History of the HECM Loan
The Home Equity Conversion Mortgage loan (HECM loan), also known as a reverse mortgage, is a long-standing tool that helps seniors stay in their homes while benefiting from the equity they built up throughout their lives. The HECM loan was first structured in 1961, and has gone through rigorous study and regulation since, transforming it into the safe alternative mortgage product for seniors it is today.
To learn more about the HECM loan, please call one of our reverse mortgage experts at Citizens Lending Group at (800) 480-6828 or use our convenient online contact form to learn more about whether or not you meet reverse mortgage requirements.
HECM Loans: The Early Days
The first unofficial HECM loan originated in Portland, Maine in 1961 when the widow of the town football coach borrowed an HECM loan to help her to stay in her home after the passing of her husband. A local banker structured the loan to allow the widow to receive cash based on the equity in her home, while also remaining in the house through her retirement.
Government Oversight & HECM Loans
In the 1980s, the United States Congress began studying and holding hearings on the HECM loans. By 1987, Congress passed an FHA insurance bill called the HECM Demonstration, which was a reverse mortgage pilot program that insured reverse mortgages. In 1988, then-President Reagan signed the FHA bill into law, and the HUD gained the authority to insure and implement the HECM loan program.
The first official HECM loan was issued in 1989, and the HUD began issuing yearly reports to Congress. In 1994, Congress began requiring that lenders disclose HECM loan costs to borrowers at the start of the application process. This gave borrowers more information and allowed them to shop around for lenders. 1996 saw the HECM loan program expanded to include residences with up to four units, provided the borrower lived in one of the four units.
Increasing Consumer Protections in Reverse Mortgages
Congress, the FHA, and the HUD continued to work together throughout the 90s to improve consumer protections in the HECM loan program. The HECM loan program became permanent in 1998, and Congress allocated funds for counseling, outreach, and consumer education. In 2001, the HUD and the American Association of Retired Persons (AARP) teamed up to begin training and approving counselors, and drafting standard HECM loan policies and procedures.
HECM Loans in 2000 and Beyond
In 2004, the FHA implemented rules allowing HECM loan refinancing. HECM refinancing allowed HECM loan borrowers the chance to refinance and pay only the upfront insurance premium and the change in appraised value.
In 2006, a national loan limit of $417,000 was established, and AARP conducted the first wide-spread survey of HECM loan borrowers. The AARP study revealed that the primary motivation for taking out an HECM loan was to have cash on hand to plan for emergencies and to improve their quality of life.
In 2008, Congress passed the SAFE Act which required states to implement consistent procedures when licensing and registering HECM loan originators. The Housing Economic Recovery Act also established safeguards for consumers such as limits on fees and guidelines for counseling independence.
In 2013, the HUD released new HECM loan policies to make the product safer, stronger, and less risky for the borrower. In the years since, the HUD and FHA, and independent organizations like AARP, continue to study and adjust the HECM loan program. The HECM loan has given seniors financial stability and a new way to enjoy their retirement, which only gets better over time.
Learn More About the HECM Loan & How A Reverse Mortgage Can Help You
If you need help understanding the HECM loan and how this loan may apply to you, a knowledgeable representative from Citizens Lending Group is here to provide you with more information. Call us at (800) 480-6828 to learn more about the HECM loan and reverse mortgage requirements.