Back in April, HUD did away with the fixed-rate reverse mortgage product because of the potential danger it posed to the Mutual Mortgage Insurance Fund. The problem with the fixed-rate is the borrowers would take out all the fund available at closing or risk losing any fund that were left over.
This caused some borrowers to spend all the money, faster than they could or should have, without leaving enough to pay their homeowner’s insurance or property taxes throughout the life of the loan. Borrowers who were unable to pay their financial obligations would find themselves in default and when the loan became due and payable.
In order to combat this, HUD removed the fixed-rate, leaving only adjustable rate reverse mortgage products. While this allowed consumers the freedom to take out funds at closing and save the rest in a line of credit or chose to receive tenure payments for a specified period of time afterward, interest could be adjusted, leaving some borrowers in fear.
According to an article published by Reverse Mortgage Daily, Reverse Mortgage Funding is unveiling a reverse mortgage product, “HECM Choice,” a fixed-rate option for borrowers who want to have the security of a fixed interest rate throughout the life of the loan but don’t want to access all their funds at once.
The catch is this: borrowers must access 60% of their principal limit upfront at closing and the remaining funds can be accessed 13 months after closing via term or tenure payments (throughout a minimum of 4 years).
This product is not a way to circumvent the recent changes to the reverse mortgage program, as there are still restrictions on the amount a borrower can draw upfront at closing (based on their financial obligations). However, the HECM Choice has all the benefits of a fixed-rate product without the risk to borrowers and HUD.
In addition, because HECM Choice will only be available through Reverse Mortgage Funding, HUD can closely monitor the process and ensure that the product is working how it has been envisioned on paper, helping to stop any potential problems in their tracks.
When HECM Choice will be implemented remains to be seen but, for now, consumers can rest easy knowing that, while the rules of the game has changed, the players remain the same. Hopefully, the success of this product paves the way for HUD to implement new versions of older products instead of just having one adjustable rate standard product for all consumers.
In the meantime, this is definitely a step in the right direction and a necessary product for a market that is not “one size fits all.” Consumers need choices, they like to know they have various options. In the future, this will make the reverse mortgages, despite the changes, a more attractive option for everyone.
The HECM Choice will only be offered by Reverse Mortgage Funding upon its introduction to the market, as far as we know.
If you want more information on the reverse mortgage program give PS Financial Services a call at (888) 845-6630 or via email at info@PSReverseMortgage.com. We do not pressure those who inquire. We are simply here to help.