Home Equity Conversion Mortgage Update

After October 2nd, the HECM reverse mortgage will be different. Some people who can get a reverse mortgage today, might not qualify under the new rules.
Home Equity Conversion Mortgage Update

Home Equity Reverse Mortgage Basics

Before I get into the meat of this article about the coming changes, I want to make sure that you understand the basics of exactly how reverse mortgages
work.

The Home Equity Reverse Mortgage (HECM) is the name for the FHA reverse mortgage program

The HECM makes up over 95% of the reverse mortgage market so this is the program that we will focus on in this article.
A reverse mortgage is an FHA insured loan specifically designed for homeowner’s age 62 and above, that allows you to convert a portion of the value of
your home into tax free money, without having to sell the home, give up title or obligate yourself to a monthly mortgage payment.  It is
just a loan against your home.  The lender has a lien against the title.  You are still charged interest, just like any other
loan, however, you do not have pay it on a monthly basis.  The interest is deferred to the end of the loan, but since the home
is still in your name you do have to pay the property taxes and homeowners insurance as well as maintain the home.   

The loan only comes due when the last homeowner permanently leaves the home or passes away.  When this happens, the lender does NOT automatically
take the home.  The heirs inherit the home and  if there is equity, the heirs can either sell the home or refinance it to and keep the equity.

A reverse mortgage gives you the benefit of no mortgage payments, but every month, the interest that is charged is added to the loan balance, so the
balance continues to grow over the life of the loan.  This is truly a 100% negative amortization loan.

Since the balance of the loan can grow over time, it is possible that the loan balance might exceed the value of the home.  If this happens, nothing
changes with the loan as long as you are living in and maintaining the home, as well as staying current with the property taxes and homeowners insurance. 

However, when you permanently leave the home, the loan comes due.  Your heirs inherit the home but they do not inherit any debt beyond the value.
If you are upside down on the home (the balance on the loan is bigger than the value of the home), the heirs can simply give the home to the lender
and walk away.  The lender has no recourse on you, the heirs or the estate.

The reason this protection is in place is because there is mortgage insurance (MIP) on every HECM reverse mortgage loan.  The MIP pays the lender
if they lose money on the loan.  Since the lender is not losing money, they cannot come after you, your heirs or your estate for more money. 

The downside to this is that you are charged for the mortgage insurance premiums (MIP).  The MIP is paid twice, once with the closing costs and again
on a monthly basis.  We will get into the amount of these charges later in the article.

What Are The Changes Coming To The HECM Program On October 2nd?

HECM’s are insured by the Federal Housing Administration (FHA).  FHA is under the Department of Housing and Urban Development (HUD) so they set the
rules the HECM reverse mortgage program has to follow. 

On August 29, 2017 HUD announced new changes that take effect on October 2nd, 2017.

There are basically 2 dials that HUD uses to make adjustments to the HECM program – think of them as the two dials on a faucet.  One is called the
Principal Limit Factor (PLF) and the other is the Mortgage Insurance Premium, (MIP).

The PLF is the formula HUD uses to determine the amount of money that they will allow the lender to loan to the homeowner.  The MIP is the amount
of money that goes to HUD. Another way to think of it is the PLF is the “Risk” to HUD & MIP is how to “pay” for the losses.

The changes coming on October 2nd are to both of these dials. 

The changes to the PLF will lower the amount of money that is available to you by about 15% – 20%.  A couple weeks ago in a previous posting, I told
you incorrectly that the changes would mean a reduction of about 5% – 10%.  I apologize for mistake.  The changes to the PLF “table”
are between 5%-10% but the impact on the amount of money available is a reduction of 15% – 20%.

The amounts are dependent upon the age of the youngest spouse and the interest rate.  There are two interest rates with reverse mortgages.
One is called the “Initial Rate” and this is the rate the you are actually charged on the loan balance.  The other is called the “Expected Rate”
and this is the rate that we use to determine the amount of money we can loan.  Think of it this way, as this “Expected Rate” INCREASES, the amount
of money available DECREASES.  Conversely, as the rate goes DECRESES, the amount of money available INCREASES.

This has always been the case with all reverse mortgages but in 2009, HUD set a floor rate of 5.06%.  What this means is that as long as the “Expected
Rate” is below this 5.06% rate, you would get the maximum amount of money available.  This was great because the rate has been below 5.06% for
the last 8+ years.  But on the down side, lenders have no incentive to lower the rate unless they were competing for business.

However, the companies that were buying these loans from the companies that originated them, paid more for these higher interest rate loans so some lenders
would be able to give some of this money back to the borrowers in the form of lender credits.  These credit would be applied to the closing fees
to lower the overall cost of the loan.

