Q: How does the HECM program work?
A “reverse” mortgage is a loan against your home that you do not have to pay back for as long as you live there. With a reverse mortgage, you can turn the value of your home into cash without having to move or to repay a loan each month.

Q: What are three types of Reverse Mortgages?
1) Single-Purpose Reverse Mortgages: This specific mortgage can only be used for one specific purpose, for example, to pay your property taxes, or to repair your home. These loans are not available in many areas and eligibility is often limited, however, they are almost always the least expensive reverse mortgage.

2) Federally Insured Reverse Mortgages: This type of mortgage can be used for any purpose, and are available throughout the United States. These are the most moderately prices multipurpose reverse mortgage, and they generally provide the largest loan advances as well.

3) Proprietary Reverse Mortgages: This mortgage can be used for any purpose. Typically, however, they are the most expensive reverse mortgage, and they generally provide larger loan advances only if your home is worth substantially more than the median home value in your county.

Q: Why is it called “reverse?”
In a forward mortgage, you can use debt to turn your income into equity. In reverse mortgage, you use debt to turn your equity into income.

Q: How would you receive HECM payments?
The loan can be paid to you in several ways:
1) All at once in a single lump sum of cash.
2) As a regular monthly cash advance.
3) A credit line account that lets you decide when and how much of your available cash is paid to you.
4) Or as a combination of these payments.
No matter how this loan is paid out to you, you do not have to pay anything back until you die, sell your home, or permanently move out of your home.

Q: May I change my payment option?
Yes, you can change your payment option at any time. Even after the loan is made.

Q: How much can I borrow?
The amount of money you can get depends mostly on the reverse mortgage program you select. It also depends on the kind of cash advances you choose. Some reverse mortgages cost a lot more than others, which will reduce the amount of cash you can get from them. With each loan program, the cash amounts you can get generally depend on your age and the value of your home. The older you are and the more your home is worth will increase the amount of cash you will receive. The specific dollar amount available to you may also depend on interest rates, closing costs, and home loans in your area. If you select a single-purpose loan, the amount is generally limited by the actual cost of the single-purpose, for example your property tax bill, or the cost of home repairs.

Q: When does the loan get repaid?
All reverse mortgages become due and payable when the last surviving borrower dies, sells the home, or permanently moves out of the home. Reverse mortgage lenders can also require repayment at anytime if you:
• Fail to pay your property taxes
• Fail to pay, maintain, and repair your home
• Or fail to keep your home insured.

Q: What do you give to your heirs?
You also need to think about the impact of a reverse mortgage on your heirs. A loan with “rising debt and falling equity” means that there will be less equity left for your heirs. To avoid future misunderstanding, you may want to make a note of your decision in your will. A reverse mortgage can have substantial impact on your estate. So you need to think through how you want this to become known to your heirs.

Q: What happens if my HECM loan balance grows to be greater than the value of my home?
A HECM loan is secured only by the value of your home. Therefore, you can never owe more than your home is worth. You, or your heirs, will never have any personal liability for repaying the loan.

Q: What is the interest rate on the funds I borrow?
You and your lender determine the rate you pay, however most lenders require that the rate be adjustable. Adding a fixed margin to the current 1-year U.S. Treasury rate will set the initial rate and future adjustments. Lenders offer rates that adjust monthly as well as annually.

Q: Can I make repayments during the term of the loan?
Yes, although not required, partial or full repayments can be made.

HOMEOWNER ELIGIBILITY

Q: How do I qualify for a HECM loan?
HECM loans are available in all 50 states and the District of Columbia. To be eligible for a HECM loan:
1) You, and any owner of your home, must be aged 62 or older.
2) At least one owner must live in your home as a principle residence.
3) Your home must be a single-family residence in a 1-4 unit dwelling, or part of a HUD approved condominium or planned unit development.
4) Some manufactured housing is eligible, but cooperatives and most mobile homes are not.
5) Your home must meet HUD’s minimum property standards, but you can use the HECM to pay required repairs.

