Reverse Mortgage (HECM) History

Reverse Mortgage (HECM) History

The origins and reverse mortgage (HECM) history of shows a loan product that has evolved dramatically over the last 40 years. The first reverse mortgage loan was written in 1961 by Nelson Haynes of Deering Savings & Loan (Portland, Maine) to Nellie Young, the widow of his high school football coach helping her to stay in her home despite the loss of her husband’s income.

The need for reverse mortgages was further developed in the 1970’s with several private banks offering reverse-mortgage-style loans. These loans gave seniors money from their home but did not afford the protections of today since no FHA insurance had been put in place.

In the early 1980’s the U.S. Senate Special Committee on Aging issued a report stating the need for standardized reverse mortgage loan products. Other committees throughout the mid 80’s cited the need for FHA insurance and uniform lending practices. In late 1987 Congress passed the FHA insurance bill that would insure reverse mortgages. On February 5, 1988 President Ronald Reagan made history by signing the FHA Reverse Mortgage bill into law. In 1989 the first FHA-insured HECM was made to Marjorie Mason of Fairway, Kansas by the James B Nutter Co. This was based around the fact the FHA insured against the property not being worth enough and leaving a debt to your heirs. .

The actual Reverse Mortgage original name is the “Home Equity Conversion Mortgage Insurance Plan”. Since 1989 HECM Reverse Mortgages have grown in popularity, especially in the mid to late 1990’s, and Reverse Mortgages really started to grow during the housing crisis of 2007; that when the TV commercials because common. Despite economic upheaval and forward mortgage lending issues, this product has continued to grow as a government-insured loan allowing seniors to access a portion of the equity in their homes while not having to make a monthly mortgage payment. *

So, there is the history of the HECM, which thanks to several new laws and requirements over the last few years, the Reverse Mortgage is safe enough that financial planners recommend them.

The slang term ” Reverse Mortgage” does leave people with a negative perception than is either something that happened 20 years ago or usually I find it’s not true at all. Lie the government wants or buys my house. Actually all the FHA does is insure the loan.

HECM or home equity conversion mortgage is the correct name for the slang term “Reverse Mortgage”.  FHA’s HECM is a special type of home loan that allows a homeowner to convert a portion of equity into cash. The equity built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence*. HUD’s reverse mortgage provides these benefits, and it is federally-insured (FHA) as well. Our team has over plenty of experience only handling the FHA backed HECM. Please contact Reverse Mortgage Alabama for any information you need on pros and cons, purchase a home with the HECM Reverse Mortgage, age requirements, or anything else on the federally insured home equity-based retirement solution.

How does a HECM work?  A HECM is different in that it pays you.  The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don’t make payments, because the loan is not due if the house is your principal residence. * Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD HECM, you cannot be foreclosed or forced to vacate your house because you “missed your mortgage payment. “Can the lender take my home away if I outlive the loan?

No! You do not need to repay the loan if you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home’s value. *Will I still have an estate that I can leave to my heirs? We encourage “adult children” to be a part.

Adult Children or Estate. When you sell your home or no longer use it for your primary residence; you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by HUD’s reverse mortgage loan. This debt will never be passed along to the estate or heirs. *Will I still have an estate that I can leave to my heirs? We encourage “adult children” to be a part.

Reverse Mortgages. Who is eligible for a Reverse Mortgage?

You must be age 62 or older Non-borrowing spouses under 62 must apply for the reverse mortgage loan, attend a HUD counseling session. In all states the HUD counseling is either handled in person, or over the telephone by a HUD counselor.

What is a HECM? What are my options and how much can I borrow?

HECM — The Home Equity Conversion Mortgage (HECM) is the only reverse mortgage that is insured by the Federal Housing Administration (FHA). The FHA guarantees that HECM lenders meet their obligations, governs how much HECM lenders may loan to qualified borrowers, and limiting loan costs. Because this is a government insured program, loan counseling is required, by an approved HUD counselor.

