Consumer Guide:
Reverse Mortgage / Home Equity Conversion Mortgage (HECM)

NAOSA Gold Standards of Professional Practice™

Reverse Mortgage/Home Equity Conversion Mortgage (HECM)

 

The goal of the NAOSA Gold Standards of Professional Practice™ for Reverse Mortgage Brokers is the requirement to be clear & concise in all communications and to work to ensure that a reverse mortgage is only offered when appropriate. Although reverse mortgages have seen increased regulation from both the federal and state governments, there are still many opportunities for a consumer to be taken advantage of. In addition to federal and state regulations that may be already in place, the National Association of Senior Advocates member professionals has identified several business practices that require more clarification or elimination.

The goal of the first part of this document is to offer information on the reverse mortgage product and its potential uses for a reverse mortgage. The second details the NAOSA Gold Standards of Professional Practice™.

What is a Reverse Mortgage?

A Reverse Mortgage is a loan that allows qualifying homeowners to convert a portion of the equity in their home into cash. A Home Equity Conversion Mortgage (HECM) loan, also known as a Reverse Mortgage, does not become due as long as the borrowers live in the home as their primary residence and continue to meet the obligations of the mortgage, including paying property taxes and insurance on the home.

A HECM loan is a mortgage insured by the Federal Housing Administration (FHA). Loan proceeds can be used to pay medical bills, finance living expenses, in-home care, or any extra cash needed for unexpected expenses. Mortgage payments are not required to be paid out of pocket, instead, home equity is internally paying the mortgage over time. Unless payments are made, the mortgage balance will grow which will diminish available equity at the time of home sale. The loan becomes due, and payable when the last borrower leaves the home.

What are Eligibility Requirements?

Borrowers must be 62 years of age or older, and own and reside in the property as their primary residence. Borrowers must continue to live in the home as their primary residence throughout the life of the loan. They must also meet with a HUD-certified Reverse Mortgage Counselor prior to applying for a Reverse Mortgage loan.

Additionally, the property must also meet certain eligibility requirements. The property must be a single-family home, a two – four unit owner-occupied house, a HUD-approved condominium, or a manufactured home that meets FHA requirements. With a HECM, the borrower is required to pay an initial Mortgage Insurance Premium (MIP) of 2.0% of the property value up to the Max Claim Amount (whichever is less). The current max loan amount is $822,375 (January 2021). The insurance renewal amount is 0.5 percent charged annually on the outstanding balance of the loan. The borrower must also pay title insurance, state, and county recordation tax, and other closing costs, typically found in any mortgage transaction. In some cases, an origination fee may be charged. This is something to consider when comparing lenders.

Why would someone consider getting a Reverse Mortgage?

When used correctly, a Reverse Mortgage can be a useful tool when planning for retirement income and can be a part of the larger retirement income planning conversation with your financial planner or other trusted financial advisor. As part of overall retirement income planning, a Reverse Mortgage can be a useful tool to address or resolve many of the Major Concerns of Income Planning, such as out-living your assets, maintaining your desired overall standard of living, having assets available during down markets if needed and having assets to assist with long term care expenses.

Where should I go to get a Reverse Mortgage?

There are many places these loans can be obtained. NAOSA recommends finding a lender who is local, experienced, and specialized (only does Reverse Mortgages).

Who should I talk to before I get a Reverse Mortgage?

Homeowners should certainly speak to family members if they are accustomed to seeking input. This is especially true if the clients’ heirs are planning to inherit the home. Homeowners should also consult their financial planners if they have one. All Reverse Mortgages require by law that the client speaks to an independent, third-party HUD-certified Reverse Mortgage counselor before beginning the application.

Should I shop around for the best price?

Price is an important component, but be sure to work with an experienced competent advisor. Pricing for Reverse Mortgages should not be dramatically different from one lender to the next but always check. NAOSA recommends a local, experienced, and specialized lender. Stay away from companies that use high-pressure sales tactics. If you are feeling pressured, end all conversations immediately.

How would I know if the lender is suggesting the right type of Reverse Mortgage for me?

The program should fit and assist in solving the concerns mentioned earlier in this document. You should not be told to withdraw more funds upfront than you need, but encouraged to allow these funds to remain in the line of credit. Any lender who encourages you to take a large, unneeded cash withdrawal is not acting in your best interest.

Z

Unneeded Cash Withdrawal

You should not be told to withdraw more funds up front than you need, but encouraged to allow these funds to remain in the line of credit. FHA has set maximum withdrawals to help protect borrowers. Even so, do not take a large, unneeded cash withdrawal. Any lender who encourages you to do so is not acting in your best interest.

Z

Consult with a Trusted Individual

NAOSA advises all consumers to consult with a trusted professional with knowledge of their financial situation and goals when considering a reverse mortgage. If a consumer does not have one, you can find a NAOSA financial planner or similar professional to consult. You may also want to include a close relative or trusted friend in the process of obtaining a reverse mortgage.

