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Housing Bill: Seniors and Reverse Mortgages

Aug 18, 2008
On 7/30/2008 President Bush signed HR 3221 into law which has many significant effects on homeowners. The Bill, in its final form, covered a number of subjects that Congress had been trying to resolve from the modernization of FHA, to foreclosure assistance for homeowners, to the shoring up for Fannie Mae and Freddie Mac.

The wires are burning up with stories from Bloomberg, Reuters, Associated Press, and every other news agency on the signing of the Bill and while each article is covering the same Bill, each article pulls out a little bit different information.

The reason for this is that this Bill covers a lot of ground and many issues. By signing this Bill into law, the Congress and the President have handed the Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) a big task. They now have the job of getting all these sweeping changes out to the HUD approved lenders so that they can begin a phased implementation of the changes. HUD will do so by sending out Mortgagee Letters in which they will instruct lenders as to the changes, how the changes will be implemented and the dates those changes will take effect.

With a Bill of this magnitude and the number of changes to be made, HUD will have to prioritize, determine which changes can be made immediately and what will take system enhancements or other changes involving larger scale efforts and then implement the provisions of the Bill as quickly as possible.

A good example of some of the outstanding benefits of this legislation is in the area of the Home Equity Conversion Mortgages (HECM or Heck-um), otherwise known as reverse mortgages. The current limits for HECM's are determined by county and range from $200,160 on the low end to $362,790 in the highest counties. The Bill provides for a single national limit of $417,000 (the same as the current limit for Fannie Mae and Freddie Mac) and also allows for an increase up to $625,500 in High Cost Areas.

But these limits won't be available tomorrow and they certainly were not available at the time I saw an ad a week ago stating they were (I read an ad about a week ago from a company stating that this Bill was already signed prior to its actual signature date and that some of the provisions were already in place). According to Daryl Hicks, the Associate Director at the National Reverse Mortgage Lenders Association (NRMLA), they believe the improvements should take approximately 60 to 90 days to implement.

Hicks lists several improvements which will affect the HECM Program in their NRMLA release dated July 28, 2008: Improvements to the Federal Housing Administration (FHA)-insured Home Equity Conversion Mortgage (HECM) program, which will take approximately 60-90 days to implement, will include:

1. - A single national loan limit of $417,000 that can increase up to as much as $625,500 in high cost areas. (Currently, limits vary by county and range from $200,160 to $362,790.)

2. - Ability to use FHA-insured reverse mortgages to purchase homes.

3. - Ability to get a HECM on a co-op property.

4. - Reduced origination fees of 2% on the initial $200,000 of maximum claim amount (lesser of the home value or county lending limit) and 1% on the balance thereafter with a cap of $6,000. (Lenders fees are currently capped at 2% of maximum claim amount.)

5. - Prohibitions on requiring the purchase of annuities and other financial products.

6. - Restrictions around cross selling financial products.

7. - Requirements on counseling protocols, funding and practices that promote independence and quality in counseling.

The bottom line is this: there is still so much misinformation regarding reverse mortgages and the government-insured HECM which was already a viable retirement tool and just got even better that will now help thousands more senior homeowners.

I read an article just yesterday which quoted a Las Vegas realtor who was trying to make heads or tails of a borrowers reverse mortgage paperwork and did not know what he was looking at, had no idea what certain charges like the Mortgage Insurance was for nor what the Servicing Set Aside numbers represented and unfortunately the individual who wrote the article badly mischaracterized the borrowers reverse mortgage and the borrower received bad counsel by trying to have a realtor with no background try to explain the details of his loan. That would be like me trying to diagnose a heart or brain ailment.

It just doesn't make a lot of sense. With legislation this vast, consult our specialists and get the facts.

This is a fantastic opportunity if you live in a cooperative project, if you were previously told you were short to close but you knew you had a high enough value and it was the HUD limit that kept the loan amount too low, if you wanted to use a reverse mortgage to relocate or purchase a retirement home and never make a mortgage payment on your new home or if you live in a higher value property and want the security of the government insured program but it just didn't give you enough money under the old parameters.

Now might be the perfect time for seniors to review their circumstances to see how this Bill can benefit their lifestyle.
About the Author
Michael G. Branson (CEO All Reverse Mortgage Company)is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762
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