In Their Best Interest

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Reexamining HECM Fund Distributions & Loan Recommendations

reverse mortgage newsToday’s interest rates are at historic lows providing reverse mortgage borrowers with extraordinarily low rates. The borrower has a small mortgage balance to pay off. Should they secure this rate with a fixed rate HECM to take advantage of such an opportunity?

To begin with I hope our viewer’s collective answer is “no”. To chase after low interest rates while maximizing the initial draw or disbursement is akin to asking the borrower to walk over a dollar to pick up a dime. Such a scenario reinforces the need for HECM professionals to exercise the highest level of care when it comes to structuring a borrower’s initial disbursements.

Fixed Rate HECM. The fixed rate reverse mortgage was extremely popular until HUD revamped their product lineup in mid 2013. Without disbursement limits in place Standard Fixed Rate HECMs accounted for 70% of all loans originated at the time the Consumer Financial Protection Bureau drafted their report to Congress in June of 2012. The CFPB argued these loans placed more risk on FHA for potential defaults as the loan balances grew more quickly than their adjustable rate counterparts.

What about today’s fixed rate HECM? The fixed rate is now subject to HUD’s first year distribution limits and is…

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