Federally insured reverse mortgage loans, also known as Home Equity Conversion Mortgage (HECM) loans, are a financial resource for homeowners aged 62 and older who have sufficient equity in their home, who are not delinquent on any federal debt and who live in the home as their primary residence.
Borrowers may receive their reverse mortgage funds in a variety of ways. These include a monthly payment, lump sum or through a home equity line of credit. In order to find the right solution, it is important to discuss your financial needs and goals with a financial professional.
As the needs of the borrowers change, the Federal Housing Administration is working to update the policies relating to reverse mortgage loans.
The Department of Housing and Urban Development has eased requirements for Home Equity Mortgage Conversion loans1, the most common reverse mortgage loan. Most significant to note is that the new policy will not require non-borrowing spouses to automatically repay the loan when the borrowing spouse passes away or moves out of the property.
Current rules require that the surviving spouse, or the spouse who continues to live in the home after the borrowing spouse moves out, must repay the loan in order to continue living in the home. The FHA will also allow reverse mortgage lenders to suspend the foreclosure process for up to 60 days to allow non-borrowing spouses to remain in the home when the borrowing spouse no longer does.2
The new policy will only affect new borrowers and will go into effect on August 4, 2014. The letter from the Federal Housing Administration to reverse mortgage loan lenders says, in part, “Because FHA’s traditional interpretation is embedded in existing, legally binding contracts, FHA has no authority to alter it with respect to existing loans”1.
Under the new policy, the non-borrowing spouse may live in the home as long as they continue to maintain the property, pay property taxes and insurance and pay any homeowner’s association fees within this 60 day period.
If the non-borrowing spouse does not meet these requirements, the loan will become due.
The non-borrowing spouse will not receive any further payments from their spouse’s reverse mortgage loan, unless some of the funds were set aside for specific home repairs. Interest will continue to accrue on the amount already paid to the borrowing spouse. Should the borrowing spouse marry or divorce after the reverse mortgage loan has closed, the non-borrowing spouse is not eligible for postponement of repayment.
The Federal Housing Administration is using its authority from the Reverse Mortgage Stabilization Act of 2013 to make these policy changes. The FHA will seek comments as this policy progresses through traditional rule making channels.
Homeowners seeking a reverse mortgage loan may need finances to meet monthly expenses or to afford health care or home repairs. Even senior homeowners who feel they have saved enough for retirement may be overwhelmed by unplanned expenses.
For more information about reverse mortgage loans, requirements and loan repayment obligations, please call a reverse mortgage advisor now at 800.976.6211.