Irrevocable trusts can now be used for reverse mortgages, according to Paul N. Lovegrove Esq., President of Attorney Trust Review.
While traditionally reverse mortgages have not been permissible if the home is in an irrevocable trust, Lovegrove says there is no basis for the policy, adding that there is, “Nothing in the HECM guidelines that says you can’t use an irrevocable trust.”
Although lenders cant sell a reverse mortgage with an irrevocable trust to Fannie Mae, the recent growth of Ginnie Mae’s HMBS program has provided an opportunity for HECMs.
Lovegrove, an attorney who has been closing reverse loans for thirteen years and performs trust reviews for many lenders, including MetLife, proposes drawing up an agreement to the irrevocable trust that is agreed upon by all parties as a way to comply with the guideline.
An irrevocable trust may also not qualify for a reverse mortgage if one of the current beneficiaries does not meet HECM guidelines, amongst other things. All current beneficiaries of a trust must be HECM eligible for a HECM to be done on the home.
In addition, irrevocable trusts can pose a problem when the trust does not allow invasion of the principle by the settler. However, a lump sum distribution deposited into a bank account controlled by the estate can help solve this issue.
Lovegrove thinks that banks are not doing reverse mortgages on irrevocable trusts because they “never thought they could.” But Lovegrove adds, “By saying we can’t do it that’s closing out a lot of potential business that’s out there.”
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