People
often
disregard
reverse
mortgages
as
being
too
complex.
However,
I
argue
they
are
simply
unfamiliar.
When
explained
properly,
borrowers
can
easily
understand
the
concept
of
a
reverse
mortgage.
However,
the
loan
terms
and
language
are
unfamiliar
to
most
existing
homeowners.

Therefore,
when
lenders
and
loan
originators
decide
to
offer
reverse
mortgage
products,
the
first
step
is
to
learn
the
terminology
that
makes
those
loan
products
different.

Do
you
speak
reverse?

Let’s
explore
just
a
few
of
the
key
terms
not
commonly
found
with
traditional
mortgages:

Principal
Limit
Factors
(PLF)

Traditional
loan
originators
use
the
term
“Loan
to
Value”
or
LTV
to
describe
the
percentage
of
the
home’s
value
for
which
a
borrower
may
qualify.
We
do
not.
This
is
because
reverse
mortgages
take
into
consideration
the
borrower’s
age
and
expected
interest
rates.
Based
on
these
two
factors
each
applicant
will
have
a
PLF
based
on


U.S.
Department
of
Housing
and
Urban
Development
(HUD)
tables.

Mandatory
obligations

These
are
items
that
must
be
paid
off
at
closing,
like
existing
loan
balances
and
closing
costs.
Reverse
mortgages
use
this
term
because
it
may
determine
the
amount
of
principal
available
to
the
borrower
during
the
initial
disbursement
period.
For
most
Home
Equity
Conversion
Mortgages
(HECMs),
this
is
the
first
12
months
after
closing.

Financial
assessment

Reverse
mortgage
loans
go
through
a
unique

underwriting
process
to
determine
if
the
loan
provides
a
sustainable
solution
for
the
borrower
and
their
household.
We
call
this
process
financial
assessment,
and
it
involves
reviewing
each
borrower’s
credit
history
(not

FICO
score),
property
charge
history,
and
residual
income.

Life
Expectancy
Set-Aside
(LESA)

Because
the
lender
cannot
require
a
monthly
payment
to
build
an
escrow
account,
the
lender
may
need
to
set
aside
a
portion
of
the
borrower’s
principal
limit
to
pay
property
taxes
and
insurance
charges
each
year.
This
so-called
LESA
may
eventually
run
out,
at
which
time
the
borrower
would
be
responsible
for
payment
of
those
charges.

Non-recourse

All
reverse
mortgages
in
America
are
non-recourse,
meaning
the
borrower
and
their
estate
will
never
owe
more
than
the
value
of
the
home
at
the
time
it
is
sold.
This
should
give
homeowners
peace
of
mind
that
they
won’t
be
leaving
their
heirs
with
a
bill
if
loan
balances
rise
above
the
home’s
value
or
if
property
values
decline.

November
2024
update

Since
October
8th,
the
10-year
CMT
weekly
average
has
increased
by
60
basis
points
from
3.83%
to
4.43%
(effective
11/19/24
through
11/25/24).
Remember,
this
added
to
the
lender
margin
when
calculating
HECM
expected
rates.
Unfortunately,
this
has
resulted
in
lower
principal
limits
for
new
applicants.

You’ll
notice
the
spread
between
the
10-year
and
the
1-year
weekly
average
is
no
longer
inverted.
For
our
purposes
in

the
reverse
mortgage
space,
short-term
rates
are
lower
than
long-term
rates
for
the
first
time
since
July
11,
2022.
This
ends
the
longest
yield
curve
inversion
in
my
lifetime.

Graphics
by
Dan
Hultquist.
This
column
does
not
necessarily
reflect
the
opinion
of HousingWire‘s Reverse
Mortgage
Daily and
its
owners.

To
contact
the
author
of
this
story:
Dan
Hultquist
at [email protected]

To
contact
the
editor
responsible
for
this
story:
Chris
Clow
at [email protected]

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