Consumer Safeguards

At Plaza Residential Mortgage, we adhere to the highest ethical standards and always do our best for the seniors we work with.

Although all reverse mortgage work similarly, the most popular program is the Home Equity Conversion Mortgage, or HECM, administered through the U.S. Department of Housing and Urban Development (HUD).

The following are some of the most important consumer safeguards in the HECM program:

• Standard & Capped Interest Rates. Interest rates are the same no matter which lender you choose. Interest rates can be adjusted monthly or annually, which ever you choose. They are based on the 1-year U.S. Treasury Constant Maturity Rate published weekly by the Federal Reserve. Both rates have lifetime caps. Other indexes may be used for different products.
• Limitation on Fees. Loan origination fees are limited by HUD regulations. Seniors incur very little out-of-pocket expense by financing the origination fees as part of the reverse mortgage.
• Advance Disclosure. Seniors are made fully aware of the costs involved in obtaining a reverse mortgage due to the Total Annual Loan Cost (TALC) disclosure. This is required by the Federal Reserve Board and is provided to the prospective borrower. It displays the total transaction costs over the projected life of the loan.
• Independent Counseling. Both HUD and AARP oversee counselors whose job it is to meet with the borrower to review the transaction, answer questions, and suggest other options. This is a requirement and must take place before the application can be processed.
• No Maturity Date. Homeowners are protected against unforeseen or unanticipated future circumstances in that the mortgage can't become due during their lifetime. No payments are required and there is a lifetime right to occupy the home.
• No Prepayment Penalty. The loan can be paid off at any point in advance with no additional fees or costs but nothing is due until the senior permanently moves out of the home.
• No Penalty for Canceling the Loan. The “right of recession” gives the senior up to three days after the loan closes to cancel the transaction, for any reason whatsoever.
• Asset Protection. The HECM is a "non-recourse" loan, meaning the amount due can never exceed what the home is worth. The borrower maintains the title of the home. When the loan becomes due, the lender is repaid the funds advanced plus the accrued interest, but never more than the value of the house. Any remaining value belongs to the homeowner or the estate.
• No Shared Appreciation. None of the reverse mortgages in the marketplace have "equity-sharing" or "shared appreciation" features. In some earlier reverse mortgage products, the senior could obtain more money in exchange for giving up a percentage of the future value of the home but such products are no longer offered.

Lenders originated a record 37,829 HECM loans during the most recent federal fiscal year (FY 2004), ending September 30, a 109 percent increase over the 18,079 loans closed the previous year.