HECM offers 4 draw options:

      • Monthly income for a fixed term, or life
      • Line of credit
      • Lump sum
      • Any combination of the above 3

Equity Available by Age

Age of Borrower Percentage range of equity available through a reverse
62 39-40%
67 43-44%
72 45-46%
77 49-51%
82 55-56%
87 61-62%
90* 68-69%
*Equity does not increase over age 90 (Subject to change based on economic data)

 How do I apply?

These basic steps describe the application process from start to finish.

Your Application

Your application begins the process with the lender. It specifies fees, interest rates, loan amounts, and more.

Documentation

At this point you will begin collecting the documents required to be approved for the Reverse Mortgage. These may include such things as: mortgage statements, homeowners insurance, bank statements, ID’s, paystubs or other proof of income and tax returns.

Reverse Mortgage Counseling

Your lender is not allowed to proceed until you complete mandatory counseling with a HUD-approved counselor. List of approved agencies are available from the lender or online at www.hud.gov.

The Appraisal

In order to proceed, you will need to know the market value of your property through an FHA-approved appraisal that the lender will order.

Underwriting

For underwriting, legal ownership is confirmed in a title search. If someone remains on the title that no longer lives in the home or is deceased, additional paperwork may be required to clear title. The underwriter will also review the appraisal, the financial assessment and insure the loan is in the best interest of the borrower and the lender.

Closing

At closing, all aspects of the loan are reviewed and signatures obtained on final loan documents with a notary and after a three day waiting period you will receive the money, or proceeds, from your reverse mortgage. On a Purchase, the loan will fund the same day. On a Refinance, you can choose to receive the payment in one of three ways: as a lump sum, as a monthly payment or as a line of credit. Then it’s up to you: pay bills, fix up the house, help a family member, or use the money to enjoy your life.

 Reverse Mortgage Payout options

Reverse mortgage loans are a way for homeowners 62 or older to convert their home’s value into cash or monthly payments without having to sell or move. Insured by the FHA Mortgage Insurance program, the Department of Housing and Urban Development (HUD) allows these Homeowners to either borrow against the equity of their homes or purchase a new home based on the value or purchase price of that new property.

This is How a Reverse Mortgage underwriting works –

Qualifying homeowners can choose to receive generally tax-free payments from reverse mortgage lenders either on a monthly basis, in a lump sum, or as a line of credit. Consumer should consult a tax adviser.
Income, assets and liabilities will be verified.
No repayments are required as long as at least one borrower lives in their home as well taxes, insurance and HOA dues are paid on time and the home is maintained in good condition.
Social Security and Medicare benefits are not affected.
Reverse mortgage lenders recover the loan amount, plus accrued interest and mortgage insurance when the last homeowner passes away, chooses to sell the home or a family member chooses to purchase the home (for more details contact me).
When the loan is paid in full, all remaining equity associated with the property will be distributed to your heirs. Must comply with the terms of the mortgage.

 Is a Reverse Mortgage right for you?

The first step we like to take is talk with you, either over the phone or in person, about whether a reverse mortgage is right for you. We talk about the pros and cons, how it works, the various options, how much money you might receive and anything else you’d like to know. Then you decide whether you wish to take the next step. Call Scott Underwood – “The Souths Reverse Mortgage Guy”. Call for a Reverse Mortgage illustration based on helping you best make your retirement income last for your entire retirement. Scott Underwood call be reached at (205) 908-2993, (256) 677-9767, or reversemortgagealabama@gmail.com.

**Borrowers must continue to pay property taxes, homeowner’s insurance and other property obligations complying with HUD’s requirements for the loan. Failure to do so may result in foreclosure. This concludes today’s history lesson.

**Reverse Mortgage Alabama is the senior lending division of SMG mortgage. We are licensed in Alabama, Georgia, Mississippi, and Tennessee.