Retired couple finds financial freedom

Retired couple finds financial freedom

“If I’m able to pay off your existing mortgage and eliminate your required monthly principal and interest debt payments, what would you do with an additional $3,000 each month?”

A mortgage professional recently posed this question to their retired client. Sure, traditional debt consolidation can provide you with more cash flow. But $3,000? Surprisingly, this is not uncommon when a properly-trained reverse mortgage professional works with a homeowner and their trusted advisor.

The Urban Institute estimates that 38% of homeowners between the ages of 65 and 74 are paying off housing-related debt. Furthermore, over 30% of homeowners who are age 75 or older are still making a monthly mortgage payment. Sadly, most of them are unaware that the federally insured reverse mortgage product known as a Home Equity Conversion Mortgage, or HECM, is a safe and effective alternative.

Reverse mortgages, specifically HECMs, allow homeowners aged 62 and older to utilize a percentage of their home’s value to pay off existing mortgages and convert the remaining proceeds into cash or a growing line-of-credit (LOC). Keep in mind that reverse mortgages do not require a monthly payment, but the homeowner must occupy and maintain the home and pay all property charges, such as taxes and insurance.

Consider Carl and Cathy, who have no cash flow in retirement. With a quick look at their credit report, we can see the obvious reason: their combined mortgage debt, revolving debt, and installment debt require monthly payments totaling $3,000, as shown here:

If you call Dave Ramsey for help, his inappropriate solutions for retirees have been repeated for years: “Go back to work, sell your car and buy a beater, eat rice and beans today and beans and rice tomorrow, and sell the house.” Then, and only then, Carl and Cathy can implement a debt snowball strategy over the next 10 years. Will they celebrate their financial freedom at age 80? Maybe, but they may not be able to enjoy their eventual cash flow in their later years. Under a debt snowball strategy, Carl and Cathy might become debt-free, but they might find themselves back to work and renting a 1-bedroom apartment, or living with their daughter, Christine.

Sadly, non-credentialed financial pundits like Ramsey don’t bother to ask two critical questions: 1) How old are you? and 2) What is the estimated value of your home?

Retired couple finds financial freedom

Carl and Cathy are both age 70, with a home value over $1 million. With the help of a competent HECM specialist, Carl and Cathy can easily solve their cash flow problem in as little as 30 days.

The HECM can pay off the traditional mortgage, pay the closing costs, provide cash proceeds to eliminate consumer debt, and establish a growing line-of-credit (LOC) for future needs. And remember, there are no required monthly principal and interest mortgage payments to make, as shown here:

Carl and Cathy eliminated $3,000 in monthly payments and paid off their revolving debt​ and installment debt​. They even established an emergency fund​ (LOC). Where they go from here is up to Carl and Cathy, under the guidance of their CPA and/or financial planner. Here are common pathways homeowners take:

  • Reduce draws from IRA and 401k. Stop drawing so much from retirement savings and ensure  those funds last a lifetime.
  • Plan for long-term care. 70% of us will need it. Nevertheless, many don’t plan for it because of a lack of cash flow.
  • Optimize life insurance needs​. Your financial planner and/or insurance professional will have an opinion on insurance needs.
  • Complete home improvements. Don’t defer maintenance any longer. Ensure your home will allow you to age-in-place.
  • Pay down the HECM​. Make voluntary payments? Sure. Reduce your loan balance, increase your LOC, and create a potential tax advantage.
  • Enjoy life and Travel​. Live your best life now. Do you want to see family members or get away from family members? It’s your choice.
  • Assist kids and grandkids​. Family members may be struggling with student loan debt or finding it challenging to purchase their own home.
  • Consider charitable giving​. When there is no cash flow, giving can be very challenging. So, let’s create cash flow.

Of course, we don’t want to see homeowners spend their new-found cash flow irresponsibly. However, the HECM creates cash flow, liquidity, and peace of mind that should not be ignored by any financial services professional.

For more information on strategic uses of reverse mortgage and their guidelines, please consider purchasing the books Understanding Reverse, and Navigating Reverse, and subscribe to this blog.

Dan Hultquist

Understanding Reverse 2024

Understanding Reverse has been updated for 2024 and is now available on Amazon and discounted through the Understanding Reverse store. We apologize for the delay, but updating this 10th edition had many challenges.

You may notice some changes

First, you’ll notice the cover has changed. Not only has the LOGO been simplified for branding purposes, but there is also no YEAR listed on the cover. Why? Because future editions of each book will be “revisions” for Amazon’s purposes. They will simply contain updated content, and you will no longer need to worry if you are buying the most updated version.

Next, you’ll see that the back cover will be the same for both Amazon and website purchases of the book. If you like to insert marketing stickers or business card sleeves, there is still room for that on the inside front cover.