In addition to changing the PLF tables to reduce the amount available, the other change that HUD made to the PLF is that they lowered this floor rate from
5.06% down to 3.00%.  What this means is that the lenders would have to lower their rate by about 2.00% in order to get you even close to the
same amount of money that you would receive today.  That is probably not going to happen anytime soon.

On the plus side, the rates will come down. How much?  I can’t say exactly but they will come down.  Unfortunately, most lender credits to pay
for some of the closing costs will probably go away.

To summarize the PLF changes, HUD has made these “general” reductions to the tables and they lowered the floor rate from 5.06% to 3.00%.  The
net result is that the amount of money available from a reverse mortgage will be about 15% – 20% less.

If this stuff is just complete gobbly-gook and you are still reading, please call me and I can go over this in detail for your specific situation.
Please call me at 303-467-7821.


The second dial, the MIP, changes are not nearly as convoluted as the what we just discussed. 

The MIP goes into a reserve fund that HUD uses to pay the lender if they lose money on the reverse mortgage.  They get this money from you, the borrower
in two ways.  As an “Initial” MIP (IMIP) charge,  and also from and “ongoing” MIP that is charged monthly.

The IMIP is part of the closing cost and currently, the amount of the fee depends on how much  money you pull out of the reverse mortgage during the
first 12 months of the loan.  If you have a big mortgage and need to draw out more than 60% of the money from the reverse mortgage, then your
IMIP charge will be 2.50% of the VALUE of the home. 

For example, let’s say you have a $300,000 home and qualify to receive $200,000 from your reverse mortgage.  60% of the $200,000 that is available
is $120,000.  If you have an existing mortgage that is more than $120,000, your IMIP would be 2.5% of the value of $300,000, ($7,500).

If you have a mortgage lower than $120,000, or own your home free and clear, then your IMIP is just 0.5%, ($1,500).

As of October 2nd, the IMIP will be a flat 2.00% of the value of the home.  This means that if you have a big mortgage on your home, your new IMIP
will be LESS. From $7,500 down to $6,000, (2% of $300,000).   But if you have a small mortgage or no loan at all against the home, your IMIP
will be substantially MORE. From $1,500 to $6,000.  A $4,500 increase in closing costs.

As you can see, this change is kind of mixed blessing depending upon your situation.  It could be good or it could be bad.

The same is true with the “ongoing” MIP.  Currently, the ongoing MIP is 1.25% of the BALANCE of the loan.  Remember the IMIP is based on the VALUE of the home but the ongoing MIP is based on the BALANCE of the loan.

For example, under the current rules, if you have a loan balance of $100,000 on your reverse mortgage, over the course of a year your ongoing MIP would
be $1,250.  This isn’t an exact figure because it’s charged to your account monthly (remember you do not actually PAY this fee, it is just added
to your loan balance on a monthly basis).

However, under the new rules beginning October 2nd , the ongoing MIP will be lowered to just 0.5% of the balance.  This means that under the same
scenario with a $100,000 loan balance, you would only be charged about $500 over the course of the year, a $750 savings.

This is great news because everyone will be charged LESS over the course of the loan. 

However, there is also a down side. 

All reverse mortgages have what is called a growth rate on any unused Line of Credit.  The way reverse mortgages work is that we have to make all
of the amount of money that HUD says you qualify for available to you, but you do NOT have to take it all.  If you qualify for $150,000 but only
need $50,000, the $100,000 left over is still available to you in the form of a line of credit, (LOC).  This line of credit currently has a growth
rate the is equal to the interest rate you are charged on the balance of your loan, PLUS 1.25%.

If you have $100,000 in your LOC, and you are being charged 4.25% on the $50,000 you took out, your LOC of $100,000 will grow by 5.50% (4.25 + 1.25 = 5.50%).

However, on October 2nd the ongoing MIP will lower to 0.5%, the growth rate on your LOC will also be lowered.  If your interest rate is 4.25%, the
growth rate on the LOC will only be 4.75% (4.25 + 0.5 = 4.75%).  The growth rate is equal to the rate you are charged plus the ongoing MIP.

As you can see, there are positives and some negatives to these changes.  Unfortunately, it is really going to hurt the people that have a big
mortgage on their home because they may not be able to get enough to pay off the balance.  Because the reverse mortgage must be the only loan
against the home, if you can’t borrow enough to pay off the existing mortgage, you can’t get the loan.  So these people will be out of luck.

Also, the people who want to use a reverse mortgage for financial planning purposes, for example to establish the stand-by LOC to use if other assets go
down in value, it won’t be quite as attractive for them because the costs will be higher and the growth rate of the LOC lower.

The bottom line is that after October 2nd, the HECM reverse mortgage will be different.  Some people who can get a reverse mortgage today, might not
qualify under the new rules and the costs will likely be more for most borrowers.  However, this is still a very beneficial program that can help
a lot of people.

