Friday, August 9, 2013

Reverse Mortgages and Foreclosure Problems

 According to a recent article in the Chicago Tribune, the Federal Housing Administration (FHA) plans to begin cracking down on its rules for reverse mortgages.  While reverse mortgages initially were intended as to help elderly homeowners “meet their immediate needs, such as home repairs, while preserving the remaining balance as a nest egg in case of emergencies,” it looks like many seniors have actually been using the reverse mortgage as a way to avoid foreclosure.

This news could have significant implications for the elderly communities in Illinois who have applied for or are planning to pursue a reverse mortgage.  If you have questions about the new FHA regulations and their relationship to foreclosure issues, contact an experienced foreclosure defense attorney today.

FHA Reverse Mortgages for Senior Citizens

What is a reverse mortgage for seniors?  The FHA explains that homeowners who are at least 62 years old and have either paid off their mortgage or have “paid down a considerable amount” could be eligible for a reverse mortgage.  In addition to the financial aspects, these homeowners must be living in the property for which they’re seeking a reverse mortgage.

This program for seniors is known as FHA’s Home Equity Conversion Mortgage (HECM) program, which enables elderly homeowners to “withdraw some of the equity” in their property.   In order to be eligible, seniors must first meet with an HECM counselor to determine whether they meet all of the requirements and to decide if the financial implications will be worth it in the long run.

The FHA has specific requirements that fall under three categories:

·      Borrower Requirements:  The borrower must be at least 62 years old.  In addition, the borrower must either own the property or have paid a considerable amount down on the mortgage, she must occupy the property as her principal residence, she can’t be delinquent on any federal debt, and she must participate in a “consumer information session given by a HUD-approved HECM counselor.”
·      Property Requirements: The property must be a single-family home or a 2-4 unit home with at least one unit occupied by the borrower.  Or, it can be a HUD-approved condo project or a manufactured home that satisfies certain FHA requirements.
·      Financial Requirements: In order to be financially eligible, homeowners must be able to verify their income, assets, monthly living expenses, and credit history.  In addition, they mist be able to show that they’ve made timely payment of their real estate taxes, and that they have paid insurance premiums for hazard and flood insurance.

Foreclosures and Financial Difficulties Force Rules to Change

Did you know that more than one-third of the elderly counseling clients at the National Council on Aging (NCA) have mortgage debt that exceeds more than half the value of their home?  When these borrowers use a reverse mortgage to “pay off the existing mortgage and other household debt,” the borrowers are left with “little equity to fall back on,” according to theChicago Tribune.  With this situation, borrowers can’t pay their property taxes or homeowner insurance.

These losses are described as “technical defaults,” and they take away from the FHA’s mortgage insurance fund.  In short, they’re forcing the FHA to “tighten its requirements for seniors who apply for an FHA-insured reverse mortgage.”  While the HECM system already verifies a borrower’s income and monthly living expenses, they’re going to have to do more.  Likely, the FHA will impose a “set-aside of two to three years’ worth of taxes and insurance payments” for certain borrowers.

Most importantly, seniors shouldn’t take out a reverse mortgage as a final attempt to save a home from foreclosure.  Instead, it should be a measure that occurs early on—“before crisis,” said the NCA Director Ramsey Alwin.

There are a variety of options for the reverse mortgage, and if you or an elderly loved one need extra funds to “pay off immediate needs” but still hope to “maintain the nest egg for a rainy day,” it’s a good idea to speak with an experienced lawyer as soon as possible.  Don’t hesitate to contact us today.

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