DSNews delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry.
Issue link: http://digital.dsnews.com/i/1196094
34 132 people have taken out the mortgages to date. e Chinese people typically leave property to their children, so there is a cultural prejudice against reverse mortgages. A review of the reverse mortgage starts with its definition, and then how it works, who qualifies for one, its protections, and the risk involved with a reverse mortgage. e analysis is based on the Home Equity Conversion Mortgage (HECM) program reverse mortgage, which is insured under the Federal Housing Administration (FHA) and accounts for all but a handful of reverse mortgages. e stated purpose of the HECM program, FHA's reverse mortgage program, is to ease the financial burden on elderly homeowners facing increased health, housing, and subsistence costs at a time of reduced income. e FHA's mission is to serve underserved markets which must be balanced with U.S. Department of Housing and Urban Development's (HUD) obligation under the National Housing Act to protect the FHA insurance funds. Pursuant to 15 USCS §1602(cc), "the term 'reverse mortgage transaction' means a non-recourse transaction in which a mortgage, deed of trust, or equivalent consensual security interest is created against the consumer's principal dwelling: » securing one or more advances; and » with respect to which the payment of any principal, interest, and shared appreciation or equity is due and payable (other than in the case of default) only after: • the transfer of the dwelling; • the consumer ceases to occupy the dwelling as a principal dwelling; or • the death of the consumer. e concept of a reverse mortgage can be more easily understood by starting with a traditional mortgage, where the borrower's home equity increases and the loan balance deceases over time as the borrower makes payments to the lender. With a reverse mortgage, borrowers' home equity decreases and the loan balance increases over time as borrowers receive cash payments from the lender and interest accrues on the loan. Reverse mortgage functions as a means for elderly homeowners to receive funds based on their home equity, because repayment can usually be deferred until death. As well, reverse mortgages are generally non-recourse loans, meaning that if a borrower fails to repay the loan when due, the lender has no recourse outside of the sale of the home. rough the Housing and Recovery Act of 2008, Congress raised the loan limit to $417,000 for a reverse mortgage, and then in 2009, through the American Recovery and Reinvestment Act, Congress raised the loan limit to $625,500. e limit was raised again by FHA in 2018 to $675,650, then to $726,525 in 2019, with an increase up to $765,600 coming in 2020. e FHA insures HECM program reverse mortgagors, and this insurance provides protection for both borrowers and lenders. Borrowers pay a mortgage insurance premium for this protection, but in return, borrowers may remain in the home indefinitely, even if the loan balance becomes greater than the value of the home, so long as the borrower meets certain conditions (age: at least 62 years old; ownership of property; principal residence of borrower; no existing mortgages; and property standards must be met). Further, FHA protects the borrower against the risk that the lender does not make the "loan disbursements." is mortgage insurance premium also protects the lender in that it provides the lender its amount due, and continues to pay the borrower (on a monthly plan or from any unused credit line) until the borrower dies or sells the home, if the lender follows an assignment option created from the FHA insuring process. FHA Commissioner Brian Montgomery advocates for continued support and growth of the HECM program. In July 2018, approximately a month after his confirmation, Montgomery noted that the HECM portfolio sustained a $14.5 billion loss in 2017 but that the program itself is valuable as long as corrections are made. "I have been a strong advocate of the reverse mortgage program," he said, noting the lack of government assistance for senior homeowners who face income challenges. "is program allows seniors to age in place, which they want to do. It's The stated purpose of the HECM program, FHA's reverse mortgage program, is to ease the financial burden on elderly homeowners facing increased health, housing, and subsistence costs at a time of reduced income. Legal Industry Update NATIONAL FOCUS By: Michelle Garcia Gilbert