Picture of Bruce Simmons

Bruce Simmons

I absolutely love what I do - working with senior homeowners to help them live a more comfortable, flexible and secure retirement. I have the absolute best customers in the world, and even though I worked in the forward mortgage business for a number of years, I could never go back to doing conventional loans. I'm a 100% reverse mortgage specialist.

5.0

My wife and I are retired and had a mortgage that was quite high. We contacted Bruce regarding a Reverse Mortgage and were pleased with his knowledge and experience. He made the whole process very easy and explained everything along the way. Since then, I have had a couple of questions and contacted him regarding the RM. Bruce has always been very responsive and returned our calls within minutes. We couldn't be happier having used Bruce for the Reverse Mortgage and highly recommend him.

Bruce has been serving my interest over and above what one might expect during the whole process of handling my reverse mortgage dating back to 2010 and continues to be available at present whenever a question may arise. He is one of the most reliable, trustworthy and knowledgeable experts regarding reverse mortgages that I have had the privilege to do business with! I would highly recommend Bruce to anyone who is considering a reverse mortgage. Thank you Bruce!

I met Bruce from a referral who just love what he did for them on their Reverse Mortgage, So I contacted Bruce and told him my story and he came up with a great Reverse Mortgage for me and my needs and now I am living good and not worrying about Finances anymore. He had it done in a timely manner. If you are looking for the MAN to help you get the best Reverse Mortgage you need to call him and hope you let him help you.

Bruce is one of the most professional, knowledgeable and efficient experts I have worked ŵith ever in any field. He is fast to answer and always ready to help...and he's a great guy!

Gerald Cook
Gerald Cook
5.0

Bruce did our original reverse mortgage and has also refinanced it twice. He works hard to get the best deal possible while making it as easy for us as possible. When our first refinance received a low initial appraisal, Bruce helped the appraiser find better information and increase the appraised value. He's the best.

I was hesitate about getting a reverse mortgage until Bruce Simons put my mind at rest. He is easy to work with, extremely knowledgeable and efficient. Things get done and he will make sure that you understand every part of the process. I interviewed several other people and he was hands down.....The only choice.

Doing a Reverse Mortgage is a major decision, when working with Bruce he came out personally to go over every thing in detail, there was no pressure to finalize the transaction, I had even put the loan on hold for awhile even though I had locked in my rate, I had called Bruce off and on for a few weeks to ask questions that I had concerns about and he was always available to talk to me. In the end it gave me time to feel comfortable about my decision to move forward with the Reverse. Bruce was very pleasant to work with and would certainly recommend Bruce if you are going to consider a Reverse Mortgage.

Bruce Simmons at American Liberty is one of the best in the reverse mortgage industry. I have known and worked with him for years and he always does a great job. You are in good hands with Bruce and know that he will take good care of you or your loved ones every step of the way.

Best thing I ever did! Bruce Simmons at American Liberty Mortgage is the best. He is always there to answer your questions, and can easily explain the whole idea of a Reverse Mortgage. He takes the time and goes through the entire process with you. It worked out so well for me. Thank You Bruce!

We had researched Reverse Mortgages for 5 years and after hearing about Bruce Simmons and meeting with him, we finally decided to move forward with the Reverse Morgage. It has been over a year now and we are still very pleased with our decision. We think Bruce is very professional, knowledgeable and honest. Thank you, Bruce, for all your help.

I first met Bruce Simmons 2017. I found him on the internet. I was looking for someone local. I called him and explained I was only looking into doing a reverse mortgage, so I did not want him to think this was something I was ready to do. Bruce was friendly, very open about the basics of a reverse mortgage. Bruce came to my home and presented the figures and other details that he could offer. The first thing that impressed me was this was not a hard sell, more of a informational meeting. He was very open about all of the details, and answered my questions without hesitation. What really was evident was he was establishing a relationship with me, and I realized he knew I would not take the loan at that time. There was not enough equity in my home, and I would have to bring money to the table. Although I was not ready to do a loan, Bruce assured me he is always available for questions. Four years later, I finally did do a reverse mortgage, and I couldn't be happier with having done it. I have done away with a mortgage payment which allows me to fund my retirement account with that mortgage payment. We did some much needed landscaping with our cash out transaction, and will move on to improvements inside of the house. My reverse mortgage has a line of credit, and I feel sense security knowing it is there if I need it. Bruce explained that a reverse mortgage is not for everyone, but I feel certain that he paved the way for a strategy that worked for me. I will definitely do a refinance when the time is right. I will check in with Bruce to be sure what the benefits are when I do it again.

