Seniors who wish to use the equity in their homes to improve their later years are the primary beneficiary of a new federal policy that limits the origination fee lenders can charge on reverse mortgages backed by the government.

Previously, lenders making reverse loans insured by the Federal Housing Administration - called HECMs, or home equity conversion mortgages could charge as much as they wanted. Worse, only $1,800 of the origination fee could be paid from the loan proceeds, so borrowers had to dip into their own pockets to come up with the difference.

Now, under a new directive from the Department of Housing and Urban Development, lenders only can charge a fee of $2,000 or 2 percent of the maximum loan amount, whichever is lower. FHA loan limits vary from place to place and range from $121,450 to $219,849.

In addition, the new cap must include all additional fees paid to loan correspondents or brokers who process but do not actually fund the mortgages. And HUD says the entire fee can be financed as part of the loan amount, meaning borrowers will no longer have to go out-of-pocket to get at their equity.

In another major announcement, meanwhile, HUD also said it would make HECMs available in Texas, heretofore the only state where seniors have been unable to obtain a reverse mortgage. The decision follows approval by Texas voters in November to amend the state's constitution to allow reverse loans.

For the uninitiated, a reverse mortgage enables senior home owners 62 or older to covert a portion of their equity into tax-free income without having to sell their homes, give up title or take on a new monthly payment. The loans are not repayable until the borrower passes away, sells the house or moves out for good. Moreover, the total amount owed can't exceed the value of the property.

Reverse loans aren't cheap, but borrowers can use the proceeds any way they want. Most use them to make home improvements so they can live more comfortably or to pay for health care.

The changes announced by HUD were praised by the National Reverse Mortgage Association, which has been lobbying for them for some time. They "promise to significantly help senior homeowners and lenders," said the group's president, Peter Bell.

Even though the law in Texas does not permit reverse loans as lines of credit, which is the most popular method among borrowers for taking their equity, the Texas decision is especially helpful, said Bell. "Texas is a huge market," he explained, adding that the Home Keeper, a version of the reverse mortgage sponsored by Fannie Mae, should probably become available there soon as well.

Published: March 16, 2000

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.