Reverse Mortgage Proposition Proposed
On November 8, Texans will be asked to vote on nine Constitutional amendments. One of those amendments is Proposition 7. If passed this amendment would authorize line-of-credit advances under a reverse mortgage. Representative Dan Flynn said, “Currently, the Texas constitution permits reverse mortgage advances to be made only in a lump sum or in monthly payments. In every other state a line-of-credit option is available.”
Flynn went on to say that, “Since many senior homeowners want and have asked to be able to access reverse mortgages when money is needed to pay property taxes, medical bills, or for any of life’s daily needs, the flexibility of a line of credit would allow senior homeowners to better conserve their estates by enabling them to control the timing of their borrowings and to significantly reduce borrowing costs.”
Flynn noted that this amendment was unanimously approved by the Texas House of Representatives and the Texas Senate during the 79th Session of the Legislature. Proposition 7 would effectively bring the reverse mortgage loan program in line with the options offered seniors in all other states, while preserving the extensive consumer protections in the Texas Constitution.
This procedure of reverse mortgage would allow homeowners 62 or older to borrow against the equity in their homes without having to sell them, give up title, or make monthly mortgage payments. An appraisal of the house is the only credit requirement. As long as the borrower maintains the property and pays the insurance and taxes, the loan is not due until after the borrower leaves the house, or both borrowers pass away and is typically repaid when the house is sold.
Unlike a traditional mortgage that is paid back each month, a reverse mortgage would make payments to the homeowner. Payments are given in either a lump sum to cover unexpected expenses or as a regular supplement to monthly income. Payments can also be paid at intervals and amounts that are best for the homeowner. The maximum amount a homeowner can borrow for a reverse mortgage is based on the borrower’s age, the property’s value and the interest rate. A borrower cannot be forced to sell or vacate the property to pay off the loan, as long as the home is kept in good repair and taxes and insurance are paid on a timely basis.
To help prevent fraud and abuse, reverse mortgage lenders that deliver loans to Fannie Mae must be HUD-approved lenders and are instructed to make the checks payable to the borrower and no other third party. Borrowers also can choose to have the funds sent to their accounts through a wire transfer. All borrowers are required to attend an educational session on reverse mortgages and family members are encouraged to join them. Flynn said, “This is another tool for seniors financial planning and many believe a reverse mortgage is one of the safest, most consumer friendly forms of consumer credit and one of the most convenient ways to access the equity in one’s home. As an additional consumer protection all borrowers regardless of credit situation, age or health, will receive the same regulated interest rate. Passage of Proposition 7 will also allow those that choose this option the ability to utilize their home equity as a financial alternative to pay for needs they may have, such as home healthcare and prescription drugs.”
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