What Was the Reverse Mortgage Saver Program?
The reverse mortgage saver program was an initiative that was introduced in 2010 by the U.S. Department of Housing and Urban Development (HUD) to offer an alternative to the standard home equity conversion mortgage (HECM), which is a reverse mortgage that’s backed by the federal government. The reverse mortgage saver program, dubbed HECM Saver, was introduced to help reduce borrowing costs for homeowners who wanted to borrow smaller amounts than those allowed for a regular HECM, which was newly classified as HECM Standard.
- Reverse mortgages allow homeowners to borrow against their home equity without having to make monthly loan payments to a lender.
- Reverse mortgages that are backed by the federal government are called home equity conversion mortgages (HECMs).
- The reverse mortgage saver program, also known as HECM Saver, was introduced by the U.S. Department of Housing and Urban Development (HUD) in 2010 as an alternative to the regular HECM program, which then became classified as HECM Standard.
- Key features of the HECM Saver program included reduced mortgage insurance premiums (MIPs), reduced closing costs, and lower borrowing limits.
- HECM Saver was eliminated in 2013, taking with it the appellation HECM Standard.
Understanding the Reverse Mortgage Saver Program
A reverse mortgage is a type of financial arrangement in which a homeowner borrows against their home equity without taking out a traditional home equity loan or home equity line of credit (HELOC). A reverse mortgage company provides the homeowner with either a lump-sum payment, a series of installment payments, or a line of credit. Interest and fees accrue on the amount received.
As long as the homeowner uses the home as their principal residence, they pay nothing to the reverse mortgage company. If the homeowner sells the property, moves out, or dies, then the reverse mortgage balance comes due, including the principal borrowed, interest, and fees.
HECMs have several associated costs, including:
When HECM Saver was introduced, a HECM Standard had an up-front MIP of 2% and an annual MIP of 1.25%. HECM Saver lowered the up-front MIP to 0.01% but kept the annual MIP the same.
The cap for HECM origination fees
The purpose of HECM Saver was to make HECMs for borrowers who wanted to withdraw smaller amounts of equity from their homes. Borrowers who wanted to take out larger amounts of equity still had the option to use HECM Standard, paying higher up-front MIPs in exchange.
HECM Saver was eliminated in 2013, taking with it the appellation HECM Standard. This was done as part of an effort to streamline and strengthen the HECM program to make it easier for homeowners to borrow against their equity.
In its current form, the HECM program insures reverse mortgage loans for borrowers who meet all of these requirements:
- Are age 62 or older
- Own their homes outright or have paid off most of their mortgage
- Are not delinquent on any federal debts, including taxes or student loans
- Have financial resources and income to pay for homeowners insurance, property taxes, homeowners association fees, maintenance, and upkeep
- Live in an eligible property that’s used as a principal residence
For HUD and Federal Housing Administration (FHA) purposes, eligible properties include single-family homes and two-, three-, and four-unit homes if the borrower lives in one of the units. Homeowners who live in townhouses, condominiums, and mobile homes also may be able to get approved if the home meets FHA requirements.
Homeowners are required to attend HUD-approved counseling. They’re also required to pay the various costs associated with HECMs, including MIPs. As of April 2022, HECMs have an up-front MIP of 2% and an annual MIP of 0.5% of the mortgage balance.
The interest rate that you pay for an HECM can determine how much equity you’re able to withdraw from your home.
What is an HECM?
HECM stands for home equity conversion mortgage. It is a type of reverse mortgage that’s insured and backed by the federal government. HECMs are designed for savers who are age 62 or older and own their home outright or have paid down the majority of their mortgage balance. An HECM allows eligible homeowners to convert the equity in their homes into an income stream.
What is HECM Saver?
HECM Saver, also referred to as the reverse mortgage saver program, was introduced by the U.S. Department of Housing and Urban Development (HUD) in 2010 to provide an alternative product to regular HECMs. Borrowers who received a reverse mortgage through HECM Saver were able to take advantage of reduced up-front mortgage insurance premiums (MIPs). The program was discontinued in 2013.
What is the difference between an HECM and a reverse mortgage?
HECMs are a type of reverse mortgage. They are different from other reverse mortgages because they’re backed and insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender. All HECMs are reverse mortgages, but not all reverse mortgages are HECMs.
What are the downsides of an HECM?
There are some drawbacks associated with HECMs, including the annual and up-front MIPs that are required and the interest that can accumulate over the life of the loan. Another key disadvantage is the way that HECMs are repaid. Once the homeowner stops using the home as a principal residence, the HECM balance is due in full, and their heirs may be forced to sell the property to pay off the HECM.