If you wish to have custom covers for either Understanding Reverse or Navigating Reverse, we are now offering branded copies on larger print runs (see Branded Books below).

You’ll also notice new content, including:

  • A new chapter on HECM vs. HELOC
  • Updated Cash for Keys guidelines effective 3/25/24
  • Changes to expected interest rate locking and extensions
  • The $20 maximum charge for a change of payment plan
  • Warnings about repair rider deadlines
  • Updated HECM for Purchase examples (Upsize/Downsize figures)
  • Updated occupancy certification options
  • An explanation of the first and second security instruments

Lastly, the most challenging part of this year’s updates were the regulatory references. Most of the references in the book had to switch from those pointing to mortgagee letters (ML) and the Code of Federal Regulations (CFR) to the newly updated HUD Handbook 4000.1.

What is the Branded Book option?

We want broader distribution of the books and a greater impact for our valued partners. Therefore, we are branding books that promote YOU when you provide Understanding Reverse for education, sales, and marketing initiatives and Navigating Reverse at closing for borrowers, spouses, and their heirs.

White-labeling is important not just for the marketing value but also for compliance reasons. In addition to marketing your firm, loan originators can also market themselves while paying the same wholesale cost generally paid for these books.

How to order

If you are ordering individual copies, you can easily do that on Amazon in both paperback and eBook formats. If you are purchasing in bulk, paperbacks can be purchase at a significant discount through Understanding Reverse. As always, we pay shipping and handling charges.

If you want to discuss Branded Books for your firm, please reach out to me directly at [email protected].

Why is a HECM superior to a HELOC?

Why is a HECM superior to a HELOC?

Older homeowners often look to a traditional Home Equity Line of Credit (HELOC) to pay for unexpected expenses. If the homeowner has good income and credit, a HELOC should be easy to obtain from a local bank or credit union.

For younger homeowners looking for short-term financing, a HELOC might be a good fit. Maybe they need a new roof, a home addition, or an upgrade. Maybe they wish to pay for a child’s education or a trip to Europe. If they have the ability and desire to pay off the loan quickly, a HELOC may be a good choice.

Many advisors mistakenly recommend HELOCs to older homeowners because it is less expensive than the federally insured reverse mortgage known as a Home Equity Conversion Mortgage (HECM). However, traditional financing is generally not a good idea for retirees on a fixed income, and I would consider both cash-out refinances and HELOCs to be risky options.

There is no doubt that the HELOC is less expensive upfront. However, one should not compare the costs without also considering the incremental advantages one receives from a financial product. With a HELOC, you get what you pay for, and the typical retiree would be better served by a HECM which offers a secure and growing line of credit (LOC).

Here are four reasons why a HECM is superior to a HELOC:


The HECM has no required monthly principal and interest mortgage payment. This flexibility is critical as the borrower ages. Ultimately, the required payments of a traditional HELOC harm retirement cash flow and could risk foreclosure.


The HECM is not frozen, reduced, or cancelled if the loan is in good standing. Will the funds from a HELOC be there when you need them? Maybe not. Traditional credit lines are often frozen or cancelled during market downturns.


The HECM line of credit (in good standing) is available until the youngest borrower’s 150th birthday if they were to live that long. A typical HELOC has a draw period of 10 years when the loan will amortize or balloon which can put the borrower’s cash flow at risk.


The HECM has an available line of credit that grows organically at the same compounding rate applied to the loan balance. This growth feature increases borrowing capacity as the borrower ages. By contrast, a HELOC draw period is limited and has no growth element as shown below.


For more information on reverse mortgage guidelines, please consider purchasing the books Understanding Reverse, and Navigating Reverse, and subscribe to this blog.

Dan Hultquist

Navigating Reverse – Now available in bulk

Navigating Reverse – Now available in bulk

While single copies have been available at, we have now stocked the same copies on our STORE for bulk orders (10 or more) at discounted prices.

The pitfalls that current borrowers, surviving spouses, and heirs may encounter have never before been the subject of a book. And we know that bad experiences invariably occur when these individuals don’t understand the nuances of the product later in the life of the loan.

Navigating Reverse was written to solve these problems so that homeowners and their loved ones have the best possible experience with this great product.

The U.S. Department of Housing and Urban Development (HUD) saw the need for this content when the agency asked this valid question in 2017:

“What difficulties have Non-Borrowing Spouses, heirs, and successors in interest had in obtaining information about HECMs and understanding and exercising their rights?” – 2017 HECM Final Rule

The comments that followed were the genesis of this book. The HECM product is an outstanding financial tool, but the confusion we’ve seen in subsequent years is undeniable. Consider some of the industry issues that could’ve been solved with proper guidance:

  • Non-borrowing spouses were largely unaware they may be able to remain in the home after the death or incapacity of the borrowing spouse.
  • Heirs were added to the title prior to the death of their parent, not knowing that action could create problems.
  • Borrowers were concerned about the security of their reverse mortgage proceeds after their lender file for bankruptcy.
  • Borrowers and their advisors were confused about their rights and responsibilities after their homes were damaged by natural disasters.

