18 The Courier sun • august 21, 2014 FOR BREAKING NEWS VISIT www.couriersun.com st The Elder Law Minute TM of the 2013 THE QUEENS QueensCourier.com Place Changes to Reverse Mortgages BY RONALD A. FATOULLAH, ESQ. AND STACEY MESHNICK, ESQ. In anticipation of higher default rates in coming years, the U.S. Department of Housing and Urban Development urged Congress to enact the Reverse Mortgage Stabilization Act of 2013 in order to avoid ending an effective program upon which seniors rely. The Act allowed the Federal Housing Administration (FHA) to make the necessary changes to the Home Equity Conversion Mortgage Program (HECM). Reverse mortgages can be marketed and sold by private companies, but the only reverse mortgage insured by the U.S. federal government is called a “Home Equity Conversion Mortgage” (HECM) and is only available through an FHA approved lender. HECMs allow seniors, whose incomes have decreased in retirement, to access their home equity to cover costs such as medical bills and other living expenses. In order to qualify for a reverse mortgage, the individual must be at least 62 years of age, own the home and live in the home. Reverse mortgages are not repaid monthly. The reverse mortgage is paid back only after the last surviving borrower dies or leaves the home for a period of 12 months or more. If those inheriting the home want to keep the home after the death of the owner(s), the mortgage must be paid off. If the outstanding balance exceeds the home’s value, the FHA will accept 95 percent of the home’s value as a payoff. It has come to light that reverse mortgage companies are not abiding by the 95 percent rule and are often threatening to foreclose on the home unless the heirs pay off the mortgage in full. Lenders must also offer heirs up to 30 days from the loan due date to determine what they want to do with the property and up to 6 months to arrange financing. The New York Times recently reported that lenders have been speeding up foreclosure proceedings, causing many families to lose their inheritances.Reverse mortgages are generally more expensive than other home loans, and the Reverse Mortgage Stabilization Act mandated fee increases, making them even more costly. Fees include lender fees, mortgage insurance, and closing costs, which can also be taken out of the initial loan proceeds. The increase in initial premiums was implemented in order to appropriately price for the risk associated with the loans and to help insure future performance of the Mutual Mortgage Insurance Fund (the fund which pays the lender if the mortgagor defaults).The HECM loan program in general was in jeopardy, ELDER law ROnaLd FaTOuLLah, ESQ, CELa* prompting the following changes to be implemented. The FHA will institute a financial assessment requiring borrowers to demonstrate their ability to meet their housing obligations before approving a loan. Under the new rules, the maximum amount borrowers can withdraw is about 15 percent less of their home’s equity than before the changes. Generally, borrowers may withdraw up to 60 percent of their home’s equity.Even after obtaining reverse mortgages, homeowners have historically been unable to pay their taxes and insurance on the home. As a result of this problem, the FHA’s new rules require the homeowner to pay these expenses out of the mortgage line of credit or through an escrow account established for that purpose. Another problem is that homeowners often take out too much money upfront, leaving themselves with unpaid bills and in further debt later on. In an attempt to help alleviate this issue, the new rules discourage withdrawing all the available funds within the first year by charging a mortgage insurance premium if an individual withdraws more than a certain percentage. The express intent of the changes is to be able to continue the reverse mortgage program to help seniors while reducing risk, thereby improving performance of the Mutual Mortgage Insurance Fund.Reverse mortgages are not appropriate for everyone. Seniors should seek advice to review the costs and benefits of obtaining a reverse mortgage to cover their expenses. Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that exclusively concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. The firm has offices in Forest Hills, Great Neck, Manhattan, Brooklyn, and Cedarhurst, NY. This article was co-written by Stacey Meshnick, Esq., senior staff attorney at the firm who has chaired the firm’s Medicaid department for over 15 years. Ronald Fatoullah & Associates can be reached by calling (718) 261-1700, 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES.
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