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National Reverse Mortgage Lenders Association
NEWS RELEASE
January 2, 2001
FOR IMMEDIATE RELEASE
New Law Improves
‘Financial Security’ Options
For Senior Homeowners
–
President Clinton Signs American Homeownership and
Economic Opportunity Act into Law –
WASHINGTON – January 2, 2001 – Seniors will have
access to a greater range of financial security options thanks to the American
Homeownership and Economic Opportunity Act, signed into law last week by President
Clinton. This sweeping banking and housing legislation, includes important provisions that
make the federal reverse mortgage program – the FHA Home Equity Conversion Mortgage
(HECM), a unique loan available to senior homeowners – more useful.
“This new legislation recognizes the wealth Americans
have in their homes is a valuable resource to help them receive the care they desire or
enjoy financial independence throughout their retirement,” said Peter Bell, president
of the National Reverse Mortgage Lenders Association.
Reverse mortgages allow seniors the ability to stay in their
homes without exhausting their personal savings by converting the equity in their home
into tax-free cash flow, giving them maximum flexibility to address their particular
financial needs. The new legislation provides senior homeowners with a variety of
incentives to utilize reverse mortgages.
Specifically, H.R. 5640, the American Homeownership and
Economic Opportunity Act of 2000, provides:
- Long-Term Care Incentive -- The upfront mortgage
insurance premium charged by FHA for a reverse mortgage can be waived for seniors who wish
to use the money received from the loan to purchase a qualified long-term care insurance
plan.
- Streamlined Refinancing – Senior homeowners who
wish to refinance an existing HECM reverse mortgage will benefit from savings on the
upfront mortgage insurance fee charged by HUD. The amount of the origination fee that was
paid while obtaining their original loan will be applied toward the origination fee for
the refinanced reverse mortgage. In addition, mandatory counseling will be waived if the
homeowner has received counseling within the last five years. HUD will also establish
guidelines to help homeowners determine the viability of a refinancing. Higher loan limits
now in effect, coupled with lower interest rates, will allow many homeowners who already
have reverse mortgages to refinance and obtain more money.
- Limit on Origination Fees – The origination fee
will be capped at the greater of $2,000 or 2% of the maximum loan amount. Furthermore, the
entire amount of the origination fee can be paid out of loan proceeds, allowing the
borrower to incur no out-of-pocket expense.
- Broader Homeownership Guidelines – Seniors who
reside in co-operatives as their primary residence will now be eligible to apply for
reverse mortgages.
NRMLA President Peter Bell commended members of Congress for
approving the changes to the HECM program. He particularly praised U.S. Rep. Rick Lazio
(R-NY), who was chairman of the House Banking Committee’s Subcommittee on Housing and
Community Opportunity in the 106th Congress, and Rep. John LaFalce (D-NY),
Ranking Minority Member of the House Banking Committee. Lazio introduced the HECM
amendments in an earlier bill (H.R. 1776), while LaFalce sponsored the legislative
proposal to reduce the cost of HECMs used to purchase long-term care insurance coverage.
“The bipartisan support for this legislation underscores
the dramatic impact that financial security tools like reverse mortgages can have on the
lives of seniors,” added Mr. Bell.
“Congressman LaFalce’s amendment to connect reverse
mortgages with long-term care coverage is a very insightful provision. It establishes an
incentive for seniors to take control over their future needs and provides assistance for
them to do so.”
Reverse mortgages are available to individuals 62 or older
who own their home. Borrowers can choose to receive the reverse mortgage funds as a lump
sum, monthly income (for either a set term or as long as they occupy their home), or line
of credit, or as a combination of all three. No mortgage payments are due during the life
of the loan. Borrowers
can use the funds anyway they wish – for home repairs and improvements, medical
costs, in-home care, education, and supplemental retirement income.
Borrowers make no monthly payments on a reverse mortgage
during its term. The loan becomes repayable when the borrower permanently moves out or
sells the home. In addition, the repayment amount can't exceed the value of the home. Any
remaining equity in the home belongs to the homeowner or its heirs.
Reverse mortgages are originated largely by private lenders.
The most popular is the Home Equity Conversion Mortgage (HECM), which is insured by the
Federal Housing Administration, an arm of the U.S. Department of Housing and Urban
Development (HUD). More than 40,000 HECMs have been made since 1989. Other types of
reverse mortgages are the Fannie Mae Home Keeper loan and two jumbo reverse mortgage
products developed by Financial Freedom Senior Funding Corporation of Irvine, CA. The HECM
and Home Keeper loans are available in every state.
NRMLA is a nonprofit trade association, based in Washington,
DC, whose members originate and service more than 90 percent of all reverse mortgages.
Members sign a Code of Conduct pledging to abide by guidelines that assure fair, ethical,
and respectful practices in offering and making reverse mortgages to seniors.
(Additional
information regarding HECMs and reverse mortgages generally, including the free booklet, NRMLA Consumer Guide to Reverse Mortgages, and a list of
reverse mortgage lenders nationwide, are available on NRMLA's Web site, at
http://www.reversemortgage.org.)
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