I wrote Navigating Reverse to address these issues and 65 more in the same easy-to-read format as Understanding Reverse. We all need common-sense explanations of the features, terms, rights, responsibilities, and strategies. To accomplish this, I set out to write this book with two standards in mind:

  • Answer each question concisely on one page, and
  • Document the regulatory sources for as many answers as possible.

Whether you are a mortgage professional, an existing borrower, or a borrower’s trusted advisor, my sincere hope is that Navigating Reverse will create the most positive outcomes for you as you navigate a reverse mortgage.

What is the HECM “Cash for Keys” Incentive?

Dan Hultquist

The federally insured reverse mortgage, known as a Home Equity Conversion Mortgage (HECM), allows the homeowner to retain ownership of the home through the life of the loan. Then, after the last borrower’s death, the heirs can sell the home and recover the equity – the difference between the value of the home and what the homeowner borrowed.

What if there is no equity?

With older HECM loans, there may be no economic benefit to selling the home, refinancing the loan balance, or paying off the reverse mortgage. This is because more money was borrowed over time than the current market value of the home.

Fortunately, neither the borrower nor their heirs are responsible for any deficiency caused by the loan balance exceeding the property’s value. This is because the HECM is a “non-recourse” loan; the borrower and their heirs have no personal liability for the loan balance.

In such cases, HUD allows the borrower or their heirs to dispose of a property by completing and signing a deed in lieu of foreclosure (DIL). This document transfers ownership to the lender or to HUD, who then sells the home, generally at a loss. Borrowers and heirs have historically been unaware of the DIL option, so it is rarely used.

Existing Cash for Keys

In 2017, HUD authorized lenders to give a financial incentive for a signed DIL.1 Lenders would be able to offer up to $3,000 to parties with legal authority to sign a DIL and hand over the keys to a clean (“broom-swept”) home within 6 months of the loan being called due.2 This incentive can also be given to a tenant who must vacate the property following a foreclosure.3

Unfortunately, the current cash for keys program was only implemented for new loans—HECM loans with FHA case numbers assigned on or after September 19, 2017. And as we know, property values for those loans have risen dramatically since then. Few homeowners or heirs would consider giving away equity with a DIL, and so the Cash for Keys program has been rarely used.

New Cash for Keys

HUD recently updated their Cash for Keys program,4 upping the ante, so to speak. I see the revised guidelines as significant improvements and represent much-needed changes to the HECM program. Notable enhancements include:

  • Availability for HECM loans with case numbers assigned prior to 9/19/2017
  • Incentives for Short Sales as well as DIL and Post-Foreclosure Evictions
  • Incentives for up to 547 days after the due and payable date
  • Incentives as high as $7,500, plus probate costs not to exceed $5,000

 The maximum incentive amount HUD will reimburse will be based on both the incentive type and time frame. I believe these changes, when they become effective on 3/25/24, will finally have the intended impact we wanted from a Cash for Keys program. These impacts may include:

  • Reducing the number of unnecessary foreclosures associated with HECM lending
  • Preventing unnecessary costs to the FHA Mutual Mortgage Insurance Fund
  • Improving public perception issues related to communities with vacant and unkept properties
  • Improving public perception issues related to borrowers, their heirs, and future HECM prospects

For more information on reverse mortgage guidelines, please consider purchasing the books Understanding Reverse, and Navigating Reverse, and subscribe to this blog.

Dan Hultquist

1. 24 CFR § 206.125(f)

2. Mortgagee Letter 2017-11

3. 24 CFR § 206.125(g)(4)

4. Mortgagee Letter 2023-23

crop unrecognizable accountant counting savings using notebook and calculator

One Simple Formula to Answer Your Reverse Mortgage Questions

The federally insured reverse mortgage, known as a Home Equity Conversion Mortgage (HECM), is a unique and powerful financial planning product. It is structured so that the maximum borrowing power increases as the borrower ages, regardless of the underlying value of the property. However, that feature and the functions that make it happen are often misunderstood.

Consider a homeowner who qualifies for $200,000 in principal and uses ALL of it, presumably to access cash, pay off a traditional mortgage, and pay closing costs. Assuming a 5% compounding rate (including interest and mortgage insurance) and no payments, the borrower would owe $210,000 after the first year.1 Essentially, the homeowner “borrowed” $10,000 in interest they did not wish to pay.

