Seniors Considering Reverse Mortgages to Benefit Greatly from Housing Legislation Signed into Law effective 11/6/2008

“Instantly, reverse mortgages have become a more viable retirement finance option for a broader audience of seniors who could receive higher benefits at a lower cost,” said Peter Bell, president of NRMLA. During the last federal fiscal year, ending September 30, more than 107,000 homeowners took out a reverse mortgage, compared to 76,351 the year prior and 7,781 in 2001.

Improvements to the Federal Housing Administration (FHA)-insured Home Equity Conversion Mortgage (HECM) program, which will take approximately 60-90 days to implement, will include:

1. A single national loan limit of $417,000 that can increase up to as much as $625,500 in high cost areas. (Currently, limits vary by county and range from $200,160 to $362,790.)
2. Ability to use FHA-insured reverse mortgages to purchase homes.
3. Ability to get a HECM on a co-op property.
4. Reduced origination fees of 2% on the initial $200,000 of maximum claim amount (lesser of the home value or county lending limit) and 1% on the balance thereafter with a cap of $6,000. (Lenders’ fees are currently capped at 2% of maximum claim amount.)
5. Prohibitions on requiring the purchase of annuities and other financial products.
6. Restrictions around cross selling financial products.
7. Requirements on counseling protocols, funding and practices that promote independence and quality in counseling.

The new law makes it easier and less expensive for seniors to access the cash value of their homes on a tax-free basis through a reverse mortgage, and expands the amount that can be borrowed. Reverse mortgages have nothing to do with the mortgage mess -- they are a safe and easy way for homeowners age 62 and older to maintain control and ownership, while tapping their home equity for tax-free cash.

Reverse mortgages are becoming a more mainstream financial planning tool for older homeowners. A reverse mortgage enables older homeowners (generally age 62+) to convert part of the equity in their homes into 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 either one or more payments to the borrower. The loan is repaid when the borrower moves out of the property.

How a Reverse Mortgage Works?

A reverse mortgage may be the perfect answer for seniors who want to stay in their homes, but have a cash flow problem. They can get a monthly stream of tax-free income, or a lump sum, and it's tax-free. Their ability to access the equity in their home does not depend on their ability to repay, as in the case of a home equity loan. In fact, the reverse mortgage is not repaid until the owner moves and sells the home, or until death, when their heirs either sell or refinance the home. The most important aspect of a reverse mortgage is that the homeowner retains title to the home, and can never be forced to move out -- no matter how long he or she lives, or how much equity he or she pulls out of the home over the years through monthly checks from a reverse mortgage! They -- or their heirs -- can never end up owing more than the house is worth, no matter how much money is withdrawn over the years. Yes, housing prices will rise again over the next 10 or 15 years, offsetting some or all of your Reverse Mortgage withdrawals.

How Much Can You Get?

The amount the homeowner can withdraw depends on several factors: the value of the home, the amount of any remaining mortgage, the age of the homeowner(s), and the current level of interest rates. Think of a reverse mortgage as the key to a vault. It unlocks the equity in your home, allowing you to stay in your home or even downsize -- without going into debt, and without being dependent on your children. Done right, it will make you (or your parents) feel great. Seniors are discovering the many benefits of reverse mortgages and look to their financial advisors for trusted answers.

1^st Step Mortgage Group, Inc. remains committed to staying in the forefront of protecting seniors and providing true financial benefit by offering a variety of reverse mortgage programs. Call me at 815-654-7100 / 888-898-7121 or visit www.SimpleReverse.com.