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In helping home owners stay on top of mortgage trends, LoanLove has presented a new article highlighting the recent changes made to Home Equity Conversion Mortgages, also known as “reverse mortgages”. These reverse mortgage updated guidelines will allow senior home owners to resolve many of the problems they might have otherwise had to deal with when applying for reverse mortgages.
The Loan Love article says: “For most people, the only way to make use of the equity you’ve built up in your home is by selling or refinancing and pulling equity out at closing. A reverse mortgage (you may know it by its more formal name – Home Equity Conversion Mortgage or HECM) lets people who are at least 62 years old access that equity using an entirely different approach: Homeowners can take money out of their homes without having to make any monthly payments. What’s more, the homeowner keeps the title to their home for the entire time they’re living in it.”
However, these reverse mortgages have been risky for senior homeowners in the past, primarily because they can be quite complicated and older homeowners may not fully grasp the consequences of taking on a reverse mortgage. Also, because the process is complex, there has been worry that many senior homeowners were being taken advantage of by lenders whose business practices are not above board, or simply misled due their lender also being misinformed of what the best option would be for the homeowner. These pitfalls have put a damper on an otherwise very beneficial mortgage program for older homeowners. The new reverse mortgage updates help to safeguard against these problems and protect both the senior homeowners and the lenders that hold their loans.
The new guidelines would accomplish this by first requiring that borrowers have a financial assessment before being approved for the loan. This will determine which HECM (Home Equity Conversion Mortgage) products, if any, would best fit the homeowners’ needs. The Loan Love article says: “This protects consumers from unscrupulous or unknowledgeable lenders who may promote loans that don’t meet the homeowner’s needs, and it also protects lenders by making sure the loans they write satisfy their lending requirements.”
Also, if necessary, the new laws would require an escrow account be established in order to prevent defaults; this would protect lenders from losing their investments if they homeowner falls behind in their insurance or tax payments. The law would also limit the amount that the homeowner can take out when initially approved for the loan. Finally the new law prohibits any change to the reverse mortgage rules that are not designed to improve the financial safety and reliability of the program.
These new rules will help reverse mortgages to be a safer, more attractive option for senior homeowners. To learn more about the new guidelines, please visit LoanLove.com for the full article.