But what happens when the borrower doesn’t use all their principal? Most HECMs are adjustable-rate loans where the unused principal can be left in a growing line of credit. Some will even have a set-aside for specific purposes, like repairs or property charges. Those items grow at the same rate as the loan balance, giving the homeowner more borrowing power as they age.

The following critical questions naturally arise:

  • How does the line of credit (and set-aside) grow?
  • What happens when I draw from my line of credit?
  • Does my line of credit grow when I make a prepayment?
  • What happens when property charges are paid from my set-aside?
  • What happens to the set-aside and line of credit when the loan matures?

Fortunately, all these questions can be answered by understanding the following simple formula: 

Principal Limit = Line of Credit + Loan Balance + Set-Asides

The Current Principal Limit of a HECM loan is shown on the borrower’s servicing statement, and it represents the total borrowing power at a given time. Here is the formula explained: The borrower’s maximum borrowing capacity at any time equals the sum of money they CAN borrow plus money they HAVE borrowed plus required reserves.

Reverse mortgage calculations

This formula will explain quite a bit and can answer many critical questions, like the following:

1. How does the line of credit (and set-aside) grow?

The HECM product was created so that borrowing power increases with age. To do this, all portions of the reverse mortgage formula grow at the same rate: the current interest rate plus 0.50%.2

Assuming 5% growth, no draws, no prepayments, and no set-aside disbursements, the HECM loan would perform like this:

  • Principal Limit = Line of Credit + Loan Balance + Set-Asides
  • At closing: $200,000 = $100,000 + $50,000 + $50,000
  • After 1 year: $210,000 = $105,000 + $52,500 + $52,500

Notice the HECM loan and the reverse mortgage formula stay in balance after loan accruals and growth.

2. What happens when I draw from my line of credit?

When draws are taken from the line of credit, the line of credit is reduced by the amount of the draw, and the loan balance increases. The loan is still in balance, and nothing else is impacted by the draw.

3. Does my line of credit grow when I make a prepayment?

Yes. A voluntary prepayment is the opposite of a draw. The loan balance is reduced by the amount of the prepayment, and the line of credit grows dollar-for-dollar. The loan is still in balance, and nothing else is impacted by the draw.

4. What happens when property charges are paid from my set-aside?

When property charges like property taxes are paid through a Life Expectancy Set-Aside (LESA), the set-aside is reduced by the amount of the payment, and the loan balance increases. The loan is still in balance, and nothing else is impacted by the draw.

5. What happens to the set-asides and line of credit at loan maturity?

Remember, the line of credit and the set-aside represent money you have not borrowed. They are both forms of credit. Therefore, when the loan matures, that credit is not extended to the estate. The HECM has no additional borrowing capacity other than the loan balance, which continues to grow. At this point, the line of credit and the set-aside go away, and the current principal limit equals the loan balance as shown here: Principal Limit = Loan Balance.

This formula can be verified on the servicing statement and holds true with few exceptions.3 Write it down. If you are a reverse mortgage professional, memorize it. This formula can answer many critical questions that arise.

For more information on reverse mortgage guidelines, please consider purchasing the books Understanding Reverse, and Navigating Reverse, and subscribe to this blog.

Dan Hultquist

1. Technically, the loan balance would accrue slightly more than described because HECM loans compound monthly at 1/12th of the interest rate and MIP rate.

2. Some HECM loans originated between 2013 and 2017 had an MIP rate of 1.25% rather than the 0.50% rate offered today.

3. If this formula does not hold true when reviewing the monthly servicing statement, these are possible explanations: a) Within the first year of the loan there may be initial disbursement limits; b) The borrower has had a TENURE payment for more than 5 years AND lives past age 100; or c) The loan is an older HECM where the servicing fee set-aside grew at a different rate.

Reverse Mortgage Loan Originators: Please don’t say these things to a homeowner

For compliance and legal reasons, there are many topics and phrases we should avoid when discussing reverse mortgages with a homeowner. The following is a list of such deceptive talking points: 

Don’t tell them, The reverse mortgage is tax-free cash

While you may see ads that use this phrase, the CFPB considers this deceptive because the borrower must pay property taxes. Furthermore, there are other taxes paid with a reverse mortgage at closing (or after the home sells) like intangible tax, transfer tax, recording fees, state tax stamps, and even capital gains taxes.

Don’t tell them, “There is no payment

The CFPB has flagged this phrase as highly deceptive because taxes, insurance, condo dues, HOA dues and more must be paid. It is more compliant to say, “a reverse mortgage requires no regular monthly principal and interest mortgage payments, but property charges must still be paid.

