Seniors Are Protected Against Reverse Mortgage Fraud

Reverse Mortgages Are Insured by the Federal Housing Administration

Nearly all reverse mortgage being originated today are Home Equity Conversion Mortgages (HECM). HECM reverse mortgages, also known as HUD reverse mortgages, are insured by the Federal Housing Administration (FHA). The FHA is a powerful government agency that continually monitors senior issues with the advice of strong advocacy groups such as the AARP. The following consumer protections are in place to make sure seniors are fully aware of the consequences of taking out a reverse mortgage.

Mandatory Counseling - HECM, or HUD reverse mortgages, have a mandatory counseling requirement. This means that before you can take out a reverse mortgage, you have to meet with a trained and approved professional to discuss all of the consequences and possible alternatives to a reverse mortgage.

Interest Rate Caps - Most reverse mortgage have an adjustable interest rate. The interest rate caps insure that the reverse mortgage rate cannot exceed a certain percentage.

Caps On Origination Fees - You cannot be charged more than 2% of the first $200,000 that you borrow, or $4,000, as an origination fee. For any portion of the loan greater than $200,000, you can be charged 0.5% up to a maximum of $6,000.

Occupancy Guarantee - As long as the home is occupied as a primary residence, the reverse mortgage lender cannot require you to move or sell the home.

Repaying The Loan - The loan only becomes due when the last borrower passes away or moves out permanently. The amount to be repaid cannot exceed the home's value upon sale.

Total Annual Loan Cost (TALC) Disclosure - Under the Truth In Lending Act, reverse mortgage lenders are required to accurately disclose all costs associated with a reverse mortgage. It against the law to hide any fees or misrepresent a reverse mortgage rate.

Right Of Rescission - The reverse mortgage lender cannot finalize the loan for three days after you have signed all of the necessary paperwork. This allows you to consider the final numbers and decide if you want to cancel the reverse mortgage for any reason.

Reverse mortgages have proven a big help to those who need to supplement their income. Often, retirees don't earn enough to qualify for home equity loans and HECMs can make a big difference in their quality of life.