There has been a recent push by federal, state and local legislators to get reverse mortgages or Home Equity Conversion Mortgages (HECM) approved for New York cooperatives.
The federal Department of Housing and Urban Development (HUD) has not as of yet acted to expand the reverse mortgage program to co-ops, even after 16 years of efforts from the Council of New York Cooperatives & Condominiums (CNYC) and the National Association of Housing Cooperatives (NAHC), both organizations which have been lobbying for legislation in this regard.
In May, New York State Sen. Jeffrey Klein (D-34) introduced S. 07844 and Assemblyman Jeffrey Dinowitz (D-81) proposed A.10246 as its companion bill. Klein’s and Dinowitz’s legislation seek to amend the state’s real property law in order to authorize proprietary reverse mortgages in New York for seniors age 70 and older.
One of the problems in gaining approval for co-ops, according to CNYC executive director Mary Ann Rothman, is that co-ops are not real property as condos are. Shareholders own shares in a corporation that owns the building, so there is nothing to collateralize for the real estate in a co-op, she explained.
According to Reverse Mortgage Daily, a blog for the reverse mortgage industry, Congressman Eliot Engel (D-NY), a senior member of the House Energy and Commerce Committee, recently met with HUD Secretary Julián Castro to ask about the federal agency taking steps to allow co-op owners to participate in the HECM program. He called on HUD to pass regulations to expand access to seniors living in cooperative housing.
“While Congress extended the reverse mortgage option to co-op owners through the Housing and Economic Recovery Act of 2008, HUD has not issued the regulations needed to execute this section of housing law,” Engel said in a written statement.
Earlier this week, the Federation of New York Housing Cooperatives and Condominiums (FNYHC) issued an alert to its members thanking them for their support of the bills, and noted that the session ended without passage. However, they intend to try again for passage in January.
What is a Reverse Mortgage?
Reverse mortgages have been around since the mid- to late 1980s, according to Brian Sullivan, a supervisory public affairs specialist for HUD. Essentially, a reverse mortgage is a special type of home loan that lets the borrower (62 years of age or older) living in a single-family home, condo or townhouse, convert a portion of the equity in their home into cash.
“As America has grown older, truthfully, we’ve aged as a nation, and senior citizens are seeing this as a viable, sustainable way of providing them some security later in life, and allowing them to age gracefully in place, which is really why the program was born,” Sullivan said.
Applicants must be 62 years or older; own the property outright or have a small mortgage balance; occupy the property as their primary residence; not be delinquent on any federal debt; and participate in a consumer information session given by an approved HECM counselor.
The mortgage doesn’t become due or payable, until the borrower passes away or moves out of the home permanently, said Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association (NRMLA). Lenders recover their principal, plus interest, when the home is sold, usually by the borrower or heirs, and the remaining value of the home goes to the borrower or heirs.
“As the American population continues to age,” said Steve Irwin, the executive vice president of the NRMLA, “there are 10,000 people per day turning 62.”
Home equity conversion mortgages account for around 90 percent of all reverse mortgages originated in the U.S. Property types eligible for a HUD-backed mortgage are single family homes; 2-4 unit homes when one unit is occupied by a borrower; a HUD-approved condominium project; or a manufactured home that meets Federal Housing Administration (FHA) requirements.
“This can be a powerful loan product to enhance a person’s retirement,” Irwin said. “It can be a tremendous benefit to allow them to stay in their homes.”
Potential applicants can also get a proprietary reverse mortgage, which are private loans backed by the companies that develop them. However, these are not federally insured. Single purpose reverse mortgages are offered by some state and local government agencies, as well, but they too are not federally insured.
A Hiccup for HECM?
Reverse mortgages are not for everyone, said Sullivan. Borrowers must take a mandatory counseling session to determine if the mortgage product is for them, and they must fulfill HUD’s financial requirements and have ample equity in their property to obtain the loan. And HUD and the FHA recently enhanced its requirements capping the amount borrowers are allowed to take upfront and developing criteria that would allow non-borrowing spouses to stay in the home following the death of the borrower.
As for co-ops, the door has opened a crack for ultimately gaining approval of reverse mortgages, but HUD still is shutting cooperative homeowners out of the HECM process.
Debra A. Estock is managing editor of The Cooperator.