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Reverse Mortgages
Reverse Mortgage Program May Get New Enhancements
House bill would
allow seniors to access greater equity amount
April 30, 2006 The Reverse Mortgage Program,
already popular with senior citizens, may get even better. The U.S.
House of Representatives is considering legislation that would make
substantial improvements to the federal reverse mortgage program,
including a plan that would allow older homeowners to access greater
amounts of equity from their homes, according to the National Reverse
Mortgage Lenders Association.
The Expanding American Homeownership Act of 2006
(H.R. 5121) would:
● Create a single national loan limit for FHA
Home Equity Conversion Mortgages (HECM). The HECM program accounts for
90 percent of all reverse mortgages made in the U.S. Currently, lending
limits vary by county and range from $200,160 to $362,790. If the
legislation passes, there would be one single limit equal to the
conforming mortgage limit set by Freddie Mac, which is currently
$417,000. Thus, seniors could convert greater amounts of equity from
their homes into retirement income.
● Implement a HECM for Home Purchase option that
would allow seniors to purchase newer housing that better suits their
needs.
● Remove the existing cap on the number of HECM
loans that FHA can insure. The last provision is also contained in H.R.
2892 and S. 1710, the Reverse Mortgage to Help Americas Seniors Act,
which is still pending approval in the Senate after having passed the
House of Representatives in December.
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"Taken together, these proposed changes would
greatly benefit homeowners who are considering a reverse mortgage as
part of their retirement planning," said Peter Bell, President of NRMLA.
"A single national loan limit would be especially
helpful. It would benefit homeowners living in high-valued homes in
counties where the FHA lending limit is much lower, which limits the
amount of proceeds available from a reverse mortgage. We applaud the
Department of Housing and Urban Development and Congress for proposing
to correct this problem." No companion bill has introduced yet in the
Senate, although one is expected shortly.
Announcement of the House bill comes on the heals
of a New York Times editorial published on April 22, which suggests that
seniors would benefit from using private home equity, thru a reverse
mortgage, to help pay for healthcare and other necessary services that
prolong "aging in place." The editorial concludes that "both the states
and the federal government need to enact comprehensive incentives and
consumer protections to encourage people to use reverse mortgages to
pay for services that will allow them to grow old at home."
A reverse mortgage is a loan that enables
homeowners 62 or older to borrow against the equity in their homes,
without having to sell the home, give up title, or take on new monthly
mortgage payments.
Loan proceeds can be used for any purpose, and
taken out as a lump sum, fixed monthly payments, line of credit, or a
combination. The loan amount depends on the borrowers age, current
interest rates, and the value and location of the home.
A reverse mortgage does not have to be repaid until
the borrower moves out of the home permanently, and the repayment amount
cannot exceed the value of the home. After the loan is repaid, any
remaining equity is distributed to the borrower or the borrowers
estate.
A seniors home does not have to be owned free and
clear to qualify for a reverse mortgage. Reverse mortgages are often
used to retire existing debt on a home.
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 NRMLAs consumer web site,
ReverseMortgage.org.
The site has extensive information on reverse
mortgages, a state-by-state list of lenders, and a reverse mortgage
calculator. To be listed on the NRMLA website, a lender must agree to
abide by the Associations Code of Conduct and operate in accordance
with its Best Practices.
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.
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