Supporters of reverse mortgages are hoping a bill signed into law by President Clinton will spur demand for the product and simplify the process for consumers and lenders.
The American Homeownership and Economic Opportunity Act, which was signed without much fanfare during the week between Christmas Day and New Years Eve, contains several provisions friendly to the reverse mortgage community, according to the head of the industrys trade group.
These provisions are significant because they show the widespread, bipartisan support within the Congress for utilizing the reverse mortgage tool, said Peter Bell, president of the National Reverse Mortgage Lenders Association in an interview. Our goals are to get all of the provisions implemented this year.
Among other things, the law contains provisions that help seniors pay for long-term-care insurance; make it easier for reverse mortgage borrowers to refinance and get access to more money; allow owners of co-ops to obtain reverse mortgages; and commission a study of the feasibility of moving from the current loan limits, which vary from community to community, to a single national limit.
The most important provision waives the Department of Housing and Urban Developments 2% mortgage insurance premium if borrowers use the proceeds of an FHA reverse mortgage to purchase or make annual payments on long-term-care insurance, Mr. Bell said.
The waiver will allow seniors to prepare and obtain the care they need and get it on terms that they choose, as opposed to being subject to the terms imposed on them through a Medicare or Medicaid program, he said.
The provision may also affect the federal budget, Mr. Bell said. Seniors who take reverse mortgages to help pay for health care may not need to rely on the federal health-care assistance, he said.
Rep. John LaFalce, the ranking Democrat on the House Financial Services Committee, played an important role in getting the legislation passed, particularly the insurance waiver, Mr. Bell said.
The New York congressman introduced the provision as a separate bill last year. That bill was added to a larger housing bill, which the House passed last spring and was ultimately incorporated into the bill President Clinton signed, a committee spokesman said.
These initiatives help our senior citizens take control of their lives, protect against the devastating costs of nursing home care, and maintain independence of living, Rep. LaFalce said in a press statement. One of our greatest challenges is providing affordable housing and health care for our growing elderly population, and this bill expands the resources and options to meet these challenges.
Mr. Bell said the loan limit study could also offer a boon to the industry. Currently, several factors are used to calculate the limits, including the borrowers age, community, and house value. That leads to a confusing and time-consuming process for both consumer and lender, he said.
With a single national limit, potential borrowers could go to a Web site, plug in their age and house value, and learn instantly how much money they could get, he said.
This would let us market it much more specifically, Mr. Bell said. Now, each lender has to have different information and conduct different calculations for every area where they do business.
Under the refinance provision, borrowers who refinance a reverse mortgage into a larger loan must pay HUDs 2% mortgage insurance premium only on the additional amount.
The provision allowing owners of co-ops to obtain reverse mortgages was pushed by the New York State congressional delegation on behalf of the many co-op owners in the New York City area. Previously, only owners of houses and condominiums could get reverse mortgages.
Though the bill has been signed and enacted, the provisions must still be implemented by HUD. As the Clinton administration leaves and the Bush administration prepares to take over, it may to take some time before there are people in place to write the rules, Mr. Bell said. For example, regulators will need to explain what the health care provision means, he said.
The reverse mortgage trade group started a consumer outreach and education campaign in November.