HECM, Proprietary, or Single Purpose Reverse Mortgages

The current credit crunch has caused a pull back in the types of mortgage credit available. Reverse mortgages have been affected along with the entire mortgage industry. In a more balanced economic environment, there might be a variety of investors willing to lend, such investors are currently waiting out the storm. The following three categories of reverse mortgage types still apply, although the availability of proprietary or single purpose reverse mortgages may be scarce.

Home Equity Conversion Mortgage (HECM)

This is the most readily available type of reverse mortgage. HECM (pronounced Heck'em) accounts for the majority of reverse mortgage loan fundings. HECM is a government-backed loan that is well regulated. Offered through the US Department Of Housing And Urban Development (HUD), HECMs are insured by the Federal Housing Administration (FHA). You may also hear them referred to as HUD reverse mortgages.

The current maximum claim amount of the HECM is $625,500, up from $417,000. Congress amended the normal loan limit to assist seniors during the housing crisis. The increase is intended as a stimulus measure and is expected to be temporary. Until the increase is reversed, qualified seniors have greater access to their equity.

To qualify, you must be at least 62 years old or older, live in the home as a primary residence, and have substantial equity available. The maximum claim amount (up to $625.500) is based on the age of the youngest borrower, the value of the home, and the current reverse mortgage rate.

Proprietary Reverse Mortgage

Sometimes called a jumbo reverse mortgage, this type is not offered or insured by the government. Proprietary reverse mortgages are offered by private sector investors. Those who buy these loans most commonly want greater access to equity for high-value homes. When Congress expanded the HECM maximum claim amount to $625,500, a large portion of the demand for private sector financing moved over to the government side. Additionally, Congress has been cracking down on questionable reverse mortgage lender practices due to insufficient regulation. When new regulations become clearer and investors understand their boundaries, this type of reverse mortgage may reemerge. When Congress reverses the temporary increase in HECM maximum claim amounts, there may also be greater demand.

Single Purpose Reverse Mortgage

Some state or local governments offer a reverse mortgage to meet a special need within their community. Often, the need is help with property tax or home maintenance for low-income seniors. In order to find out if such a reverse mortgage is available in your area, contact your local housing authority. If your state or local government is making budget cuts, as many are, this type of reverse mortgage could be affected.