What is a Reverse Mortgage? – Regulations

Regulations making FHA Reverse Mortgage a Safe Financial Tool

 

Reverse mortgage has become one of the most heavily regulated and safest mortgage products available on the market for seniors.

 

  • Economic Stimulus Act & Housing and Economic Recovery Act – In 2008, the Economic Stimulus Act increased loan amount limits for FHA mortgages, allowing borrowers in high-cost areas to utilize the FHA reverse mortgage to remain in their homes. Also, the Housing and Economic Recovery Act of 2008 banned lenders from cross-selling products and requiring borrowers to purchase additional products in order to obtain an FHA reverse mortgage.
  • Required Financial Counseling – Federal law requires the potential borrower to receive pre-loan financial counseling by a HUD-approved counseling agency to help the borrower understand the features and costs of a reverse mortgage.
  • Reverse Mortgage Exams – Reverse mortgage financial counselors must pass exam designed to help counselors assist applicants in understanding the reverse mortgage product.
  • Federal Insurance – In 1987, the Federal Housing Administration (FHA) authorized federal insurance for reverse mortgages with the Housing and Community Development Act. For the borrower, this guaranteed the availability of funds. For the lender, this assured compensation if ever the loan balance exceeded the home’s value.

 

 

  • Non-Recourse Provisions – This provision is HUD mandated that the FHA-insured Reverse mortgage is a non-recourse loan. This means, the borrower will never owe more than the value of the home.
  • “Lifetime” Reverse Mortgage – “Lifetime” reverse mortgage program, allows monthly disbursements to span the life of the homeowner rather than only a set amount of time.
  • Limits on Rates and Fees – The reverse mortgage’s formula for determining the origination fee was determined by Congress. Reverse mortgage rates + fees charged to consumer are highly regulated. This guarantees that there are no “excessive fees” in a reverse mortgage. The Federal Truth in Lending Act (TILA) requires lenders to divulge the terms and costs of the loan, such as the APR, payment terms, and any line of credit charges.
  • Reverse Mortgage – In 2003, FHA put into effect new rules meant to encourage seniors to tap into their equity strategically, and use the reverse mortgage as a long-term financial planning tool rather than a crisis management tool.
  • Reverse Mortgage for Purchase – HUD has introduced the FHA Reverse Mortgage for Purchase program. Congress created this program to help seniors transition into a home that better suited their changing needs and increased FHA loan limits to $625,500.