January 6, 2004
REVERSE ANNUITY MORTGAGES
By: Jennifer Gelb, Research Attorney
You asked (1) for an explanation of reverse annuity mortgages and (2) where to get one in Connecticut.
A reverse annuity mortgage (RAM) is a loan aimed at senior citizens who have paid off their houses but cannot afford to stay there or need extra money for home repair, long-term care, medical treatment, or other purposes. It allows a homeowner to convert into cash some of the equity he has built up in his home. The loan proceeds are tax-free, and there are no minimum income requirements for most private RAMs. The loans are usually paid out to the borrower monthly, instead of in one lump sum, and repaid when the borrower sells the home, moves out, or dies.
The Connecticut Housing Finance Authority (CHFA) offers RAMs to property owners who are at least 70 years old if (1) at least one borrower needs long-term health care or supportive services and (2) household income does not exceed $72,500 per year. The federal Department of Housing and Urban Development (HUD) and several private lenders also offer RAMs to qualifying homeowners.
We are enclosing a fact sheet on RAMs from the Federal Trade Commission (FTC) for your reference. The fact sheet is also available on the FTC's website at http://www.ftc.gov/bcp/conline/pubs/alerts/revralrt.htm.
REVERSE ANNUITY MORTGAGES
A RAM is a type of reverse mortgage in which a lump sum is used to purchase an annuity that gives the borrower a monthly income for life. There are three main types of reverse mortgages: (1) the federally insured Home Equity Conversion Mortgage (HECM), administered by HUD; (2) single-purpose reverse mortgages, usually offered by state or local government agencies for a specific reason; and (3) proprietary reverse mortgages, offered by banks, mortgage companies, and other private lenders and backed by the companies that develop them.
A RAM can help senior citizens use their home equity to stay in their homes if their income is less than their monthly needs. These people are sometimes described as “house rich but cash poor.” To qualify, a homeowner must be at least 62 years old and have paid off all or most of his home mortgage. There are generally no income requirements (but see CHFA loans, below), and no medical tests or medical histories are required. HECMs impose certain additional requirements, such as free mortgage counseling from an independent government-approved “housing agency” and limits on the amount that can be paid.
Most reverse mortgages can be paid out in a lump sum, in monthly advances, through a line of credit, or a combination these methods. RAMs are paid in a lump sum, which is used to purchase an annuity that provides the borrower with monthly income. The loan advances are not taxable to the borrower and generally do not affect Social Security or Medicare benefits.
CHFA RAM PROGRAM
The CHFA Reverse Annuity Mortgage program makes loans to lower-and moderate-income senior homeowners who have long-term care needs. Eligible costs include those associated with hospitals, nursing homes, residential care homes, in-home care, adult day care, durable medical equipment, medically needed home alterations, long-term care insurance premiums, and uninsured recurring or catastrophic medical and prescription drug expenses.
Borrowers can choose to receive monthly tax-free payments for a five- or 10-year period, and the loan balance is repaid in one payment after the borrower dies, sells the property, or moves out. The amount of the monthly payment received varies based on the amount of equity in the home. CHFA will lend up to 70% of the home's value. Borrowers can also choose to take payment in one lump sum at the time of closing in lieu of the monthly payments.
To be eligible, borrowers must be at least 70 years old, have annual household income of $72,500 or less, and have long-term care needs. If the borrowers are a married couple, at least one spouse must have long-term care needs. Three types of properties are eligible for a RAM from CHFA: (1) single-family homes, (2) condominiums, and (3) planned unit developments.
More information about CHFA's RAMs can be obtained by calling Single Family Underwriting at (860) 571-3502.
FEDERAL RAM PROGRAM
HUD's Federal Housing Administration (FHA) offers federally insured RAMs to homeowners who (1) are at least 62 years old, (2) own their homes outright or have a low mortgage balance that can be paid off at closing with the loan proceeds, and (3) live in the home for which they seek the RAM. To be eligible, qualified homeowners also must receive consumer information from HUD-approved counseling sources before receiving the loan. Interested homeowners can contact the Housing Counseling Clearinghouse at 1-800-569-4287 to find a HUD-approved counseling agency and a list of FHA-approved lenders in their area. More information on RAMs is also available on HUD's website at www.hud.gov/rmtopten.html.
PRIVATE RAM LOANS
National Reverse Mortgage Lenders Association
The following lenders are members of the National Reverse Mortgage Lenders Association (http://www.reversemortgage.org/index.html) who are licensed to originate reverse mortgages in Connecticut.
Amston Mortgage Co., Inc.
Contact: J. Todd Walters
BNY Mortgage Company (a Bank of New York company)
Contact: Joseph DeMarkey
Financial Freedom Senior Funding Corp. (a subsidiary of Lehman Brothers, FSB)
Contact: Asa Adler
Agency for Consumer Equity
Contact: Mario Martirano
Contact: Joyce E. Kuhn
Continental Funding Corp.
1-800-974-4846, ext. 229 (toll-free) or 781-344-4846, ext. 223
Contacts: Howard Miselman and Frank Costa
Contact: Kathryn Freda
Wells Fargo Home Mortgage
1-800-545-4681 (toll-free) or 203-876-3800
Contact: Linda Hagen
1-800-866-0096 (toll-free) or 603-431-3422
Contact: Kathie O'Neil
More information about RAMs is also available from the American Association of Retired Persons (AARP) (http://www.aarp.org/revmort/) and the National Center for Home Equity Conversion (http://www.reverse.org/).