A reverse mortgage provides homeowners 62 years or older a way to tap the value of the home without the burden of monthly premiums. A homeowner taking out a reverse mortgage borrows against her home equity–the worth of the house less any mortgages–and doesn’t need to pay the loan back until she moves from the home.
Reverse Mortgage Requirements
California’s Reverse Mortgage Elder Protection Act of 2009 says a reverse mortgage may have a fixed or adjustable interest rate. The lender may charge fees and costs when the loan is taken out, occasionally during the life of the loan, or if it evolves. If the borrower receives his money in periodic payments, the lender can not lessen the obligations based on fluctuations in the interest rate; a lender that fails to make the guaranteed payments is accountable for double the amount of the default, plus interest. Lenders can not punish borrowers for paying off the loan early.
Counseling
Under the California act, lenders should offer potential borrowers using a list of 10 federally authorized nonprofit counseling agencies to consult about the risks and costs of a reverse mortgage; the counselors must not receive direct or indirect compensation from the lender or anyone else involved in originating or servicing the mortgage. The lender must offer the applicant with a checklist of issues to talk about –for example, that if a medical or family emergency forces the applicant to leave his house earlier than expected, the loan will come due immediately. Lenders can not accept a completed application unless the debtor certifies he has received counseling.
Entanglement
The act says that the lender must not make the reverse mortgage contingent on the borrower purchasing some other service, such as an annuity. If the lender is connected with companies that provide insurance or annuities, the businesses should have legal hurdles set up to ensure the lender doesn’t have any incentive to push or recommend other financial solutions to the debtor. Recommending flood insurance, title insurance or hazard insurance would be an exception, because those are normal elements of a reverse-mortgage transaction.