HECM: The New No Income / No Asset Mortgage


FHA in Reverse

A “No Income / No Asset” verification mortgage that is FHA-insured? The answer to that question is yes; and I’m afraid that puts me in reverse mode. The basis for my reverse mode is an assertion on a previous post, FHA: Here to Stay! Part two, that “…there’s no such thing as a ‘no income/no asset’ FHA mortgage”. Having said that, I must also point out that the reference was made to describe traditional mortgages which require borrowers to repay loans in accordance with set terms over specified time periods ranging between 15 and 30 years.

The point is, that in the case of a traditional mortgage, the money must be repaid monthly from the borrower’s earnings. The FHA Home Equity Conversion Mortgage (HECM) requires no repayment unless the property is sold, the borrower moves out and relocates to a new primary residence or the event of borrower’s death, in which case the loan is repaid by the estate or heirs of the deceased. So yes, I must reverse my earlier stance because there is a “no income/no asset” FHA-insured mortgage. The HECM!

Emergence of the FHA-insured HECM

The FHA HECM reverse mortgage, as it is currently known, has been around for quite some time dating back to February 1988 when President Reagan signed legislation into law and HUD announced a HECM development team to implement the program; but it did not immediately garner the desired recognition nor was it embraced by the lending industry right away. It is only recently, over the last five years, that reverse mortgages have gained popularity to become one of the more popular programs among mortgage lending companies and other industry professionals.

In 2005 there were approximately 40,000 FHA HECM loans funded with a volume of almost $7.2 Billion and by the end of 2008 that number had almost tripled to 120,000 FHA HECM loans funded with volume which surpassed $17.3 Billion. So although the program was in existence for about two decades, it really didn’t gain industry-wide recognition until circa 2005 when the cap of 250,000 reverse mortgages HUD could insure was lifted by Congress.

Keeping with the FHA tradition

The FHA mortgage insurance program enabled HUD-approved lenders to offer affordable mortgage financing to home buyers since the mid 1930s. This writer has first hand information with three FHA-insured mortgage programs for residential one-to-four family homes and mixed-use properties. Over the years FHA 203(b), 203(k) and HECM, the most recent of the three, served home mortgage communities in as adequate and satisfactory a manner as any other mortgage program, and today the FHA HECM reverse mortgage is meeting a need that is unique by its very method of implementation.

To qualify for a HECM reverse mortgage, borrowers must be 62 years of age or older, own the property outright or have a small mortgage which can be paid from the reverse mortgage proceeds, occupy the property as their principal residence, and participate in a HUD-approved counseling session. Another qualification HUD has set forth is, the borrower should not be delinquent on any federal debt. After all it is a government-insured loan. In addition, the property must meet all FHA property standards and flood requirements.

Standards to live by

It is not a coincidence that the FHA HECM reverse mortgage has finally gained popularity that is now evident, because it does seem that FHA is usually on hand at a time of uncertainty and the HECM reverse mortgage is no different. It is the right program at the right time for seniors across the country in this current economic crises. Seniors who are 62 and older can borrow against the equity in their homes without having to provide “Verification of Employment”, “Verification of Deposit” or any kind of “Asset Verification”. In effect, as long as the age requirement is met and the property’s equity is adequate, HECM borrowers will most likely be approved for “no income/no asset” reverse mortgages insured by the FHA.


The app that pays in so many ways!

HECM reverse mortgage closings can be arranged at the home of the borrowers and since the loan is considered to be a refinance mortgage, there is a seventy-two hour rescission period during which they are able to change their minds. Borrowers can request their payments in five different ways: Tenure – equal monthly payments which will continue as long as as borrowers occupy the property as their principal residence; Term – equal monthly payments for a fixed number of months pre-selected by the senior borrower(s); Line of Credit – unscheduled payments or in installments; Modified Tenure – combination of the line of credit plus scheduled monthly payments and Modified Term – a combination line of credit plus monthly payments for a fixed period of months pre-selected by borrowers.

What a difference

Unlike ordinary home equity loans, a FHA HECM reverse mortgage does not require repayment as long as the home is the borrower’s principal residence. This feature distinguishes the program from any other mortgage program available in the market place. Additional information is provided by AARP and NRMLA and can be obtained on the website of each organization. So, to sum it up; the FHA HECM reverse mortgage is a “no income/no asset”, no “verification of employment” loan which is issued to borrowers 62 or over and requires no repayment as long as the home is occupied by the borrower as their primary residence. Is that right? The answer to that question is yes. The FHA is in reverse(s).

Meeting The Need

The early years

Since its inception in 1934, the Federal Housing Administration (FHA) has been meeting the needs of home-buying communities by providing mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. Unlike conventional mortgage loans that adhere to strict underwriting guidelines, FHA mortgage loans require very little cash investment and there is more flexibility in calculating household incomes and payment ratios.

As of September 2006, the FHA was the largest insurer of mortgages in the world, insuring over 34 million properties since its creation by congress seventy five years ago. Although the FHA provides mortgage insurance for single family homes, multifamily buildings, manufactured homes, hospitals and several other property types, the focus of this “Prime Mortgages” site will be the residential one-to-four family homes and mixed-use property types.

