Mortgagee Letter 2009-50 was published today by the Federal Housing Administration (FHA) that will extend the resolution recently passed by Congress to keep loan limits for Home Equity Conversion Mortgages (HECM’s) at $625,500 through December 31, 2010.
The letter confirms that Alaska, Hawaii, Guam and the U.S. Virgin Islands will operate under the same $625,500 limit as.
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Tuesday, December 1, 2009
Wednesday, November 25, 2009
Why Reverse Mortgages Need Mortgage Insurance
Reverse mortgages have proven to be a great help to many seniors in recent years and it looks like they will continue to help many more in the future. Among other great features that they have, a reverse mortgage enables seniors to have a cash flow even when everything else is experiencing difficulties due to economic stress.
Reverse Mortgage Money Is Guaranteed to Be Available
The HUD reverse mortgage program, called Home Equity Conversion Mortgages (HECM’s), offers a guarantee on these loans that most other companies do not offer. Recent days have seen many people with HELOCS find out that no more money is available to them. Their money has been frozen, even though it was supposed to be available when they wanted to withdraw it.
HUD’s program, which is made available as an FHA reverse mortgage, has a guarantee on it to ensure that seniors who have a reverse mortgage through them will be able to get their money when they want it. This means that your money is secure even if the company that actually gave you the loan goes out of business.
Mortgage Insurance Fees Are Charged
The money needed to cover this expense is taken out in a upfront 2% charge – the mortgage insurance premium (MIP). It is a reverse mortgage rate that is set by the government and is 2% of the total value of your home. In addition, there will be a monthly charge of 0.5% in order to maintain the cost of your mortgage insurance.
The main reason for these charges is because the government does not subsidize the HECM program. It is the money that comes from each reverse mortage owner that covers the costs. If your home should decrease in value, or if you live longer than expected, it will be money from these charges that will make up the difference.
Mortgage Insurance Prevents You from Paying More than the Home’s Value
Besides insuring that your money will be there, it is this money that will also make sure that the amount owed when it is due is not going to cost you more than the value of your home. This protects you and your relatives – no matter what happens to the value of your home. Be aware, however, that this guarantee is only for government HECM’s.
The mortgage insurance premium provides you with the assurance that your money will be there. You never need to be concerned about making a payment on it, either, because the 2% is taken out when you get the reverse mortgage, and the rest is subtracted from the total amount available. This means you never have to make a payment while you are living in your home.
Reverse Mortgage Money Is Guaranteed to Be Available
The HUD reverse mortgage program, called Home Equity Conversion Mortgages (HECM’s), offers a guarantee on these loans that most other companies do not offer. Recent days have seen many people with HELOCS find out that no more money is available to them. Their money has been frozen, even though it was supposed to be available when they wanted to withdraw it.
HUD’s program, which is made available as an FHA reverse mortgage, has a guarantee on it to ensure that seniors who have a reverse mortgage through them will be able to get their money when they want it. This means that your money is secure even if the company that actually gave you the loan goes out of business.
Mortgage Insurance Fees Are Charged
The money needed to cover this expense is taken out in a upfront 2% charge – the mortgage insurance premium (MIP). It is a reverse mortgage rate that is set by the government and is 2% of the total value of your home. In addition, there will be a monthly charge of 0.5% in order to maintain the cost of your mortgage insurance.
The main reason for these charges is because the government does not subsidize the HECM program. It is the money that comes from each reverse mortage owner that covers the costs. If your home should decrease in value, or if you live longer than expected, it will be money from these charges that will make up the difference.
Mortgage Insurance Prevents You from Paying More than the Home’s Value
Besides insuring that your money will be there, it is this money that will also make sure that the amount owed when it is due is not going to cost you more than the value of your home. This protects you and your relatives – no matter what happens to the value of your home. Be aware, however, that this guarantee is only for government HECM’s.
The mortgage insurance premium provides you with the assurance that your money will be there. You never need to be concerned about making a payment on it, either, because the 2% is taken out when you get the reverse mortgage, and the rest is subtracted from the total amount available. This means you never have to make a payment while you are living in your home.
