Issue 41.12
The HECM is the federally insured reverse mortgage product. It is insured by the Federal Housing Administration (FHA), a branch of the U.S. Department of Housing and Urban Development (HUD). HECMs account for nearly all reverse mortgages made today in the U.S. Below is statistics released by the National Reverse Mortgage Lenders Association (NRMLA) from fiscal year 2001 through FY 2009.
FY 2009 114,692, FY 2008 112,154, FY 2007 107,558, FY 2006 76,351, FY 2005 43,131, FY 2004 37,829, FY 2003 18,097, FY 2002 13,049, FY 2001 7,781.
As you can see the popularity of the HECM is growing rapidly. Many factors contribute to this surge in popularity.
Security: In the past, many people felt the reverse mortgage was not secure. Financial predators made a living at targeting seniors for their schemes and many used the reverse as a tool to acquire the funds. HUD has provided regulations today which do not allow funds from a HECM loan to be used in any direct investment by financial planner. Documents required to sign in the basic HECM application warn clients of these types of financial changes.
Value: Even though values in the current housing market have fallen, there still may be an advantage to be taken from it using the HECM. Because the base loan leaves roughly 40% equity remaining after the initial loan, interest from the loan will continue to grow the balance eventually eating away the equity. If the values of homes have bottomed out now and begin to rise or appreciate, this growth would offset the interest gain to some degree. This would allow equity to remain in the home for a longer period of time increasing the odds of more money left to the estate when the loan is paid off.
Economy: Times now are more difficult than ever for a vast majority of the senior population. Social Security has stopped increasing and seems to be less likely to provide a stable income as many planned for during their working years. Since the old school train of thought was to work hard to pay off any home mortgage and have no house payment during retirement years, many seniors have equity in their homes yet cannot acquire it without adding to the monthly debt load. The HECM allows them to access 60% of these funds, tax free and leave them with no additional house payment as long as they live in the property. No payments for life if the home is maintained as the primary residence.
For more information regarding details of the regulations set forth to protect senior clients or details on how the HECM may benefit you with a refinance of your current home or the purchase of a new home, call me.
Scott Gibson can be contacted at 435-767-1092.