Q: Are their any restrictions on how I can spend HECM funds?
No, there are no restrictions.

Q: Are there any fees besides the interest that I will have to pay to obtain a HECM loan?
Yes, but you are not required to pay them out of your pocket. The lender will pay them and add them to the loan balance. Typical fees include lender fees and closing costs. In addition, a mortgage insurance premium is paid to the FHA.

Q: Do you understand that you will be paying for the FHA Mortgage Insurance?
The FHA Mortgage Insurance on the HECM is charged in two parts. The first part is charged as a onetime fee included with financed closing costs. The second part of the FHA Mortgage Insurance Premium is a monthly charge added to the loan balance.

Q: What is the FHA mortgage insurance premium used for?
Since the FHA HECM program is self-supporting, a fee is assessed on all borrowers to provide loss protection for both borrowers and lenders. This protection makes lenders more willing to offer HECM loans to you. Also, FHA will pay you what you are owed if your lender is unable to pay. This premium also guarantees that you will receive your promised loan advances and will not have to repay the loan for as long as you live in your home.

PROPERTY ELIGIBILITY

Q: What types of homes are eligible?
Your home must be a single-family dwelling or a two-to-four unit property that you own and occupy. Town houses, detached homes, units and condominiums and homes in planned unit developments are included. Condominiums and PUDs must be FHA approved unless they qualify under the FHA spot Loan Program.


Q: Is there a maximum or minimum home value?
No. The value of the home will be determined by independent appraisal, and the amount of your HECM loan will be partially determined by that. Each state is different when it comes to maximum loan value.


Q: Does my home need to be in good condition?
Your home needs to be in reasonably good condition and meet HUD’s minimum property standards. In most cases, you can make home repairs after the closing of your HECM loan.

Q: Do I qualify for a HECM loan if I still have a mortgage on my home or other unpaid debts?
At the time you close your HECM loan, your home must be free and clear of all mortgages and other liens, unless those liens are subordinated-placed in a lower priority to the HECM loan. You must also have paid off any delinquent federal debts you have with the federal government. However, you can use your HECM loan to pay preexisting liens or delinquent federal debts.

Q: How much does the deferred payment loan (DPL) cost?
The best aspect of a DPL is their very low cost. Generally they have no origination fee, no insurance premium, minimal (if any) closing costs, and very low (or no) interest. Many programs also charge “simple” rather than “compound” interest. This means that interest is not charged on any of the interest that has been previously added to the loan balance. Some DPL programs ever forgive part of the loan if you live in your home for a certain period of time after closing on the loan.

Q: What are the benefits of a DPL?
DPL’s can be used only for the specific types of repairs or improvements that each program allows. This may limit you to projects that replace or repair basic items such as your roof, wiring, heating, pluming, floors, stairs, or porches. Many programs will cover improvements in accessibility or energy efficiency. Such modifications may include the installation of ramps, rails, grab bars, storm windows, insulation, or weather-stripping. You may be able to combine a DPL with a federally insured HECM loan. To do this, the DPL lender must agree to be repaid after the HECM is paid.

Q: Can I qualify for a HECM if I have experienced recent credit Problems?
Yes. HUD realizes that many will apply for these loans because they need additional income.

OTHER CONSIDERATIONS

Q: What will happen if I want to sell my house of move?
Many homeowners become interested in reverse mortgages as a way to remain living in their present homes. Selling the home and moving elsewhere are generally not very appealing to most reverse mortgage shoppers. The single best way to evaluate a reverse mortgage, however, is to compare it to what may be your only viable option, selling your home and using the proceeds to buy or rent a new home, but did you know:
1. How much cash you could get by selling your home?
2. What the cost would be to buy (and maintain) or rent a new home?
3. How much money you could safely earn on any money left over after you buy a new home?
4. Have you recently looked into buying a less costly home, renting an apartment, or moving into assisted living or other alternative housing?
Until you have seen and considered other housing options, how do you know that none could be preferable to your current home, or preferable to a reverse mortgage? After evaluating these options, you most likely will come to one of two conclusions: you may find another housing option that is a lot more attractive than you thought. Or you may confirm what you were fairly certain of all along, that where you live now is the best place for you to be. No matter what you conclude, you will have a much better idea of the over all costs and benefits of staying versus moving. That will give you a better sense of what is important to you and it will then be easier for you to evaluate the comparative costs and benefits of a reverse mortgage.