Thursday, October 15, 2009
HECM Counseling Grants Approved
Counseling agencies will use $8 million to help assist senior citizens seeking reverse mortgages or Home Equity Conversion Mortgages (HECM). These agencies will provide counseling for the rapidly growing number of elderly homeowners who seek to convert equity in their homes into income that can be used to pay for home improvements, medical costs, and other living expenses.
The organizations that provide housing counseling services help people become or remain homeowners or find rental housing, and assist homeless persons in finding the transitional housing they need to move toward a permanent place to live. Grant recipients also help homebuyers and homeowners realistically evaluate their readiness for a home purchase, understand their financing and downpayment options, and navigate what can be an extremely confusing and difficult process.
The organizations that provide housing counseling services help people become or remain homeowners or find rental housing, and assist homeless persons in finding the transitional housing they need to move toward a permanent place to live. Grant recipients also help homebuyers and homeowners realistically evaluate their readiness for a home purchase, understand their financing and downpayment options, and navigate what can be an extremely confusing and difficult process.
Thursday, October 1, 2009
HUD/FHA Reduces Benefits for Seniors
Effective today, October 1, the amount of money available for seniors applying for a HUD/FHA insured reverse mortgage dropped significantly. With HUD's Mortgagee Letter 2009-34 issued on September 23, there was a mandated 10% reduction in the gross dollar amount available. As a result, thousands of seniors in the past 7 days have had their loans locked in under the old HUD formula. Lenders successfully scrambled to obtain the required FHA case numbers before the deadline.
For a 72 year old having a home valued at $400,000, the client would be entitled to approximately $213,000 today using the 5.56% fixed rate option offered by a number of lenders. Yesterday, September 30, the amount available would have been $239,000. This $26,000 difference amounts to approximately11% less money.
For a 72 year old having a home valued at $400,000, the client would be entitled to approximately $213,000 today using the 5.56% fixed rate option offered by a number of lenders. Yesterday, September 30, the amount available would have been $239,000. This $26,000 difference amounts to approximately11% less money.
Wednesday, September 30, 2009
Without their refreshing COLA, will more seniors seek a Reverse Mortgage?
A different and uncertain future lies ahead for the millions who depend on their monthly Social Security checks as their main source of income. For the first time in decades, the standard cost-of-living increase will not be added to the monthly social security payments that are collected by seniors over the next several years.
With rising health care costs coupled with the economic downturn, most seniors are already struggling to maintain their standard of living. Until recently, these individuals were dependant on the up coming cost-of-living adjustment (COLA) but will be forced to find alternative means of maintaining their financial position.
With rising health care costs coupled with the economic downturn, most seniors are already struggling to maintain their standard of living. Until recently, these individuals were dependant on the up coming cost-of-living adjustment (COLA) but will be forced to find alternative means of maintaining their financial position.
Wednesday, August 26, 2009
Frequently asked questions during the settlement
We all know that Reverse Mortgage Settlements can be tricky. You need an experienced closer that is patient and professional. Below are frequently asked questions that arise during the settlement. Your borrowers will feel more comfortable if these are addressed prior to closing:
1. Why are there 2 Deeds of Trust? The first Deed of Trust represents your lenders lien on the property. The second represents HUD as they assumes the second position because HUD is insuring the homeowner will continue to receive loan payments in the event that the lender becomes incapable of making these payments.
2. Can the I add/remove persons from title after the closing? Consult your loan officer first! The loan amount is based on the borrower's age, life expectancy, and value of the home. Changing title can make the loan become due.
3. Why is the loan amount on the Deed of Trust more than the maximum lending limit ? Since there is no maturity date on the loan, HUD has calculates the loan amount by increasing the amount on the deed of trust by 1.5 times the maximum claim amount or appraised value, whichever is less.
4. Why is a Mortgage Insurance Premium collected? A mortgage insurance premium is collected and paid to HUD because as they are insuring the loan in case the lien surpasses the home value.
