History – Reverse Mortgages
The Reverse Mortgage became a valuable and safe tool for Senior Americans when the United States Congress authorized the Department of Housing and Urban Development (HUD) through the Federal Housing Administration (FHA) Home Equity Conversion Mortgage (HECM).
1) The United States Congress passes FHA Reverse Mortgage Legislation, the Housing and Community Development Act of 1987, (S. 825) on December 22, 1987.
2) President Ronald W. Reagan signs FHA Reverse Mortgage Legislation (S. 825) on February 5, 1988.
3) First FHA Reverse Mortgage made to Marjorie Mason, of Fairway, KS by James B. Nutter & Company on October 19, 1989.
Industry Statistics and Trends
According to the National Reverse Mortgage Lenders Association (www.nrmla.org), the number of reverse mortgages insured by the U.S. Department of Housing and Urban Development (representing 90 percent of all such loans) has surged from 157 in 1990 to more than 107,558 in 2007, with a forecast of more than 200,000 this year.
The reason? More than 12.5 million seniors over the age of 65 own their homes free and clear, and are sitting on more than $4 trillion in home equity — money which many need to put toward their daily living and medical expenses.
Definition of a Reverse Mortgage
A reverse mortgage enables older homeowners (62+) to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. The reverse mortgage is aptly named because the payment stream is “reversed.” Instead of making monthly payments to a lender, as with a regular mortgage, a lender makes payments to you
The Federal Housing Administration (FHA) requires that the borrower is a homeowner, 62 years of age or older; own your home outright, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home.
The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."
Estates and Reverse Mortgages
When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs. None of your other assets will be affected by the reverse mortgage loan. This debt will never be passed along to the estate or heirs.
How Reverse Mortgage Money Can Be Received – 5 Ways:
- Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
- Term - equal monthly payments for a fixed period of months selected.
- Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.
- Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
- Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.