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Congress Ponders Reverse Mortgage Legislation

The U.S. House of Representatives is considering legislation that would change the federal reverse mortgage program, including a plan that would allow older homeowners to access greater amounts of equity from their homes, a reverse mortgage lenders’ group said Friday.

The Expanding American Homeownership Act of 2006 (H.R. 5121) would create a single national loan limit for Federal Housing Authority Home Equity Conversion Mortgages (HECM); implement a HECM for home purchase option; and remove the cap on the number of HECM loans FHA can insure, according to the National Reverse Mortgage Lenders Association.

“Taken together, these proposed changes would greatly benefit homeowners who are considering a reverse mortgage as part of their retirement planning,” said Peter Bell, president of NRMLA, in a statement. “A single national loan limit would be especially helpful. It would benefit homeowners living in high-valued homes in counties where the FHA lending limit is much lower, which limits the amount of proceeds available from a reverse mortgage.”

The proposed act would:

* Create a single national loan limit for FHA Home Equity Conversion Mortgages (HECM). The HECM program accounts for 90 percent of all reverse mortgages made in the U.S. Currently, lending limits vary by county and range from $200,160 to $362,790, the group said.

If the legislation passes, there would be one single limit equal to the conforming mortgage limit set by Freddie Mac, which is currently $417,000. Thus, seniors could convert greater amounts of equity from their homes into retirement income, the organization said.

* Implement a HECM for Home Purchase option that would allow seniors to purchase newer housing that better suits their needs, the organization said.

* Remove the existing cap on the number of HECM loans that FHA can insure. The last provision is also contained in H.R. 2892 and S. 1710, the Reverse Mortgage to Help America’s Seniors Act, which is still pending approval in the Senate after having passed the House of Representatives in December, according to the group.

A reverse mortgage is a loan that enables homeowners 62 or older to borrow against the equity in their homes, without having to sell the home, give up title, or take on new monthly mortgage payments. Loan proceeds can be used for any purpose, and taken out as a lump sum, fixed monthly payments, line of credit, or a combination.

The loan amount depends on the borrower’s age, current interest rates, and the value and location of the home. A reverse mortgage does not have to be repaid until the borrower moves out of the home permanently, and the repayment amount cannot exceed the value of the home.

After the loan is repaid, any remaining equity is distributed to the borrower or the borrower’s estate. A senior’s home does not have to be owned free and clear to qualify for a reverse mortgage. Reverse mortgages are often used to retire existing debt on a home.