Texas Reverse Mortgages and Looming Rule Changes
As we’ve discussed previously here on Texas Lending Today, a reverse mortgage in Texas can serve as a welcome lifeline for folks in need of a more substantial cashflow. Basically, rather than making monthly principal and interest payments to a lender, a reverse mortgage offers the homeowneraccess their home equity without making principal and interest payments, letting them fund their retirement with the equity they’ve built up in their homes over the years. If they stay current on their property taxes and insurance payments, the homeowners usually will not have to repay any of the loan (with interest) until they move out from or sell the home. If the borrower dies, their heirs have the option to sell the house to pay off the balance or allow the mortgage servicer to claim the title.
Anyone over the age of 62 is eligible, although the home involved in the reverse mortgage must remain their primary residence (i.e. no vacation homes or second income properties).The loans have been proved to be pretty popular. As of November 2011, the U.S. Department of Housing and Urban Development’s (HUD) reverse mortgage program — the Home Equity Conversion Mortgage (HECM) program, in which loans are issued by private lenders like TexasLending.com and then insured by the Federal Housing Administration) — there were nearly 600,000 loans outstanding. Unfortunately, such popularity has come with a cost. The program is now an estimate $3 billion in debt, especially due to one of the program’s most popular loans, a fixed-rate loan known as the Standard HECM loan.This is part of the reason why, beginning in April, certain aspects of the HUD program will be changing. The “Standard HECM,” which included the highest fees but also paid out the highest percentage of a homeowner’s equity, will likely disappear, while a smaller but less-expensive loan known as the “HECM Saver” will become more prominent.
On April 1, 2013 the Home Equity Conversion Mortgage (HECM) program will consolidate the Fixed Rate HECM Standard and Fixed Rate HECM Saver initial mortgage insurance premiums and principal limit factors under the HECM Saver fixed interest rate pricing option. Mortgagees shall designate HECM Saver as the initial mortgage insurance premium and use the HECM Saver principal limit factors to determine the amount of funds available to prospective mortgagors on a fixed interest rate HECM loan. Prospective mortgagors seeking an adjustable interest rate mortgage can continue to use the HECM Standard pricing option and principal limit factors.
Moreover, an HUD official announced that additional rule changes will likely be coming sometime later this year. Here at TexasLending.com, we’re proud to be a leading provider of Dallas home loans, Austin home loans and Houston home loans, including reverse mortgages. We think they’re a smart option for some seniors, but we also understand how complicated the home-lending environment can become when Washington gets involves. So we’ll be here to help guide you through the new rules when they kick in, and help you understand the risks and rewards of various reverse mortgage options.