Don’t tell them, You will never lose your home

Many will assume you cannot lose your home with a loan product that defers principal and interest payments, but that is not true. The easiest way to lose your home with, or without, a mortgage is failure to pay your property taxes.

Don’t tell them, “Making payments will give you a TAX break

Any voluntary prepayments are applied to the mortgage insurance first, which may, or may not, be deductible. They may have a long way to go before payments are applied to mortgage interest, which again may provide no benefit. Only their CPA or tax planner will know the tax benefit for certain.

Don’t tell them, We eliminate your debt

The CFPB considers phrases that imply the elimination of debt to be deceptive. A reverse mortgage can wipe out liens secured by the home, but that doesn’t make one debt-free. Rather we transfer debt, replacing the existing mortgage with an equally large, or larger, liability.

Don’t tell them, “There are no income or credit qualifications

We underwrite the loan through a process known as financial assessment. While low income or poor credit may not directly disqualify the borrower, it may indicate the need for a sizeable life expectancy set-aside (LESA) to pay property taxes and insurance. This sometimes disqualifies the homeowner.

Don’t tell them, “A reverse does not affect government benefits

While Social Security and Medicare are not adversely impacted, a reverse could impact other benefits. For example, a borrower who draws funds and places them in a bank account may not qualify for Supplemental Security Income or Medicaid – both means-tested programs for those that need them.

Don’t tell them, Your LOC is earning interest

While their available line of credit continues to grow at a very nice rate, that is not interest. The borrower is not earning anything. LOC growth simply represents a greater capacity to borrow more money in the future regardless of their current home value. Remember, the LOC is a form of “credit.”


While this list is certainly not comprehensive, extra caution should be taken when discussing the following topics:

  • Investment, insurance, or tax advice
  • Removing or adding anyone to title
  • Making or skipping mortgage payments prior to closing
  • Specific counseling agencies and their fees
  • The ability to refinance the loan in the future

For more information on reverse mortgage guidelines, please purchase the book Understanding Reverse, and subscribe to my blog in the upper right corner of this page.

Dan Hultquist

RapidReverse – NEW Updated Features

RapidReverse® has always offered a simple answer to a complex problem. It was designed to provide reverse mortgage professionals with 100% accurate principal limits for the federally insured Home Equity Conversion Mortgage (HECM). And RapidReverse can do that, and more, in 10 seconds or less.

However, it has relied on each user knowing current Expected Interest Rates. Remember, the Expected Interest Rate is not the borrower’s interest rate. Rather, it is the best estimate of what a loan might average over the next 10 years. HUD requires us to use that figure when calculating a borrower’s principal limit.

For example, if I sell a HECM ARM between Tuesday 4/18/23 and Monday 4/24/23, the average 10-year CMT from the previous week – 3.44% – would be added to the lender margins shown below:

Margin+ 10-yr CMT= Expected Interest Rate
2.375%+ 3.44%= 5.815%
2.50%+ 3.44%= 5.94%
2.625%+ 3.44%= 6.065%
Sample expected interest rates effective 4/18/23 – 4/24/23

“But how do I know the weekly average of the 10-year CMT?”

Over the last year, this was the top request – “Let ME choose the lender margin, and YOU tell me current Expected Interest Rates in the mobile app.”

DONE! Thanks to my good friend and business partner, Tom Blankenship, RapidReverse now pulls the weekly average 10-year CMT every weekend. Your mobile application will reflect updated expected rates the next time you open it.

Update Notices:

  • The slider is now labeled “Lender Margin” and will default to 2.5%.
  • The “Expected Interest Rate” is now a calculated figure.
  • The Tool Tips next to each term have been updated for easy explanation.
  • Traditional loan origination systems may not be updated until Monday afternoons.

One additional advantage to this update: The Report now uses the current expected rate (rather than the rounded expected rate) to generate loan balance accruals and line-of-credit growth. This makes the reporting function more accurate.

We hope you enjoy this update. Please reach out to me with any questions.


What can you tell me about the LIBOR Transition?

After June 30, 2023, the 1-month and 1-year LIBOR indices will no longer be published. Therefore, existing borrowers with LIBOR-based loans must be notified, prior to their next rate adjustment, that the variable portion of their interest rate will be tied to an alternate index.

What can you tell me about the LIBOR Transition?

The most popular reverse mortgage product is the federally insured Home Equity Conversion Mortgage or HECM. Most HECMs in service are variable-rate loans where the rate is adjusted periodically using an established lender margin plus a published index. Loan originators currently sell HECM ARMs tied to the Constant Maturity Treasury (CMT), but that was not always the case. Many HECMs originated prior to 2021 utilized an international index known as the London Interbank Offered Rate or LIBOR index.