5. Why is the title insurance so high? The amount of title insurance on a Reverse Mortgage required is usually the maximum lending limit or appraised value, whichever is less.
1. Why are there 2 Deeds of Trust? The first Deed of Trust represents your lenders lien on the property. The second represents HUD as they assumes the second position because HUD is insuring the homeowner will continue to receive loan payments in the event that the lender becomes incapable of making these payments.
2. Can the I add/remove persons from title after the closing? Consult your loan officer first! The loan amount is based on the borrower's age, life expectancy, and value of the home. Changing title can make the loan become due.
3. Why is the loan amount on the Deed of Trust more than the maximum lending limit ? Since there is no maturity date on the loan, HUD has calculates the loan amount by increasing the amount on the deed of trust by 1.5 times the maximum claim amount or appraised value, whichever is less.
4. Why is a Mortgage Insurance Premium collected? A mortgage insurance premium is collected and paid to HUD because as they are insuring the loan in case the lien surpasses the home value.
5. Why is the title insurance so high? The amount of title insurance on a Reverse Mortgage required is usually the maximum lending limit or appraised value, whichever is less.
Paul Neufeld
Reverse Mortgage Consultant
(913) 645-7874
www.pwneufeld.com
Wednesday, July 29, 2009
House Passes Bill, Senate Up Next
The House of Representatives passed HR 3288 late last week by a vote of 255-168, which made appropriations for the Departments of Transportation, HUD and related agencies for FY 2010.
The bill includes three provisions for reverse mortgages, one which extends the higher loan limit ($625,000)FY 2010.
Sec. 235. For mortgages for which the mortgagee issues credit approval for the borrower during fiscal year 2010, the second sentence of section 255(g) of the National Housing Act (12 U.S.C. 1715z-20(g) shall be considered to require that in no case may the benefits of insurance under such section 225 exceed 150 percent of the maximum dollar amount in effect under the sixth sentence of section 305(a)(2)of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1453(a)(2).
The bill also instructs HUD's secretary to adjust programs (ie HECM) to operate at a net zero subsidy rate:
That for new loans guaranteed pursuant to section 255 of the National Housing Act (12U.S.C. 1715z-20), the Secretary shall ajust the factors used to calculate the principal limit(as such term is defined in HUD Handbook 4235.1)that were assumed in the President's Budget Request for 2010 for such loans, as necessary to ensure that the program operates at a net zero subsidy rate:
http://www.jkaravas.com/uploads/House_Passes_Bill_Reducing_Reverse_Mortgage_Benefi.pdf
The bill includes three provisions for reverse mortgages, one which extends the higher loan limit ($625,000)FY 2010.
Sec. 235. For mortgages for which the mortgagee issues credit approval for the borrower during fiscal year 2010, the second sentence of section 255(g) of the National Housing Act (12 U.S.C. 1715z-20(g) shall be considered to require that in no case may the benefits of insurance under such section 225 exceed 150 percent of the maximum dollar amount in effect under the sixth sentence of section 305(a)(2)of the Federal Home Loan Mortgage Corporation Act (12 U.S.C. 1453(a)(2).
The bill also instructs HUD's secretary to adjust programs (ie HECM) to operate at a net zero subsidy rate:
That for new loans guaranteed pursuant to section 255 of the National Housing Act (12U.S.C. 1715z-20), the Secretary shall ajust the factors used to calculate the principal limit(as such term is defined in HUD Handbook 4235.1)that were assumed in the President's Budget Request for 2010 for such loans, as necessary to ensure that the program operates at a net zero subsidy rate:
http://www.jkaravas.com/uploads/House_Passes_Bill_Reducing_Reverse_Mortgage_Benefi.pdf
Tuesday, July 14, 2009
FHA HECM Counselor Website
HECM counselors will discuss program eligibility requirements, financial implications and alternatives to obtaining a HECM. They will also discuss provisions for the mortgage becoming due and payable. Upon the completion of HECM counseling, you should be able to make an independent, informed decision of whether this product will meet your needs. You can search online for a HECM counselor.
http://www.hud.gov/offices/hsg/sfh/hecm/hecmabou.cfm
http://www.hud.gov/offices/hsg/sfh/hecm/hecmabou.cfm
Saturday, July 4, 2009
HECM Fixed Rate 5.56%
Effective 7/1/2009 HECM fixed reverse mortgage rate dropped too 5.56%. Requires full cash draw at closing with no Line of credit available.
