home equity conversion mortgage

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Reverse Mortgage

A loan borrowed against the value of one's home. In this situation, the lender gives the borrower the amount of the loan and the borrower makes no payments and retains title to his/her home. When the borrower moves from the house or dies, the lender takes possession of the home, which it then sells to repay the loan. Any extra profit is remitted to the borrower or his/her estate. A lifetime reverse mortgage allows a homeowner to access his/her home's equity without the inconvenience of moving. It is a financial instrument designed to help homeowners who are cash poor, and is limited to senior citizens. In the United States, one must be 62 years old in order to be eligible for a lifetime reverse mortgage, while the U.K. requires potential borrowers to be at least 55. It is also known as a lifetime reverse mortgage.

home equity conversion mortgage (HECM)

An FHA-insured reverse mortgage loan allowing persons to borrow money against the equity in their home with no repayment usually necessary until after death.The money may be taken in one lump sum,or in payments over time.

The important elements are

• The borrower and any other current owners of the home must be aged 62 or over and live in the home as their principal residence.

• The home must be a single-family residence in a one- to four-unit building, a condomini- um, or part of a planned unit development (PUD). Some manufactured housing is eligible, but cooperative apartments are not.

• The home must be at least 1 year old and must meet HUD minimum standards, except that the HECM can be used to make necessary repairs.

• Applicants must discuss the program with a HUD-approved counselor before making any decision.

• Repayment in full is due (1) when the last surviving borrower dies, (2) when the home is sold, (3) when the borrowers permanently move elsewhere or fail to live in the home for 12 months, or (4) if there is a default in mortgage terms, such as failing to pay property taxes or keep the property insured or allowing it to deteriorate below HUD minimum standards.

Home Equity Conversion Mortgage (HECM)

A reverse mortgage program administered by FHA.

See Reverse Mortgage/FHA's Home Equity Conversion Mortgage (HECM).

References in periodicals archive ?
However, HECM reverse mortgages allow several other types of modifications that are not available on forward mortgages.
Unlike a home equity line of credit, a HECM only requires a one-time qualification and appraisal.
Olmstead said the "pull-through rate" for HECM certificates that convert to FHA insurance endorsements is 70 percent.
Clients can use the reverse mortgage in combination with their retirement portfolios to pay off an existing mortgage, fund home renovations to age in place or to use the HECM to buy a new home.
The MMI program is under financial stress because of the wider foreclosure crisis, but HECM defaults are generating losses at a much higher rate than traditional forward mortgages covered by the fund, according to HUD data.
The traditional FHA reverse mortgage product, called the HECM Standard, has been criticized as having high fees.
With all the different regulatory changes coming down the pike and keeping up on all of them, we just decided to let the HECM loans go," explained Jon Paukovich, vice president of mortgage lending for ENT.
Other changes set forth by HERA include a clarification that only FHA-approved mortgagees may participate in the origination of an FHA-insured HECM loan--meaning that insurance agents who are not associated with FHA-approved lenders may not participate in the origination of FHA-insured HECM loans.
Similar to other FHA loans, the requirements for a HECM are more restrictive than other loans on the market.
Although proprietary reverse mortgage products began to appear in 1995, the recent economic turmoil has driven all HECM competition out of the current marketplace.
Fundamentally, real estate, even with the current credit crisis and what's happening with real estate prices, comprises a large chunk of people's personal balance sheets," said Todd Solash, a principal of consulting firm Oliver Wyman and co-author, along with Michael Zeltkevic, of the report, Moving Beyond HECM in Equity Release Markets?
HECM loans are originated by private lenders and purchased by Fannie Mae.