Tag Archives for " Reverse Mortgage "

October 29, 2014

Reducing Risks Related To Reverse Mortgage

Reducing Risks Related To Reverse Mortgage

Reverse mortgage has been a common option by individuals 62 years and older, cash poor but still wants to live in their house. And if you’re one of these individuals applying for a reverse mortgage soon, you have to know that the regulations have become tighter. This is actually a good thing according to most financial advisers.

Why Was The Program Changed?

The program was basically changed because like other types of loans, reverse mortgage also has its risks. A lot of the seniors lost their homes to foreclosure for two common reasons: first, the borrow no longer uses the home as its principal residence and second, the borrower failed to meet the mortgage’s obligations.

The first reason usually occurs when only one spouse was listed on the deed and that person was moved into a nursing home due to illness or died. On the other hand, the second reason takes places because the borrower got too much equity from their property, spent all the cash, weren’t able to maintain the property, or weren’t able to pay up the insurance, which are all obligations of the borrowers when they get a reverse mortgage.

But aside from these two reasons, Consumer Financial Protection Bureau Director Richard Cordray said that their agency found out that senior citizens don’t completely understand the loan terms exacerbated by false and deceptive advertisements and mailings.

“We will work with our partners at the federal, state and local level to root out these kinds of scams,” Cordray said.

How To Lessen Risks On Reverse Mortgage?

According to The Wall Street Journal’s Sunday edition report made by Tom Lauricella, the federal government has tightened the guidelines on reverse mortgage so borrowers can avoid committing such mistakes thus, decreasing the risks related tot his.

These changes are all positive,” Encore contributor and the director of the Center for Retirement Research at Boston College Alicia Munnell said.

The new guidelines include the following:

  • The Department of Housing and Urban Development in 2013 altered the rules setting a limit on most loans, especially during the first year, to 60% of the available equity in the home based on the FHA standards. Borrowers are allowed to use the remaining equity in their home in subsequent years.
  • Lenders are required to assess first the capability of the borrowers to meet their financial obligations on the property. Depending on the assessment, especially if the lender sees you a risk, the homeowner could be required to set aside money from the proceeds to pay up for the property taxes and insurance.

Lori Trawinski, a policy adviser who specializes in reverse mortgages at AARP said, “The important thing about these mortgages that people really need to remember is that they are loans, and as with any loans they come with a set of obligations.”

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Basics On Foreclosure On Reverse Mortgage

Reverse Mortgage Sticky Notes Sun

You may have heard about homeowners 62 years and older choosing reverse mortgage and under such circumstance, the property was foreclosed. You may ask, why did this happen? In what circumstances can this occur? To answer your questions and to learn more about reverse mortgage, below are some facts?

What Is A Reverse Mortgage?

Reverse mortgage were made to enable elderly homeowners to convert the equity in their homes to income or line of credit. This is only available to homeowners who are age 62 years or older, currently lives in the property as a principal residence, and own the home outright or have significant equity in the property.

How Does Reverse Mortgages Work?

Unlike traditional mortgage where the borrower gets a large sum of money based on his/her salary, job history and credit worthiness, in reverse mortgage, the lender makes the payments to the borrower. The borrower can get the loan through monthly payment, a lump sum, a line of credit or through a combination of these options.

When Does A Reverse Mortgage Become Due and Payable?

It becomes due and payable once one of the these situations take place:

All borrowers have died. Once this scenario happens, the heirs have these options to choose from:

  • Repay the loan so they can keep the house.
  • Sell the property and use the proceeds to repay the loan.
  • Deed the property to the lender.
  • Abandon the property and allow the lender to foreclose it.

The property is sold or the property’s title is transferred. When a property is sold, the escrow company will accept the money of the purchaser and pay the reverse mortgage together with other liens on the property.

The borrower doesn’t use the property anymore as their principal residence. This is considered one of the most common reasons why a property gets foreclosed. In such circumstance, the homeowner may be away from the property for instance, because he was sent to a nursing home due to illness. But if this becomes permanent, such loan will become due and payable.

The borrower fails to meet the obligations of the mortgage. The term of the mortgage requires the borrower to pay for the homeowner’s insurance, the property taxes, and to keep the property in great condition. If the homeowner fails to meet these, the loan will become due and payable.

How To Avoid A Reverse Mortgage From Foreclosure?

As a borrower, to avoid foreclosure, you have to correct the default, pay off the debt, deed the property the lender, or sell the property for at least 95% of the appraised value with the sale’s net proceeds going towards the mortgage balance.

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