Here are some of the questions I’ve received on this topic as well as my best efforts to answer them:


First, the LIBOR index was somewhat inaccurate, as it didn’t accurately measure the cost of institutional borrowing. More problematic, however, is that the LIBOR was open to manipulation. This is because 1) It relied on self-reporting, and 2) Large banks could make money by strategically trading at the right time. In fact, it was the source of the largest banking scandal in history at the time.

Fortunately, this scandal had no apparent impact on reverse mortgage borrowers. But in 2017, British officials announced their plan to eventually close the published index.


Yes. Every HECM ARM borrower signed a HECM ARM NOTE at closing. Section 5 of the NOTE states, “If the Index is no longer available, Lender will use as a new Index any index prescribed by the Secretary (HUD). Lender will give Borrower notice of the new Index.” These notices will be sent in 2023 and 2024 depending on the borrower’s adjustment date.


When HUD published Mortgagee Letter 2021-08, HUD officially removed the LIBOR index as an option for originating new HECM loans. While the industry had already shifted to the CMT index, HUD also approved the Secured Overnight Financing Rate or SOFR index.

In addition, HUD chose to 1) update the HECM Model Note, 2) remove a comingling prohibition that would allow the SOFR to use the 10-year CMT for calculating expected rates, and 3) eliminate negative index values if rates were to drop that low in the future.


The U.S. Department of Housing and Urban Development (HUD) announced on March 1, 2023, the establishment of a “spread-adjusted SOFR” index. This was identified as the HUD-approved replacement index when transitioning away from the LIBOR.

The SOFR is a U.S.-based LIBOR substitute. The reason it is “spread-adjusted” is because the SOFR is designed to be an overnight rate. The spread accurately accounts for differences between the SOFR when compared to the 1-month and 1-year LIBOR. This makes the spread-adjusted SOFR the most appropriate replacement index available.


Yes. According to HUD’s announcement on 3/1/23, “For existing mortgages that transition to spread-adjusted SOFR, we do not anticipate a significant economic impact. For all existing FHA-insured ARMs, the per-adjustment and lifetime caps on total adjustments will continue to apply, minimizing the impact to borrowers or mortgagees as a result of the transition to SOFR.”

For more information on reverse mortgage guidelines, please purchase the book Understanding Reverse, and subscribe to my blog in the upper right corner of this page.

Dan Hultquist

My Reverse Mortgage Summary

Bring on 2023!

We have a varied subscriber base at Understanding Reverse, but this message is specifically for the reverse mortgage professionals who work hard each day to change the lives of older homeowners. You help seniors live a more comfortable retirement and maximize their cash flow as they age in place. Your service is needed now more than ever, and my hope is this summary and forecast will encourage you as we look forward to 2023.


Interest rate indices have not been kind to the mortgage industry this year. Of course, with the federally insured Home Equity Conversion Mortgage (HECM), the borrower has no monthly principal and interest repayment obligation. For that reason, rising rates can drive more prospects to this option. In essence, rising rates don’t make reverse mortgages better; they make them better by comparison. Homeowners who want, or need, to draw some of their housing wealth should look at a reverse mortgage, NOT a cash-out refinance or HELOC, especially in today’s higher rate environment.

Rising rates don’t make reverse mortgages better; they make them better by comparison.

Remember, a HECM applicant’s initial principal limit is determined, in part, by their “expected rate.” The expected rate is based on the lender margin and the current 10-year Constant Maturity Treasury (CMT). When these long-term rates rise, new borrowers will qualify for less principal at closing. As you can see below, the third quarter 10-yr CMT dramatically increased expected rates and reduced reverse mortgage proceeds.

The good news is expected rates are improving as we wrap up 2022. As they decline, new applicants can take advantage of a “float-down” of their expected rate at closing.


HUD chose to increase the HECM limit to $1,089,300 for all case numbers assigned on, or after, January 1, 2023. For many homeowners with high value homes, this represents an increase of over $118,500 in potential MCA. Yeah, we’re talking about you, California. You need to be taking applications now and get your case numbers assigned on, or after, Tuesday, January 3rd.

YearsHECM Limit
HECM Limit by year

No, this is not a “lending limit.” Stop calling it that. A lending limit is a traditional (forward) mortgage term. On the reverse side, borrowers can borrow more than this amount if they hold their HECM long enough and/or their line of credit grows to exceed this amount.

It is also not the “Maximum Claim Amount” or MCA. Even regulators make this mistake drafting the update each year. The MCA is the home’s value up to the HECM limit.

The HECM limit is the maximum home value that can be used for calculating principal limits in a calendar year. It’s essentially a cap on usable home value. Raising it is a very good thing for homeowners, loan originators, lenders, and FHA’s Mutual Mortgage Insurance Fund (MMIF).


