Missouri Bill Allows 15 Year Repayment Period for Heirs of HECM Borrower

The Missouri legislature introduced House Bill 2313, which would allow for a 15-year repayment period after a reverse mortgage matures. If passed, it would go into effect on August 28, 2010.

The main objective of HB 2313 is to assure that heirs to property that is encumbered by a reverse mortgage will not be overwhelmed with financial burden by being required to pay off the balance due on the reverse mortgage. The bill also requires the mortgage company to disclose in full to the heirs the terms of the note, including the balance due on the reverse mortgage so that the heirs can attempt to satisfy the claim against the real estate by paying off the reverse mortgage either from the heirs cash assets or by borrowing the requisite funds.

Currently, the practice stands to require the entire balance of the reverse mortgage to be immediately paid in full by the heirs upon the death of the descendent. This legislation aims to ban that practice and instead require the balance of a reverse mortgage be payable over a period of 15 years at the interest rate which is prevalent at the time of death of the descendent. The new legislation will also require full disclosure to the heirs about the terms of the mortgage note so that they will be prepared for what they need to address.

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Representative Rochelle Walton Gray of District 81 is sponsoring the bill and is “determined to create a state remedy that will allow the heirs to avoid bankruptcy and the effect of such a filing on their credit score, and let them satisfy the debt over a period of 15 years with interest.” In addition to her legislative career, Rep. Gray has worked as a legal administrator for the past 23 years.

“In my employment in a law office, we have had several clients who have found themselves in the position of inheriting real estate that was subject to a reverse mortgage that was payable in full upon the death of the decedent,” said Gray in an interview with RMD. “The clients had insufficient funds, credit, and time to either pay off the mortgage balance or refinance the loan.”

Those backing the legislation hope that it will prevent seniors from signing up for reverse mortgages unaware that they may be putting their heirs in a position to lose their property in foreclosure when they are unable to pay off the balance in full.

“I believe that this bill will eliminate the windfalls currently being enjoyed by the mortgage companies from foreclosing on homes and thus not only recouping the loan proceeds but also gaining the equity that is in the homes,” explains Rep. Gray. “And most importantly, I believe that the heirs will be able to manage to pay the notes due on these homes with reverse mortgages and thus retain the wealth they inherited upon the death of their relative, who had entered into the reverse mortgage agreement.”

Written by Kelly Mellott

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  • >>determined to create a state remedy that will allow the heirs to avoid bankruptcy and the effect of such a filing on their credit score.

    I'm confused. Why do the heirs get involved in bankruptcy? It's the first I've heard of that scenario.

    >>let them satisfy the debt over a period of 15 years with interest

    An assumable Reverse Mortgage would be wonderful, but who's going to carry the note? If I were an Investor, I wouldn't want to be locked into that obligation. And if the heirs can't qualify for a loan to repay the Reverse Mortgage back within 12 months, how are they going to have enough money left over every month to pay a 15 year note?

    >> believe that this bill will eliminate the windfalls currently being enjoyed by the mortgage companies from foreclosing on homes

    Representative Gray is out of touch with reality – I can't believe he feels mortgage companies actually enjoy foreclosing on homes … that's the absolute last thing a Lender wants to happen, and it's painful for everybody when it happens. Nobody enjoys it.

  • 1. There are no windfalls enjoyed by mortgage companies from foreclosures- property preservation, attorney fees, taxes and insurance are a few of the costs that mortgage companies absorb.
    2. Cases that go to foreclosure typically occur if the loan is greater than the home value so Rep. Gray's comment about recouping loan proceeds and gaining all of the equity is ignorant.
    3. How does a 15 year repayment plan with interest solve the issue? I'm sure the devil is in the details but the interest accrual over 15 years would be pretty high. I can't visualize the numbers.

    Yes- she is out of touch…

  • How can so many state representatives and writers not take the time to actually understand the exact rules and regulations on the FHA insured Reverse Mortgage? Does Missouri have unique rules outside FHA? Kelly Mellott states “currently, the practice stands to require the entire balance of the reverse mortgage to be immediately paid in full by the heirs upon the death of the descendent”. That is simply not true!
    The estate is given up to one year to figure out how to repay the loan. Lenders will work with the heirs to avoid foreclosure and give them time to come up with a reasonable plan to repay the debt. This Missouri bill is saying the Lenders want to foreclose. They must have cut “fact checks” from their state budget. Had they done their homework they would know that at closing the borrower signs a document stating that they are not responsible for the repayment of the loan. This is also true for their heirs and estate. Only the property is responsible for repayment. The Lender cannot hold the estate or the heirs responsible for the loan. The lender does not want the house. The lender makes money when the loan is repaid. I doubt there are any Reverse Mortgage lenders that developed a business plan to make a lot of money by foreclosing on residential properties.
    If Missouri is going to pass a law like this, why not include forward mortgages? Why not include car loans, boats and RVs too? Why not have a law making it illegal for seniors to have financial problems?

  • Can you say again- out of touch in the House. If a home mortgage is underwater and the owner passes away does that entitle the heir to own a home with the slate wiped clean? No and neither should it with the reverse as its clearly spelled out in counseling, by the loan originator and in the paperwork taken at application. At some point people have to take responsibility and adhere to the rules.

  • Hopefully a brief, informed discussion of this proposed legislation will lead to its quick death. Unless targeted at proprietary reverse mortgage loan programs which may exhibit the characteristics listed, Rainmand's description of Rep. Gray as “out of touch with reality” is overly generous.

  • It seems FHA could have an easy fix if this provision becomes law. It could simpy increase the period over which it is assumed HECMs will be outstanding in Missouri by 15 years. Image how much less principal limits would be in that case. “For every action, there is an opposite but equal reaction….”

  • James Veal you are right every action has an equal and opposite reaction Sir Isaac Newton. Rep Gray does not understand the HECM. She has come up with an idea that the HECM was never supposed to anticipate the plight of the heir. The home should be sold after a death and in the case of a HECM one year after the death of the mortgagor is allowed. If you had a a forward mortgage you would have to pay off the mortgage upon death of the mortgagor.Rep Gray is out of touch with this product and Missouri should drop this bill immediately or the product won't be offered by lenders in Missouri.

  • I have a reverse mortgage. After vacating the home for twelve months the loan is due and your estate if that is the case, has twelve months to sell the property or pay the mortgage off. If there is no equity in the property the loss is paid by the FHA insurance you paid for originally at closing and monthly. There is no personal liability on anyones part to pay the loan. Only the equity, if any, pays back the loan. Lenders are not thinking of abusing people but just making interest according to HUD guidelines. It's an excellent program for seniors. This is just another example of a legislator being almost totally ignorant by not reading the closing papers. It's commonly called “ignorance going to seed”.
    Jim in Missouri

  • I have a reverse mortgage. After vacating the home for twelve months the loan is due and your estate if that is the case, has twelve months to sell the property or pay the mortgage off. If there is no equity in the property the loss is paid by the FHA insurance you paid for originally at closing and monthly. There is no personal liability on anyones part to pay the loan. Only the equity, if any, pays back the loan. Lenders are not thinking of abusing people but just making interest according to HUD guidelines. It’s an excellent program for seniors. This is just another example of a legislator being almost totally ignorant by not reading the closing papers. It’s commonly called “ignorance going to seed”. rnJim in Missouri

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