Friday, June 26, 2009
New Lending Limits $625,000
Increased loan limits. President Obama increased your ability to draw more equity from your home by increasing the reverse mortgage loan limit to $625,500 until the end of 2009. Again this gives you more equity to draw on which is favorable in a housing market which is failing. The previous limit was $417,000 and may return in 2010
Wednesday, May 13, 2009
Reverse Mortgage 101--
1. What is a reverse mortgage?
A reverse mortgage is a home loan unique in that it allows homeowners to convert a portion of the equity in his or her home into cash. Equity is built in a home though mortgage payments and you as a homeowner have the ability to tap into that equity and start receiving payments for what the home is worth.
This kind of loan is different from a traditional home equity loan or a second mortgage because you are not required to make any payments unless you move into a new home. In the event of your death, the home will be sold in order to pay off the balance of the loan. The remaining amount will be passed on to your heirs.
2. Qualifications for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, the Federal Housing Administration (FHA) requires that the borrower be at least 62 years old and a homeowner. You must own your home or have a low mortgage balance which can be paid off with the proceeds of the reverse mortgage loan at the closing (the moment which you sign the legal documents). The home being used for the reverse mortgage must also be your primary residence. Before qualifying or obtaining the loan, you are required to meet with an HUD-approved counselor who will guide you through the application steps, answer any questions you may have, and discuss any of your concerns. (You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area).
3. Can I apply even if I didn’t buy my present house with FHA mortgage insurance?
Yes. Even if you did not buy the home with an FHA-insured mortgage, your new HUD reverse mortgage will act as a new FHA-insured mortgage loan.
4. What types of homes are eligible?
Your home must be a single family dwelling or a two-to-four unit property. Generally townhouses, detached homes, and condominiums are eligible however, condominiums must be FHA-approved. It is possible for individual condominiums units to qualify under the Spot Loan program. Mobile homes and cooperatives are not eligible for a reverse mortgage.
5. What’s the difference between a reverse mortgage and a bank home equity loan?
Generally a home equity loan, a second mortgage, or a home equity line of credit have strict eligibility requirements in regard to your income or credit level. Also, unlike reverse mortgage loans, with other traditional loans you are still required to make monthly mortgage payments. A reverse mortgage is available to you regardless of your current income and instead of making monthly payments, you are the one receiving payment.
With a reverse mortgage the amount you can borrow depends on your age, the current interest rate, and the appraised value of your home. In most cases, the loan amount will be the lesser of the said factors. Thus, the older you are, the lower the interest rate, and the more valuable your home, the higher the loan amount will be. As stated previously, with traditional loans you are still required to make monthly payments, but with a reverse mortgage the loan is not due as long as the house is your principal residence. Also, with a reverse mortgage you cannot be forced to foreclose or forced to vacate your home because of a missed mortgage payment. However, this does not mean that you are no longer required to pay real estate taxes and other payments like utilities or maintenance.
6. Can the lender take my home away if I outlive the loan?
Absolutely not. As long as you or one of the borrowers live in the home (keeping taxes and insurance current) you do not need to repay the loan. Furthermore, you will never owe more than your home’s value and cannot outlive the loan.
7. Will I still have an estate that I can leave to my heirs?
In the event of your death or in the event that you no longer use the home as your primary residence, your estate will be used to repay the cash amount which you received from the reverse mortgage up to that point, plus interest and other fees. If the equity in your home is worth more than the amount you owe to your lender, the remaining balance belongs to your heirs. No other assets are affected by a reverse mortgage loan; boats, cars, or valuable possessions cannot be taken from you to be used as repayment. The debt you incur will not under any circumstance be passed on to your heirs.