HECM limits increased because U.S. home prices rose 12.4% over the last 4 quarters (12.21% seasonally adjusted). This adjusted increase was applied to the 2022 FHFA conforming limit and rounded to the nearest $50. The resulting figure for 2023 ($726,200) is what HUD generally uses to determine the HECM limit (150% of this figure).

YearFHFAGrowthHECM (150%)
Home Price Appreciation drives limits

Home appreciation has created a great opportunity for older homeowners to leverage their home equity for retirement security. Keep in mind, if this growth figure turns negative, the best thing a homeowner can do is get a reverse mortgage now before it happens.

If property values decline, the best thing a homeowner can do is get a reverse mortgage now before it happens.

The HECM becomes a very convenient insurance policy against home value declines, as the HECM line of credit grows over time regardless of future home values.

SOLUTIONS for 2023

Understanding Reverse 2023 is already available on Amazon in paperback, hardcover, and eBook. Bulk orders are available for preorder on our Website with delivery to begin January 3rd. While Understanding Reverse was never meant to be persuasive, this book increases borrower confidence and increases sales. This 9th edition includes 62 significant changes, including updated language, new HECM limits, expanded PLF tables, and a new chapter titled, “What are the Consumer Protections?

Understanding Reverse – 2023 and Resource Guides

Since we launched our 3 smaller RESOURCE GUIDES, we’ve seen more lenders and loan originators use our Homeowner Guide, Financial Planning Guide, and Home Buying Guide for targeted marketing to consumers and referral partners. These marketing pieces strip out unnecessary regulatory language and highlight just what that audience needs to know. These Books are affordable and tailored to different audiences, but only available through this website or your company’s marketing department.

Last, our mobile app, RapidREVERSE®. If you don’t currently subscribe to the RapidReverse calculator, feel free to watch this DEMO of the product. Both iOS and Android versions of our mobile app have been updated to reflect the new HECM limit. If you have automatic updates, then you won’t need to do anything. If you don’t, or if you’re one of the few subscribers with subscription issues, just update from the App store or Google play, and it should recognize your subscription. Should you experience any issues, please email me.

Thanks again for all you do changing the lives of older homeowners. Let me know how we can help you and your clients succeed in 2023.

Dan Hultquist

Top-10 Reverse Mortgage Consumer Protections

Top-10 Reverse Mortgage Consumer Protections

The federally insured reverse mortgage product known as a Home Equity Conversion Mortgage or HECM has been around for more than 30 years. During that time, the U.S. Department of Housing and Urban Development (HUD) and other governmental agencies have added layers of protection for older Americans. Let us begin at #10 and count our way down to #1.

10. Counseling protocol

HUD regulations require each borrower to receive HECM counseling from a HUD-approved agency. This is done to ensure that the consumer has been advised on the product by someone other than the loan originator. One role of the counselor that is critical and often overlooked – a required assessment to determine if the borrower understands the basics of the HECM product.

9. HECM-to-HECM refinancing tests

To prevent loan flipping, equity stripping, or churning, there are restrictions when originating HECM-to-HECM refinances. HUD has their requirements, but industry trade associations and lenders have ethical overlays to consider. In essence, we need to show that the refinance offers a bona-fide advantage to the client before refinancing.

8. The HECM maturity date

So long as the loan remains in good standing, the default HECM maturity date is 50 years beyond the youngest borrower’s 100th birthday. This date is listed in the Security Instrument and is set with the expectation that the borrower will not outlive the HECM loan. For a consumer concerned about the loan maturing, outliving a HECM should be the least of their concerns.

7. Cross-selling restrictions

Cross-selling is the practice of offering a client an additional product that might interest them. This might be an insurance policy, an annuity, or an investment. To some, that sounds harmless. But this practice opens the door for exploitation. While a reverse mortgage is designed to increase cash flow, decisions on the use of funds should be left to the borrower and their trusted advisors.

6. Initial disbursement limits

In 2013, HUD began restricting initial disbursements with the HECM product. As a result, homeowners may not be able to access all their principal limit upfront unless those funds are paying off large mortgage balances. This regulation worked. It protected consumers from over-consuming their line of credit, and we find that borrowers are now using the product more prudently.

5. Principal limit protection (PLP) lock

Long-term interest rates (expected rates) determine a HECM applicant’s borrowing power. When expected rates rise, the borrower will qualify for less principal. Fortunately, HUD allows us to “lock-in” an expected rate to protect the applicant. So long as closing takes place within 120 days of FHA case number assignment, the borrower has principal limit protection.

4. Financial Assessment

Since 2015, every lender must evaluate each borrower’s ability meet their financial obligations and to comply with the mortgage requirements. Those requirements are to 1) Occupy and maintain the home, and 2) Pay all property charges. HUD-required Financial Assessment is all about consumer protection. We must make sure this is a sustainable solution for all HECM borrowers and their households.

