By Alain Valles
Changes are coming for the federally insured Home Equity Conversion Mortgage (HECM), also known as a reverse mortgage. For the past 25 years, this beneficial loan program has allowed thousands of qualified senior homeowners to convert the equity they have in their home into tax-free cash. However, this will soon be changing.
Since 1988, when President Regan signed into law government authorization to insure reverse mortgages, senior borrowers have been able to obtain a reverse mortgage with:
•No income verification or documentation;
•No requirement to give tax returns or bank statements;
•No minimum credit score qualification;
•No mandatory hold back for real estate taxes or homeowners insurance;
•No restriction on how much cash can be borrowed at closing.
This ability to access tax-free cash — often much needed by seniors — will soon become a more complex process. In recent months, the Department of Housing and Urban Development (HUD) issued guidance to implement Financial Assessment Requirements that will go into effect sometime after April 13.
Once the Financial Assessment guidelines go into effect, all reverse mortgage applicants will be required to provide copies of income documentation and bank account information and have their credit history reviewed.
Some seniors will no longer qualify and be at jeopardy of not being able to receive needed cash to pay off their mortgage and other bills. For others, obtaining cash for home repairs, healthcare, credit card debt and other needs will no longer be possible. Their only options may be selling their home or asking family members for financial help. The goal of remaining financially independent will become a greater challenge.
There is no worse feeling than finding out you acted too late to take advantage of a favorable situation. While a reverse mortgage is not for everyone, it is in the best interest of senior homeowners to seek information from a trustworthy and experienced mortgage professional to learn if the pending changes will limit your ability to access tax-free cash.
The good news is there are no pending changes to the many benefits of a reverse mortgage. These advantages include no requirement to make a monthly mortgage payment and the ability to receive a monthly check for life or obtain a line of credit guaranteed to grow for as long as one lives in the home. The other good news is the changes will not affect everyone and will hopefully make the reverse mortgage program stronger.
So, take action today and learn the facts before your options for getting your hard earned equity out of your home through a reverse mortgage are limited by the new rules.
Alain Valles, CRMP and president of Direct Finance Corp., was the first designated Certified Reverse Mortgage Professional in New England. He can be reached at 781-878-5626 x224 or by email at av@dfcmortgage.com or visit lifestyleimprovementloan.com online. Articles from previous issues can be read on fiftyplusadvocate.com