8. How much money can I get from my home?
Again, the amount available for you to borrow depends on your age (the older the better), the current interest rate (the lower the better), and the appraised value of your home (the higher the better).
9. Should I use an estate planning service to find a reverse mortgage?
It is not recommended that you use an estate planning service, or any service which asks for a “small percentage” of the loan in return a referral to a lender. HUD provides information on approved housing counseling agencies and will refer you to a list of approved lenders for free.
Call 1-800-569-4287, toll-free, for the name and location of a HUD-approved housing counseling agency near you.
10. How do I receive my payments?
Five options of payments you can choose from:
• Tenure - as long as at least one of the borrowers uses the home as his/her primary residence, you can receive equal monthly payments for the duration of your life.
• Term - equal monthly payments for a fixed period of months selected (ex: you may rather receive a large dispersement each month over 5 years instead of smaller dispersement over a period of 10-15 years).
• Line of Credit - the amount and time of disbursement is up to you; you may take the amount you please whenever you wish up until the line of credit is exhausted.
• Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
• Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
Source: http://www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm
A reverse mortgage is a home loan unique in that it allows homeowners to convert a portion of the equity in his or her home into cash. Equity is built in a home though mortgage payments and you as a homeowner have the ability to tap into that equity and start receiving payments for what the home is worth.
This kind of loan is different from a traditional home equity loan or a second mortgage because you are not required to make any payments unless you move into a new home. In the event of your death, the home will be sold in order to pay off the balance of the loan. The remaining amount will be passed on to your heirs.
2. Qualifications for a HUD reverse mortgage?
To be eligible for a HUD reverse mortgage, the Federal Housing Administration (FHA) requires that the borrower be at least 62 years old and a homeowner. You must own your home or have a low mortgage balance which can be paid off with the proceeds of the reverse mortgage loan at the closing (the moment which you sign the legal documents). The home being used for the reverse mortgage must also be your primary residence. Before qualifying or obtaining the loan, you are required to meet with an HUD-approved counselor who will guide you through the application steps, answer any questions you may have, and discuss any of your concerns. (You can contact the Housing Counseling Clearinghouse on 1-800-569-4287 to obtain the name and telephone number of a HUD-approved counseling agency and a list of FHA approved lenders within your area).
3. Can I apply even if I didn’t buy my present house with FHA mortgage insurance?
Yes. Even if you did not buy the home with an FHA-insured mortgage, your new HUD reverse mortgage will act as a new FHA-insured mortgage loan.
4. What types of homes are eligible?
Your home must be a single family dwelling or a two-to-four unit property. Generally townhouses, detached homes, and condominiums are eligible however, condominiums must be FHA-approved. It is possible for individual condominiums units to qualify under the Spot Loan program. Mobile homes and cooperatives are not eligible for a reverse mortgage.
5. What’s the difference between a reverse mortgage and a bank home equity loan?
Generally a home equity loan, a second mortgage, or a home equity line of credit have strict eligibility requirements in regard to your income or credit level. Also, unlike reverse mortgage loans, with other traditional loans you are still required to make monthly mortgage payments. A reverse mortgage is available to you regardless of your current income and instead of making monthly payments, you are the one receiving payment.
With a reverse mortgage the amount you can borrow depends on your age, the current interest rate, and the appraised value of your home. In most cases, the loan amount will be the lesser of the said factors. Thus, the older you are, the lower the interest rate, and the more valuable your home, the higher the loan amount will be. As stated previously, with traditional loans you are still required to make monthly payments, but with a reverse mortgage the loan is not due as long as the house is your principal residence. Also, with a reverse mortgage you cannot be forced to foreclose or forced to vacate your home because of a missed mortgage payment. However, this does not mean that you are no longer required to pay real estate taxes and other payments like utilities or maintenance.
6. Can the lender take my home away if I outlive the loan?
Absolutely not. As long as you or one of the borrowers live in the home (keeping taxes and insurance current) you do not need to repay the loan. Furthermore, you will never owe more than your home’s value and cannot outlive the loan.
