HUD Issues New Rule to Reduce Senior's Out-of-Pocket
Costs to Refinance Reverse Mortgages
Interim Rule Implements Other Consumer Protections
March 29, 2004 – Seniors wishing to take advantage
of today's low interest rates by refinancing a reverse mortgage will pay
less fees, and receive other consumer protections, according to a new
regulation issued by the U.S. Department of Housing and Urban
Development, the National Reverse Mortgage Lenders Association announced
The Interim Rule issued by HUD reduces the upfront
mortgage insurance premium (MIP) charged to seniors who refinance a
federally insured reverse mortgage, commonly called the Home Equity
Conversion Mortgage (HECM). The HECM is insured by the Federal Housing
Administration (FHA), a part of HUD.
Currently, a senior who refinances their reverse
mortgage is charged a MIP equal to 2% of the appraised home value, plus
an annual premium thereafter equal to 0.5 percent of the loan balance.
The new Rule states that the MIP will be paid on
the difference between the home value at the time the original HECM was
made and the newly appraised home value at the time of refinancing. For
example, if the original home value is $200,000 and the newly appraised
home value is $275,000, then the 2% MIP will be paid on $75,000, instead
"Seniors are looking at a huge cost savings if they
choose to refinance their HECM," said Peter Bell, President of NRMLA.
The Interim Rule takes effect April 26, 2004. An
Interim Rule means that the provisions take effect on the effective
date, but HUD is accepting additional comments and will publish a final
rule at a later date. Final comments are due May 24, 2004.
The Rule also waives the mandatory counseling
requirement in a refinancing, but only if the loan amount that the
borrower is eligible to receive exceeds five times the total cost of the
refinancing. For example, if fees and costs equal $10,000 then
additional cash should be at least $50,000 to waive additional
A reverse mortgage is a loan that enables
homeowners 62 or older to borrow against the equity in their home,
without having to sell their home, give up title, or take on a new
monthly mortgage payment. The loan proceeds can be used for any purpose,
and taken out as a lump sum payment, fixed monthly payment, line of
credit (except in Texas), or a combination. The loan amount depends on
the borrower’s age, current interest rates, and the value and location
of their home. A reverse mortgage isn’t repaid until the borrower moves
out of the home permanently, and the repayment amount can’t exceed the
value of the home. After the loan is repaid, any remaining equity is
distributed to the borrower or borrower’s heirs/estate.
A senior’s home doesn’t have to be owned free and
clear to qualify for a reverse mortgage.
NRMLA distributes a free information booklet on
reverse mortgages, called Just the FAQs: Answers to Common Questions
About Reverse Mortgages. Consumers can order it by telephone
(1-866-264-4466, toll-free) or at
NRMLA’s Web site. The Web site has extensive information on reverse
mortgages, a state-by-state list of lenders, and a reverse mortgage
NRMLA is a nonprofit trade association, based in
Washington, DC, whose members make and service reverse mortgages
throughout the U.S. and Canada. Members sign a Code of Conduct pledging
to abide by guidelines that assure fair, ethical, and respectful
practices in offering and making reverse mortgages to seniors.