

Toll-Free 888-466-3487

Consumers can get information on reverse mortgages,

specifically on the Home Equity Conversion Mortgage.

Web site: http://www.hud.gov

Lenders Association

202-939-1765

Consumers can find the names of reverse mortgage

lenders in their state by calling NRMLA or checking the

"Lenders List" on the Association’s Web site. The site

also has detailed information on reverse mortgages.

Web site: http://www.reversemortgage.org

Whether you’re thinking about buying or selling or merely seeking information, rely on me to provide accurate up to date information about the marketplace today.

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