I have worked with Bruce Simmons for 15 years. Bruce is one of the best in the industry. He is extremely knowledgeable, kinds and detailed in what he does. His clients love working with him and trust him to help them with their Reverse Mortgage loans. I would recommend Bruce to anyone I know that is thinking about or wanting to do a Reverse Mortgage. He will always take very good care of the customers and make sure their needs are met! Class act and one of the best in the industry by far!

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John Addante
John Addante

Left us a 5 star review

My wife and I are retired and had a mortgage that was quite high. We contacted Bruce regarding a Reverse Mortgage and were pleased with his knowledge and experience. He made the whole process very easy and explained everything along the way. Since then, I have had a couple of questions and contacted him regarding the RM. Bruce has always been very responsive and returned our calls within minutes. We couldn't be happier having used Bruce for the Reverse Mortgage and highly recommend him.

Bruce has been serving my interest over and above what one might expect during the whole process of handling my reverse mortgage dating back to 2010 and continues to be available at present whenever a question may arise. He is one of the most reliable, trustworthy and knowledgeable experts regarding reverse mortgages that I have had the privilege to do business with! I would highly recommend Bruce to anyone who is considering a reverse mortgage. Thank you Bruce!

I met Bruce from a referral who just love what he did for them on their Reverse Mortgage, So I contacted Bruce and told him my story and he came up with a great Reverse Mortgage for me and my needs and now I am living good and not worrying about Finances anymore. He had it done in a timely manner. If you are looking for the MAN to help you get the best Reverse Mortgage you need to call him and hope you let him help you.

Bruce is one of the most professional, knowledgeable and efficient experts I have worked ŵith ever in any field. He is fast to answer and always ready to help...and he's a great guy!

I was hesitate about getting a reverse mortgage until Bruce Simons put my mind at rest. He is easy to work with, extremely knowledgeable and efficient. Things get done and he will make sure that you understand every part of the process. I interviewed several other people and he was hands down.....The only choice.

Doing a Reverse Mortgage is a major decision, when working with Bruce he came out personally to go over every thing in detail, there was no pressure to finalize the transaction, I had even put the loan on hold for awhile even though I had locked in my rate, I had called Bruce off and on for a few weeks to ask questions that I had concerns about and he was always available to talk to me. In the end it gave me time to feel comfortable about my decision to move forward with the Reverse. Bruce was very pleasant to work with and would certainly recommend Bruce if you are going to consider a Reverse Mortgage.

Bruce Simmons at American Liberty is one of the best in the reverse mortgage industry. I have known and worked with him for years and he always does a great job. You are in good hands with Bruce and know that he will take good care of you or your loved ones every step of the way.

Best thing I ever did! Bruce Simmons at American Liberty Mortgage is the best. He is always there to answer your questions, and can easily explain the whole idea of a Reverse Mortgage. He takes the time and goes through the entire process with you. It worked out so well for me. Thank You Bruce!

We had researched Reverse Mortgages for 5 years and after hearing about Bruce Simmons and meeting with him, we finally decided to move forward with the Reverse Morgage. It has been over a year now and we are still very pleased with our decision. We think Bruce is very professional, knowledgeable and honest. Thank you, Bruce, for all your help.

I first met Bruce Simmons 2017. I found him on the internet. I was looking for someone local. I called him and explained I was only looking into doing a reverse mortgage, so I did not want him to think this was something I was ready to do. Bruce was friendly, very open about the basics of a reverse mortgage. Bruce came to my home and presented the figures and other details that he could offer. The first thing that impressed me was this was not a hard sell, more of a informational meeting. He was very open about all of the details, and answered my questions without hesitation. What really was evident was he was establishing a relationship with me, and I realized he knew I would not take the loan at that time. There was not enough equity in my home, and I would have to bring money to the table. Although I was not ready to do a loan, Bruce assured me he is always available for questions. Four years later, I finally did do a reverse mortgage, and I couldn't be happier with having done it. I have done away with a mortgage payment which allows me to fund my retirement account with that mortgage payment. We did some much needed landscaping with our cash out transaction, and will move on to improvements inside of the house. My reverse mortgage has a line of credit, and I feel sense security knowing it is there if I need it. Bruce explained that a reverse mortgage is not for everyone, but I feel certain that he paved the way for a strategy that worked for me. I will definitely do a refinance when the time is right. I will check in with Bruce to be sure what the benefits are when I do it again.

I have worked with Bruce Simmons for 15 years. Bruce is one of the best in the industry. He is extremely knowledgeable, kinds and detailed in what he does. His clients love working with him and trust him to help them with their Reverse Mortgage loans. I would recommend Bruce to anyone I know that is thinking about or wanting to do a Reverse Mortgage. He will always take very good care of the customers and make sure their needs are met! Class act and one of the best in the industry by far!