Real Estate Law

Jason A. Frank on Reverse Mortgages and Changes to the HECM Program

By Jason A. Frank

A Home Equity Conversion Mortgage (HECM) is a federally insured reverse mortgage guaranteed by the FHA, a part of the U.S. Department of Housing and Urban Development (HUD). Due to substantial stress in the HECM program, the Reverse Mortgage Stabilization Act was signed into law in August 2013. HUD announced critical changes to the HECM program in September 2013 which will help ensure the continued availability of this important program.

Excerpt:

The federal Home Equity Conversion Mortgage Demonstration (HECM) was first authorized by Congress in 1987 to help meet financial needs of elderly homeowners and provide borrowers with insurance against lender default. It is offered through the U.S. Department of Housing and Urban Development (HUD) via the Federal Housing Administration (FHA). The program originally agreed to insure 2,500 reverse mortgages, to be issued by HUD-approved lenders (each lender limited to 50 loans). This insurance authority was distributed among 10 HUD regions in proportion to each region's share of the elderly population. Several amendments have extended the program to permanent status and expanded the total number of mortgages that can be insured by HUD, making insurance available for up to 275,000 loans through FHA-approved lenders. This expansion has resulted in a rapid increase in these loans. They are now available in 49 states, as well as the District of Columbia and Puerto Rico.

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The property must meet FHA minimum property standards, but the homeowner may fund repairs from the reverse mortgage.

Although there are no minimum or maximum income requirements to qualify for an HECM loan, nor is there a limit on assets, as of 2014 an individual's finances will be assessed in order to participate in the HECM program. Pursuant to FHA's financial requirements, a borrower's income, assets, monthly living expenses, and credit history will be verified. The lender will also verify the timely payment of real estate taxes, hazard and flood insurance premiums. Dependent on the financial assessment, an individual may be required to establish a "set-aside" account, discussed in detail below. If the home property is jointly owned, all title holders must meet the program's eligibility requirements. Similarly, if the property is held in trust, all trust beneficiaries must be eligible.

The loan amount depends on the type of plan, the value of property, the age of youngest borrower, and the interest rate. HUD establishes a maximum insurable mortgage amount, which varies according to the county in which the property is located. The homeowner borrows against a percentage that is the lesser of either (1) the appraised home value or (2) HUD's maximum single-family mortgage insurance limit for a particular area. As part of the American Recovery and Reinvestment Act (ARRA) of 2009, single family loan limits increased. As of 2014, the national Federal Housing Administration (FHA) single family loan limit for a Home Equity Conversion Mortgage increased to $625,500. Complete schedules of FHA mortgage limits for all areas, for forward loans and reverse mortgages are available at https://entp.hud.gov/idapp/html/hicostlook.cfm. Like other types of reverse mortgages, homeowners can receive payments in a lump sum, on a monthly basis (for a fixed term or for as long as they live in the home), or on an occasional basis as a line of credit. Homeowners whose circumstances change can restructure their payment options. The program does not restrict the manner in which loan proceeds are spent.


Jason A. Frank maintains a private practice in Lutherville, Maryland devoted exclusively to elder law, and focusing in particular on guardianship, Medicaid planning, and advance directives. He is also an Assistant Baltimore County Attorney, serving as general counsel to the Baltimore County Department of Aging through the Baltimore County Office of Law. In this capacity, Mr. Frank's responsibilities include more than 100 guardianship cases, more than ten dozen affiliated nonprofit organizations and senior centers, three adult day care centers, and the Countyride transportation system. Mr. Frank received his B.A. from Connecticut College in 1976 and his J.D. from New York University School of Law in 1979. He has published numerous articles on elder law.

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