7. Will I still have an estate that I can leave to my heirs?
In the event of your death or in the event that you no longer use the home as your primary residence, your estate will be used to repay the cash amount which you received from the reverse mortgage up to that point, plus interest and other fees. If the equity in your home is worth more than the amount you owe to your lender, the remaining balance belongs to your heirs. No other assets are affected by a reverse mortgage loan; boats, cars, or valuable possessions cannot be taken from you to be used as repayment. The debt you incur will not under any circumstance be passed on to your heirs.
8. How much money can I get from my home?
Again, the amount available for you to borrow depends on your age (the older the better), the current interest rate (the lower the better), and the appraised value of your home (the higher the better).
9. Should I use an estate planning service to find a reverse mortgage?
It is not recommended that you use an estate planning service, or any service which asks for a “small percentage” of the loan in return a referral to a lender. HUD provides information on approved housing counseling agencies and will refer you to a list of approved lenders for free.
Call 1-800-569-4287, toll-free, for the name and location of a HUD-approved housing counseling agency near you.
10. How do I receive my payments?
Five options of payments you can choose from:
• Tenure - as long as at least one of the borrowers uses the home as his/her primary residence, you can receive equal monthly payments for the duration of your life.
• Term - equal monthly payments for a fixed period of months selected (ex: you may rather receive a large dispersement each month over 5 years instead of smaller dispersement over a period of 10-15 years).
• Line of Credit - the amount and time of disbursement is up to you; you may take the amount you please whenever you wish up until the line of credit is exhausted.
• Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
• Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
Source: http://www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm
Friday, April 10, 2009
Recent Reverse Mortgage Rule Helps Seniors Purchase New Homes
A new Purchase Reverse Mortgage Program was recently announced. It is designed to help seniors purchase a new home and never make monthly mortgage repayments for as long as they live in the home. The new reverse mortgage law that makes this possible took effect in January 2009. The law requires that FHA insure reverse mortgage loans to be used for these purchases.
A senior, 62 or older, can purchase a home using a reverse mortgage instead of the traditional mortgage. Seniors who wanted to purchase a new home with poor credit, or without a steady substantial income or who are not comfortable with beginning to make monthly payments all over again, can now easily do so with the reverse mortgage purchase loan.
Traditional reverse mortgage loans are meant to allow seniors above 62 to receive a steady income from their home equity. It affords a senior who is comfortable with his present home to remain in it and still access steady income. However there are many seniors who are not comfortable with their present home as it no longer suits their needs. Their options are usually limited to remaining in the house in which they no longer feel comfortable or selling and renting an apartment elsewhere… which many people consider worse.
With the new purchase reverse mortgage loan program seniors do not have to cough up the full monetary value for their new home and do not have to make monthly repayments as long as they reside in the home. To qualify, the senior has to be 62 or older, and presently own a home. There is no income or credit criteria needed to qualify although the senior must be able to maintain the new home and pay for relevant tax and insurance fees.
The senior with a home who desires another home under this new program would apply for a purchase reverse mortgage loan. The FHA is expected to insure the loan. The value of the former home is appraised along with the new home to ascertain if, and how much, initial down payment would be required. In some instances a balance from the sale could actually be returned to the senior.
One advantage to this new program is that HUD appraises the former home at its actual appraised value. The appraisal is not made by the FHA which is the usual method of using the quick sale value. The FHA “quick sale” value is the value of the property if it had to be disposed off in a fire sale situation. This value is usually considerable lower than the actual value of the home.
With the new appraisal method, a senior may not have to make any down payment for the new home. Seniors buying a new house will enjoy the benefit of the actual higher appraised value of their old property. This reduces and may eliminate the need to make a down payment for the new property. It also leaves the senior with more extra funds.
Seniors may choose to downsize by moving into a smaller home or smaller community closer to family and friends and to eliminate the need to make any extra down payment and also leaves them with additional proceeds from the sale of their old home for their own personal use. The new program is more attractive as seniors do not have to make any mortgage payments for as long as they live in their new home.
If you are interested in learning more about this new program, contact Paul Neufeld at www.pwneufeld.com
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