The Housing and Economic Recovery Act of 2008 (HERA) is an act that seeks to aid homeowners who are facing the risk of losing their homes. Outlined in the act are some important laws, regulations, and policies that guide the actions of homeowners, lenders, investors, and borrowers. While it is not mandatory to participate in the HERA, it can be beneficial to follow the guidelines stipulated in the HERA. This article will provide some helpful information on the HERA and the HERA provisions that directly affect reverse mortgages.
The birth of the HERA
Throughout 2008, the United States economy has struggled, prompting the government into action, in hopes of easing the financial crisis impact. One of the industries that has been largely affected by these economic problems is the housing industry. Thousands of people have faced the danger of losing their homes due to the rough economic times. Even those who sought the lowest loan rate and the lowest mortgage rate available for their homes felt the threat of being without a home. The Housing and Economic Recovery Act of 2008 (HERA) was created to help homeowners by giving them the option to switch to a government-insured mortgage that is more affordable. The HERA has a number of provisions that affect the Home Equity Conversion Mortgage (HECM) of the Federal Housing Administration’s (FHA) and other reverse mortgage products offered by other mortgage lenders.
HERA’s effect on reverse mortgages
1. Savings – One of the biggest drawbacks of reverse mortgages is the high upfront fees that are required by reverse mortgage lenders. The HERA tries to curb this downside by limiting the maximum origination fees on HECM plans. For claims of up to $200,000, the maximum origination fee cannot exceed 2% of the total claim. Any claim amount exceeding $200,000 will be charged an extra 1% on the portion of the claim over $200,000.
2. Safety – Under the HERA, reverse mortgage lenders cannot sell homeowners HECM based on the condition that they buy other products. These include peril insurance and other products that are viewed by the Department of Housing and Urban Development (HUD) as customary.
3. Security – The HERA also states that homeowners looking to take out a reverse mortgage must first undergo counseling. Borrowers will be counseled on the risks, rules, and regulations involved in getting a reverse mortgage. In effect, the mortgagor can feel more secure about their reverse mortgage plans.