The 2008 financial crisis in the United States has forced a lot of people to make changes in their lifestyles and their purchasing habits. In fact, the crisis resulted in numerous job losses and many people were threatened with the possibility of losing their homes. The crisis also had an impact on how financial companies did business, especially those in the housing industry that are affected by the Housing and Economic Reform Act of 2008 (HERA). One of the financial products that was impacted by the financial crisis is the reverse mortgage.
Income in times of need
For those who qualify for reverse mortgages, you can turn your home equity into a source of cash through such mortgages. Reverse mortgages have long been a subject of controversy, because many people approached the idea with hesitation and uncertainty. When the financial crisis impact forced many people to act on the reverse mortgage, this financial product became a popular source of income in times of need.
Getting a reverse mortgage is not as hard as qualifying for other types of loans. Homeowners who are 62 years of age or older are probably eligible for reverse mortgages. Basically, when getting reverse mortgages, lenders pay you for as long as you occupy the mortgaged property. All of the costs and interest is paid when the homeowner dies, moves from the house, or sells the house. A reverse mortgage may be the best choice for those who are in need of money due to the financial crisis impact, but are having difficulty qualifying for other loans.
The Housing and Economic Reform Act of 2008 (HERA)
When the financial crisis hit, the US government reacted by enacting the HERA. The HERA is an act that stipulates rules, regulations, and policies regarding housing and financing. Some of the provisions in the HERA have a direct impact on reverse mortgages, which are also known as Home Equity Conversion Mortgages (HECM). Here are two of the numerous provisions on the HERA that relate to reverse mortgages and HECM:
- Homeowners have to go through a counseling session before being approved for an HECM or reverse mortgage. The counseling is meant to help homeowners in making the right decisions when applying for reverse mortgages.
- The origination fees for the HECM are now limited to 2% for reverse mortgages claims of $200,000 or less. Any portion of the claim above $200,000 will be charged an extra 1%. Reverse mortgage lenders do not have to follow the HERA, but they will have to compete with the low origination fees of other lenders that do follow the HERA policies.