June 16, 2015
The Consumer Financial Protection Bureau (CFPB) has published a consumer advisory warning those in the market for a Home Equity Conversion Mortgage Loan to pay special attention to the terms and conditions of the HECM loan, adding that some lenders are allegedly using false or misleading language in advertising about such loans.
The first thing CFPB wants borrowers to know is that a HECM loan is just that–it’s a mortgage loan with legally binding financial agreements, not a government benefit. FHA HECM loans, which are guaranteed by the government, are not and should not presented as a benefit and require mandatory counseling about the HECM program.
And that’s important to think about when shopping for a lender for your reverse mortgage or HECM loan; a participating FHA lender is required to represent HECM loans properly in order to be an FHA lender in good standing.
According to the official CFPB site, (www.ConsumerFinance.gov), it is very important to know the true nature of the HECM loan; “Reverse mortgages have fees and compounding interest that must be repaid, just like other home loans. With most reverse mortgages, federal insurance guarantees that borrowers will receive their loan funds if their lender has financial difficulty or if their loan balance exceeds the value of their home. However, borrowers pay for this insurance and its not a government benefit.”
Furthermore, borrowers should not be taken in by promises that you will “always live in your home” or that you can stay in the home “as long as you want”. This may be true as long as the borrower meets HECM loan conditions including staying current on all property taxes and using the home as the borrower’s primary residence. According to CFPB:
“When a reverse mortgage ad says youll retain ownership of your home, or that you can live there as long as you want to, dont take these messages at face value. These statements are true only if you continue to meet all requirements of the reverse mortgage. If you fall behind on your property taxes or homeowners insurance, are absent from your home for longer than six months, or fail to satisfy other requirements, you can trigger a loan default. If you dont take care of the default in time, the lender can foreclose on your home. Sometimes these requirements are listed in fine print, but not always. If you have a question about reverse mortgage requirements, contact a HUD-approved housing counselor near you.”
FHA HECM loans have changed a great deal in the last two years or so, and the types of payouts and other financial arrangements depend greatly on the types of loan you apply for–fixed or adjustable interest rates, etc. Like the Consumer Financial Protection Bureau, the FHA wants borrowers to make the most informed choices possible regarding their HECM loan applications. That’s why the FHA and HUD offer a referral to HUD-approved housing counselors in the borrower’s local area–to get a referral, call the FHA at their toll-free hotline: 1-800 CALL FHA.
Do you have questions about FHA home loans or HECM loans? Ask us in the comments section. All comments are held for review.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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