Z

No Compensation to Third Parties

A NAOSA member may not compensate a third party, such as a financial planner or other professional, for approval or recommendations of a HECM. This allows for an impartial opinion on suitability.

Z

Unneeded Home Improvements

NAOSA members may not suggest using a HECM for unneeded home improvements.

Z

Always Remain on the Title of Your Home

You or your spouse must always remain on the title to your home (there are exceptions, such as if a house is part of a trust or part of a life estate). There are also provisions that allow a non-borrowing spouse to stay in the home. However, once the last borrower or nonborrowing spouse leaves the home, the loan is due. There are no prepayment penalties, and you can sell your home anytime. Should anyone state anything different, immediately cease speaking with that individual.

Are you a professional in the HECM field?
We welcome your constructive input to assist in the protection of all consumers. Please contact us.

CONSUMER GUIDES

Be Sure to Review All the NAOSA Gold Standards of Professional Practice™ Before Making a Buying Decision

Simply click on the industry to access the Consumer Guide

Auto and Home Insurance Owners

Home Care & Assistance

Insurance & Investments

Legal
Professionals

Long-Term Care Insurance

Medicare Supplement & Medicare

Real
Estate

Reverse
Mortgage

Advantage
Insurance

Senior Living Communities

Home Improvement / Home Repair

Senior Living Brokers/Consultants

CONSUMER GUIDES

Be Sure to Review All the NAOSA Gold Standards of Professional Practice™ Before Making a Buying Decision

Simply click on the industry to access the Consumer Guide

Auto and Home Insurance Owners

Home Care & Assistance

Insurance & Investments

Legal
Professionals

Long-Term Care Insurance

Medicare Supplement & Medicare

Real
Estate

Reverse
Mortgage

Advantage
Insurance

Senior Living Communities

Home Improvement / Home Repair

Senior Living Brokers/Consultants

NAOSA Guarantee

NAOSA requires members to act in utmost good faith when working with clients. Members must agree to work under “the fiduciary standard” and act in a way that the member reasonably believes to be in the best interest of the client. In addition to compliance with all federal and state regulations, each professional member of the National Association of Senior Advocates must follow and act in accordance with a standard of guidelines called the NAOSA Gold Standards of Professional Practice™.

The NAOSA Gold Standards have been created by professionals in their specific fields. The NAOSA Gold Standards strive to eliminate any gray areas that may exist in various business practices. Although these gray areas may be legal in many cases, NAOSA experts agree that they generally do not serve the best interest of the consumer.

The NAOSA Gold Standards of Professional Practice™ also strive to offer transparency in various professions, and aim to educate consumers on the various business models of these professions. Consumers must have information to make an educated decision when considering a specific product or service.

Members who are found not in compliance with these standards will be censured, with membership subject to revocation.

NAOSA Guarantee

NAOSA requires members to act in utmost good faith when working with clients. Members must agree to work under “the fiduciary standard” and act in a way that the member reasonably believes to be in the best interest of the client. In addition to compliance with all federal and state regulations, each professional member of the National Association of Senior Advocates must follow and act in accordance with a standard of guidelines called the NAOSA Gold Standards of Professional Practice™.

The NAOSA Gold Standards have been created by professionals in their specific fields. The NAOSA Gold Standards strive to eliminate any gray areas that may exist in various business practices. Although these gray areas may be legal in many cases, NAOSA experts agree that they generally do not serve the best interest of the consumer.

The NAOSA Gold Standards of Professional Practice™ also strive to offer transparency in various professions, and aim to educate consumers on the various business models of these professions. Consumers must have information to make an educated decision when considering a specific product or service.

Members who are found not in compliance with these standards will be censured, with membership subject to revocation.

Free Consumer Scam Alert & Newsletter

Avoid Scams Targeting You & Your Loved Ones

We publicize unethical business practices across a wide range of industries and alert you on the latest scams. Stay safe, get educated, and sign up now!

Free Consumer Scam Alert & Newsletter

Avoid Scams Targeting You & Your Loved Ones

We publicize unethical business practices across a wide range of industries and alert you on the latest scams. Stay safe, get educated, and sign up now!

TESTIMONIALS

What Our Members Say

An independent organization like NAOSA is really needed. It’s so hard to find the right information these days and even harder to find businesses and professionals who I know I can trust. Thank you NAOSA!

Retired CPA

Lakeland, Florida

The NAOSA consumer guides are great. Clear explanations, without all the complex language, is extremely important in helping me make the right decision.

Retiree

Potomac, Maryland

NAOSA has brought me tremendous value when networking with like-minded professionals, it has really helped me stand out from the crowd. I highly recommend it.

NAOSA Member

Austin, Texas

In a world filled with mistrust and spin, honesty and integrity offer a tremendous opportunity for professionals and businesses who do business the right way.

Anthony L. Cinotti, Founder

National Association of Senior Advocates

Use NAOSA To Your Advantage

Unhappy with a company? NAOSA would like to hear from you.

Questions? Need Assistance? Please contact us.

Submit Your ComplaintContact Us