Three popular loans programs

Specifically FHA mortgage programs that will be discussed here are: The 203(b) which provides mortgage insurance for the purchase and refinance of one-to-four family homes, the 203(k) which provides mortgage insurance for one-to-four family homes and mixed-use properties in need of repair, and the HECM which provides mortgage insurance for reverse mortgages on one-to-four family homes owned and occupied by seniors who have attained the age of 62 years and over.

For many years I have held the belief that the FHA mortgage insurance program was one of the most effective and indispensable for home purchasers, realtors, mortgage brokers and mortgage lenders, as long as the program was implemented properly and in accordance with guidelines set forth by HUD/FHA. I held this believe since making my first home sale in 1979 as a newly hired associate of a Queens, New York real estate agency.

Solid

The program is solid. Since that first home sale, which was financed with FHA-insured funds, I have continued to work with the program and saw first-hand the difference it has made in the lives of many home buyers. I also had a first-hand view of the changes made to the program over the years and how it has withstood the test of time. The FHA-insured mortgage has survived a couple of stock market crashes, the emergence of PMI, which was supposed to replace it, and the flawed “Sub-Prime” mortgage vehicle which could not outlast it, and the program is still going strong.

The FHA mortgage program continues to meet the needs of home-buying and refinancing families, while demonstrating – with a timely introduction of the unique HECM reverse mortgage for seniors – why so many home buyers continue to trust and rely on it for their mortgage financing needs. Meeting housing needs in times of crises and uncertainty is nothing new for the FHA though, because when it was created over seven decades ago, the housing industry was “flat on its back” according to language posted on HUD’s web pagepage.

In retrospect

Following are some of the conditions which existed during FHA’s early years:
Two million construction workers had lost their jobs; Mortgage terms were difficult to meet for would-be home buyers; LTV requirements were 50% on five year “Interest Only Balloon” mortgages which were basically the only loans available at that time; Only four out of ten households owned homes and everybody else had to rent. America was surely a nation of renters, but due to a practical and common-sense approach to mortgage financing, the FHA was adequate to the task of meeting the needs of the nation’s home buying communities and it is still going as strong as ever.

Home Buying Opportunities: Up to 50% Below Value

Whether you’re a first time home buyer, a current homeowner looking to buy a second home or an investor, you’re offered an opportunity to buy foreclosures up to 50% below market value and realize immediate equity. Free foreclosure listings owned by this governmental organization stretch from coast to coast, so no matter what neighborhood you’re looking in you’re sure to find a few options. Additional information on how to purchase these homes can be obtained directly from one of HUD’s websites.

If you’re wondering why I haven’t yet provided the link to that particular site, it is because you won’t find any foreclosure listings or foreclosure homes posted there but rather plenty of information pertaining to the number of properties that received foreclosure filings in the United States last year (2.3 million properties worth billions of dollars) and the fact that lenders are actively seeking out alternate means to secure their value in these properties, which in turn opens up investment opportunities to buyers like you.

Anyone in the market to purchase a home at a deep discount have access to this list of foreclosures FREE of charge even though I have seen and heard commercials offering similar lists for a price. You probably have too; and I suppose people purchased those lists for several reasons, one of which is probably the difficulty finding the actual listings on HUD’s website because when you do visit HUD’s site, the very first paragraph is: HUD sells properties that you might want to buy! But immediately following that statement is a link which, when clicked, will take you to a page on how you can buy a HUD home. I do agree that learning the process is important, but I also believe that it is just as important to locate the list of houses via a more direct route.

My objective therefore is to try and eliminate some of the steps involved in locating the actual foreclosure list(s) of HUD homes as well as the homes not owned by HUD because, after all, those lenders who are ‘actively seeking out alternate means to secure their value in these properties’ could probably offer as good a bargain as HUD if not better, especially in this post “Subprime” environment. In addition to the government foreclosures (HUD homes), there are: Bank owned REO foreclosures; Pre-foreclosures; Tax lien foreclosures; VA foreclosures and Foreclosure Auctions.

There may be other categories of foreclosure lists of homes to choose from but you’ll have to get that information from the special Management and Marketing (M&M) contractor assigned to manage properties in certain geographical areas of the country. For example, the M&M contractor assigned to Florida, New York and New Jersey is National Home Management Solutions (NHMS). More information can be obtained on the NHMS site www.nhmsi.com for those who live in one of the other forty seven states. That is the most direct route I can provide at this time. So now you can go directly to the lists source as well as obtain the information you need about the process(es).

Over the past year I wrote a few articles relating to the mortgage & real estate industry and what I believe to be the reliability, flexibility and durability of the FHA mortgage loan program, the arm of HUD which administers the mortgage insurance program for one to four family residential properties. As straightforward as the FHA mortgage loan program is for home purchasers, I find that the manner in which HUD administers the foreclosure information for homes it owns is similarly straightforward: One set of rules, and ultimately one decision maker where the buck stops. Except being able to locate the lists of foreclosures, which used to be a little more difficult than needs be, anyone in the market to buy a home can do so at up to 50% below market value for immediate equity. Some of those foreclosure lists salespeople may be a little peeved at me for giving away this information free of charge, but I’m sure they’ll be able to find another source of ‘free stuff’ to sell. Good luck house shopping and; God Bless!

iSnare Featured Article