About Reverse Mortgages

Reverse Mortgages: What Every Retiree Needs to Know
The costs of a reverse mortgage

• between 0.5% and 2.5% of your loan amount as a mortgage insurance premium,
• every year, you'll pay another 1.25% of the outstanding mortgage balance to cover insurance costs. 
• lenders are eligible to charge origination fees of as much as $6,000, with charges of 
• up to $2,500 for the first $125,000 of value, 
• 2% of the next $75,000, and 
• 1% of the value above $200,000 subject to the overall maximum. 
• monthly servicing fees can add $30 to $35 to the cost of a reverse mortgage.

To make things easier for retirees, the FHA often allows you to incorporate these costs into the total amount of the loan. That means you don't have to pay them out of pocket, but they also reduce the amount that's available to you to borrow or receive in monthly payments.

Using a Reverse Mortgage
For many seniors the equity in their home is their largest single asset, yet it is unavailable to use unless they use a home-equity loan. But a conventional loan really doesn't free up the equity because the money has to be paid back with interest. A reverse mortgage is a risk-free way of tapping into home equity without creating monthly payments and without requiring the money to be paid back during a person's lifetime. Instead of making payments the cash flow is reversed and the senior receives payments from the bank. Thus the title "reverse mortgage".
Many seniors are finding they can use a reverse mortgage to pay off an existing conventional mortgage, to create money for a down payment for a second home or to pay off debt. Popularity is skyrocketing. Over the last five years the number of reverse mortgages nationwide has tripled. The uses of this untapped wealth are only limited by a person's imagination.

California’s Reverse Mortgage ‘Cooling Off’ Law Takes Effect | Reverse Mortgage Daily
Starting Jan. 1, reverse mortgage professionals operating in California must comply with the new rules set forth by legislation passed in 2014, which requires lenders to observe a week-long “cooling off” period before assessing any fees or services from borrowers, among other provisions.
In October, California Governor Jerry Brown signed into law AB 1700, a bill sponsored by Assembly member Jose Medina (D-Riverside) that requires lenders to wait seven days from the start of Home Equity Conversion Mortgage counseling before they can order appraisals, credit, title or other services.

Along with the “cooling period” provision, AB 1700 also amends a section of the California Civil Code, replacing a former Reverse Mortgage Counseling Checklist with a new Reverse Mortgage Worksheet Guide to be provided to borrowers prior to counseling sessions.

Bill Text - AB-1700 Reverse mortgages: notifications.

AB 1700 Assembly Bill - Bill Analysis

spendergast: California AB1700 Reverse Mortgage Worksheet Guide

How has the loan program changed?

What to Know About the Changes in Reverse Mortgages - US News
In order to rescue the FHA loan program, changes were made to the structure of the loans, and fees were increased.
The maximum size of a loan will depend on the age of the youngest borrower, the value of the home and current interest rates. However, under the new rules, the maximum amount borrowers can withdraw is about 15 percent less of their home’s equity than before the changes.
The FHA also now limits the amount of money that can be withdrawn immediately as well as during the first 12 months of the loan. There are some exceptions, but in most cases borrowers are eligible to withdraw up to 60 percent of their home’s equity.
Additional steps have also been taken to ensure that borrowers will be able to meet their continuing financial obligations, including taxes and insurance. For some borrowers, the FHA now requires payment of property taxes and insurance out of the reverse mortgage line of the credit or through term payments from an escrow account.

Changes to the HECM Program

New Restrictions on Reverse Mortgages | Nolo.com
Under new rules, which went into effect on September 30, 2013, borrowers are not able to access as much of the value in their home compared to the maximum amount available before this date. In the past, borrowers could choose between a standard HECM or a saver HECM. Now these loans have been combined into a single HECM loan and borrowers can access around 85% of what was previously available
The rules also limit disbursements at closing or during the first year. For example, a homeowner who is eligible for a reverse mortgage totalling $200,000 would be allowed to get only $120,000 (60% of the total) in the first year (subject to a few exceptions, such as if the borrower's existing mortgage, for example, exceeds the 60% limit). The goal of these changes is to encourage people to access their home equity slowly and steadily over the years, rather than all at once.
Other changes include:

• requiring the use of a financial assessment in making a reverse mortgage loan to ensure that homeowners can afford the taxes and insurance payments (effective as of March 2015), and
• establishing a set-aside account for taxes and insurance if a lender determines that a homeowner may not be able to keep up with these payments (or the lender can pay these charges through disbursements from the line of credit or by withholdings from the monthly disbursements.)