Reverse Mortgages Have Consumer Safety in Mind
FHA-insured Home Equity Conversion Mortgages (HECM), also known as a reverse mortgage, have been regulated since 1989 to protect consumers. Created to help seniors tap into their home equity for additional retirement income, the program has evolved over the years with safeguards in place to help protect borrowers from financial abuse and fraud. HECM may be considered one of the safest types of reverse mortgage. Here are some reasons why.
1. Borrowers must go through a counseling program
Intended to protect the consumer, federal law requires that all potential HECM borrowers receive counseling from a third-party HUD-approved counselor. The counselor will help you understand the ins and outs and of a reverse mortgage, including payment options, costs, taxes, property upkeep obligations, and other associated financial responsibilities.
2. Regulated rates and fees
To ensure reverse mortgage borrowers aren’t being taken advantage of, loan rates and fees charged to the consumer are federally regulated and controlled, guaranteeing you aren’t paying excessive fees. Also, the Federal Truth in Lending Act requires lenders to disclose all the terms and costs of the loan.
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3. Protection from crossover risk
Crossover risk is when the amount of debt is more than the value of your house. Fortunately, reverse mortgage programs are non-recourse loans, which means you or your heirs will never pay more than your house is worth. Because the HECM is insured by the Federal Housing Administration (FHA), they will pay the difference when the loan comes due for repayment.
4. Eligible non-borrowers
If the spouse of a borrower is not on the loan, HUD has created new rules to protect his or her rights after the death of the borrower. Under these provisions, the eligible spouse can remain in the home and continue to postpone repayment while meeting all other maintenance, tax, and insurance obligations.
5. Certified Reverse Mortgage Professionals
The National Reverse Mortgage Lenders Association created the Certified Reverse Mortgage Professional (CRMP) designation to tell consumers, with confidence that you can depend on a NRMLA member. CRMPs invest a considerable amount of time, training, and personal income so they can provide knowledgeable, competent, and ethical services to their clients.
Reverse mortgages are a specialized loan program that requires some upfront homework, but can greatly benefit seniors who are looking for financial stability. Talk through the process with a Certified Mortgage Loan Professional who can update you on the new guidelines, safer consumer practices, and how the programs of today can work for you.
Learn more about how people are using home equity conversion mortgages for purchasing homes:
Please keep in mind that the reverse mortgage industry in constantly changing and some of the information contained on this site may not be current. Please ask a licensed reverse mortgage professional for up-to-date guidelines.