Q: What happens if a joint borrower dies?
The provisions of the HECM loan remain in effect; the surviving borrower will not have to terminate the loan.

Q: Will HECM payments affect my Social Security, Medicare, Supplemental Security Income or Medicaid benefits?
HECM payments do not affect your Social Security or Medicare benefits because those benefits are not based on your income or assets. If you receive Medicaid or any other benefits where eligibility is determined by income or assets, contact the Social Security Administration, Area Agency on Aging or Legal Services.

APPLYING FOR A HECM LOAN

Q: Do I receive counseling prior to applying for a HECM loan?
Yes’ all borrowers are required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan. You can apply directly, or let your lender refer you to a counseling source.

Q: How do I apply for a HECM loan?
Contact a participating HUD-approved lender for information about the HECM program. You can also call your nearest HUD Field Office located in the blue pages of your phone book for a list of the approved lenders in your area. If you decide a HECM loan is right for you, the lender will then help you with a loan application and arranging an appraisal of the property.

Q: What if you decide to cancel the deal?
After closing a reverse mortgage, you have three extra days to reconsider your decision. If for any reason you decide you don’t want the loan, you can cancel it, but you must do this within three business days after closing. “Business days” include Saturdays, but not Sundays or legal public holidays. If you decide to use this “right of recession,” you must do so in writing, using the form provided by the lender at closing. It must be hand delivered, mailed, faxed, or filed with a telegraph company before midnight of the third business day. You cannot recline orally by telephone or in person. It must be written.

Q: All about raising debt and falling equity.
Reverse Mortgages have a different purpose than forward mortgages do. With a forward mortgage, you use your income to repay debt, and this builds up equity in your home. With a reverse mortgage, you are taking the equity you have out in cash. So with reverse mortgages, your debt increases and your home equity decreases. The lender sends you cash and you make the payments. In short a reverse mortgage is a “rising debt, falling equity” type of deal, but this is exactly what reverse mortgage borrowers want; to “spend down” their home equity while they live in their homes without having to make monthly loan repayments.

Q: What if I owe on the house?
Reverse mortgages generally must be “first” mortgages. This means there can be no debt against your home. So if you now owe any money on your property, you must either pay off the old debt before you get a reverse mortgage, or pay off the old debt with the money you receive from the reverse mortgage. Most reverse mortgage borrowers pay off any prior debt with the initial lump sum of cash you receive from your reverse mortgage.

Open Door continues to receive requests for "Hardship" counseling - each State competes for limited HUD resources - these resources cover Homeless Services, Loss-Mitigation, Pre-Purchase, and HECM Counseling. Open Door's priority for the limited funds received by HUD is Homeless Services and Loss-Mitigation since these clients are not in a position to pay for services. Open Door does set aside a limited amount of the HUD grant for "Hardship" HECM Counselling but the priority is for Oregon homeowners since each State has agencies like ours that receive a grant for this service. Open Door follows the policy of HUD Mortgagee Letter 2008-12:

     "In accordance with the regulations at 24 CFR 214.313, the Federal Housing Administration (FHA) has determined that agencies participating in HUD's Housing Counseling Program may charge a fee for HECM counseling services as long as the cost is reasonable and customary, does not create a financial hardship for the client, and meets the other requirements of the regulation."

We look forward to working with you and your clients in the New Year.

We thank you for your understanding.

Open Door Counseling Center

Experienced