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Borrower Safeguards

Borrower safeguards are an integral part of today’s reverse mortgage programs, and are mandated by law for the FHA Home Equity Conversion Mortgage (HECM). The top safety provisions include:
  1. Servicing Guaranteed by the U.S. Government. If the company that services your loan ever goes out of business, specific HUD/FHA guarantees ensure that you will have continued access to your loan funds. HUD/FHA protections also ensure that you will never owe more than the value of your home when the HECM reverse mortgage must be repaid.
  2. Total Loan Cost Disclosure Mandated. In an FHA HECM reverse mortgage, disclosure of all loan costs is a mandate of the Federal Reserve Board. The Total Annual Loan Cost, or “TALC” details the total transaction costs over the projected life of your loan, so you know in advance all the costs you will incur in obtaining your reverse mortgage.
  3. Fee Caps Mandated. Today’s reverse mortgages feature origination fee caps that may even be financed as part of the reverse mortgage. This fee cap enables you to get a reverse mortgage with no, or very minor out-of-pocket expense. Additionally, lenders are not allowed to charge any additional lender fees, such as processing and underwriting fees, as are typically charged on traditional mortgage transactions.
  4. Interest Rate Caps and Choice of Fixed or Adjustable Rates Required. With an FHA HECM reverse mortgage you may choose a fixed interest rate or an adjustable rate. Adjustable rates typically are calculated based on the London Interbank Offered Rate (LIBOR) plus a set margin charged by the lender. They also typically adjust monthly and have a maximum lifetime interest rate cap.
  5. No Pre-Set Maturity Date. A reverse mortgage cannot become due during the borrower’s lifetime, as long as the borrower continues to own and live in the home, pays the property taxes and homeowners insurance, and adequately maintains the property.
  6. No Prepayment Penalty. The borrower can choose to pay off the reverse mortgage at any point without incurring any prepayment cost or penalty.
  7. No-Penalty Cancellation Period Mandated. There is a mandated ‘right of recission period’ with any FHA HECM reverse mortgage. This means that within three days of your loan closing, you may cancel the transaction, for any reason whatsoever.
  8. Loan-To-Value Protection Mandated. An FHA HECM reverse mortgage is a “non-recourse” loan, which means the loan amount due can never exceed the value of the home. The borrower always retains title to the home. When the loan becomes due, the lender is repaid the sum of funds advanced plus the accrued interest, but this total can never be greater than the value of the home. If there is additional remaining value after the loan is repaid, that value belongs to the borrower or to the borrower’s estate.
  9. Loan Counseling Mandated. Before your reverse mortgage application can even be processed, you must first meet with an independent reverse mortgage loan counselor. HUD imposes this safeguard, and also oversees the network of independent reverse mortgage counselors. The counselor you choose will answer your questions, review your situation and suggest alternative options during your meeting. At the conclusion of your counseling appointment, you will receive a certificate you must present to your lender. Without this certificate, your lender cannot process your reverse mortgage application.
  10. Shared Appreciation Prohibited. With some earlier reverse mortgage programs, borrowers could get more cash if they relinquished a percentage of the future value of their home. These ‘Shared Appreciation’ or ‘Equity-Sharing’ reverse mortgages have been prohibited and are no longer available.
    Your Equity Home Loan Solutions (EHLS) reverse mortgage specialist is well versed in these protections and can discuss their importance in your own situation.

When you call EHLS, experience answers. 1-888-235-6414