Real Estate NewsLegislation Passed To Improve Reverse Mortgage Programs
WASHINGTON -- As expected, Congress has passed legislation that promises
to make several consumer-friendly improvements to reverse mortgage programs that
allow senior home owners to convert a portion of their equity into cash. But there"s catch.
The changes are contained in a conference report to the fiscal 2000
appropriations bill for the Department of Housing and Urban Development, Department of Veterans
Affairs and the independent federal agencies. While the report reflects lawmakers" intent,
and strongly urges that their instructions be carried out, the language isn"t binding.
However, HUD Secretary Andrew Cuomo has endorsed the package, and the
National Reverse Mortgage Lenders Association, whose members originate and service
perhaps 90 percent off all reverse loans, has called on him to implement the changes as
quickly as possible.
Also known as a home equity conversion mortgage, or HECM, a reverse loan
enables older home owners to convert part of the equity they"ve built up in their
homes over the years into tax-free income without having to sell, give up title, move out or make
monthly payments. The loan is repayable only when the borrower passes away, sells the house or
permanently moves out.
Borrowers can take the loan proceeds in one lump sum or in monthly
payments, and can use the funds as they see fit -- to pay for home improvements or needed
repairs, health care or even travel. The amount the owner receives is based on his remaining life
expectancy and the value of the property. But the repayment amount that must be paid back cannot
exceed the value of the home.
The reverse mortgage provisions in the report direct HUD to:
Streamline and reduce the cost of refinancing an existing loan,
including cutting the up-front insurance premiums required on government loans. Lawmakers want HUD to
establish a cap on origination fees (and allow these fees to be fully payable from loan proceeds) and set a
prohibition against broker fees.
Currently, HECM borrowers who refinance must pay the full mortgage insurance premium all over again, and no more than $1,800 in loan proceeds can be applied toward the origination fee.
Waive the requirement that borrowers must go through counseling a
second time to refinance their loans. To be exempt from further education, borrowers must
have received their current loans within the past five years, and the increase in the loan"s
principal does not exceed the cost of refinancing by an amount to be set by HUD.
Require lenders to tell borrowers in advance the cost of refinancing
and how large an increase, if any, there will be in their loan amount.
Congress also wants HUD to study the fiscal impact of reducing FHA
insurance premiums on refinanced loans by the middle of next years. And it wants the
department to look into the impact of establishing a single national loan limit for the HECM
program. Presently, loan limits vary from area to area, just as they do for all other FHA
single-family mortgage programs.
Furthermore, HUD has been told to evaluate the lending practices of
reverse mortgage lenders. Lawmakers said the department should focus on consumer protections;
the rates, fees and terms of home equity loans made to elderly borrowers, and the marketing
of these loans.
Congress said the study should "include an assessment of HUD"s role in
ensuring that reverse mortgages are not used to defraud elderly homeowners and should
detail HUD"s plan for preventing such activity." The report said lawmakers "recognize the majority
of lenders operate legitimately," but noted they are concerned about what they see as a rising
number of scams.
Peter Bell, president of the reserve mortgage lenders group, called on
HUD to implement the directives "as soon as possible to give senior homeowners and reverse
mortgage borrowers the full benefits and protections they are entitled to."
Bell said the refinancing reforms should save seniors hundreds of
dollars, and a cap on origination fees will help cut down abusive lending practices.
Also See:
Reverse Mortgages: Well-Publicized Concept Attracts Few Takers
Landmark Report Seeks More Protection For Reverse Mortgage Borrowers