3. Non-borrowing spouse

HUD defines a non-borrowing spouse (NBS) as “the spouse of the HECM borrower, at the time of closing, who is also not a borrower.” With this consumer protection in 2014, the due & payable status of a HECM loan may be deferred for an eligible NBS after the death or incapacity of the borrowing spouse. While the NBS cannot borrow, they may be able to remain in the home for life.

2. HECM line-of-credit

The HECM line-of-credit (LOC) is a consumer protection because the borrower can draw funds as they need them, irrespective of home value. The LOC is not only secure, but also the available LOC grows at the same rate the loan balance grows (monthly at 1/12th the interest rate plus 0.5%). This gives the borrower a greater capacity to draw more of their equity in the future.

1. The non-recourse feature

My top consumer protection is the Non-Recourse Feature because it benefits both the homeowners and their heirs. When the homeowner chooses to sell the home, or passes away, FHA guarantees that neither the borrower nor their heirs will owe more than the home is worth at the time the home is sold. The homeowner does not carry any of the risk of the home becoming upside down.

There are two results of these regulatory reforms, 1) HECM lenders receive few CFPB complaints about the product, and 2) Client satisfaction is high.

So, there you have it – my Top 10 list of Reverse Mortgage Consumer Protections. Tell me if you think the order is accurate and if I have missed any critical advantages.

For more information on reverse mortgage guidelines, please purchase the book Understanding Reverse, and subscribe to my blog in the upper right corner of this page.

Dan Hultquist

Waiting Doesn’t Pay with a Reverse Mortgage

When making big decisions, procrastination is only natural. We fight this battle every morning when we determine which activities are important, and which are easy. Unfortunately, making estate planning decisions based on tax law, Social Security strategies, Medicare guidelines, market conditions, and interest rate projections, is not easy. One thing we know for sure – if you are a homeowner 62 and older, waiting to get a reverse mortgage simply doesn’t pay.1

When a Financial Planner tells a homeowner that their funds will run out at age “X”, the EASIEST solution is to say:

“If I live to age ‘X’, I will consider a reverse mortgage. Otherwise, I’ll crack open the home equity nest egg by 1) selling the home and 2) either move into a retirement home or move in with family members.”

The easy solution is rarely the best. Some of the brightest retirement researchers have been publishing guidance in the Journal of Financial Planning for nearly 10 years stating that waiting and using the reverse mortgage as a “last resort” is generally not a good idea.2 Waiting reduces the amount of funds available to a homeowner when they need the funds when compared to those who obtained one early in retirement. In addition, there are substantial risks of waiting that cannot be ignored.


If you only have a basic understanding of reverse mortgages, waiting appears to be the right advice. After all, older borrowers get more money, right? If I wait 5 more years, I’ll be older, which generally allows the homeowner to qualify for a higher percentage of their home’s value. In addition, my home will be worth more and I will have paid down my traditional mortgage.

These may seem like logical reasons to wait… to the novice. But those who understand reverse know this is foolish and mathematically incorrect.


  • Reverse mortgage proceeds are also based on interest rates

Long-term rates are still historically low, and that means homeowners currently qualify for higher principal limits. If a homeowner waits – and rates go up – they will qualify for LESS with a reverse mortgage. While there is no way to know future rates, most analysts believe they should, and will, go up. This could dramatically reduce an applicant’s proceeds.

  • Waiting sacrifices compounding line-of-credit (LOC) growth

Homeowners who get a reverse mortgage at age 62 are not required to borrow the funds for which they qualify. In fact, unused principal will grow – in the borrower’s favor – at current interest rates plus 0.50%. If a homeowner gets a reverse mortgage now, the available line-of-credit (LOC) will grow even faster as interest rates go up. Many reverse mortgage applicants who understand this concept WANT interest rates to rise. This increasing credit line creates future security later in retirement.

  • There is no guarantee one will qualify in the future

The federally insured reverse mortgage changes periodically. While some changes may be advantageous, most have created additional challenges. Consider that many homeowners believe reverse mortgages don’t consider credit history and income. That is not true, and since 2015 many who decided to wait until a reverse mortgage was desperately needed, found that they no longer qualify under HUD’s financial assessment guidelines.

While we don’t want to create an unmerited sense of urgency, homeowners need to be aware that research shows that waiting for a reverse mortgage generally isn’t optimal and NOW may be the best time to obtain one.

For more information on the strategic uses for reverse mortgages, please subscribe to this blog and purchase my book, Understanding Reverse.

Dan Hultquist

  1. Pfau, Wade D. 2016. “Incorporating Home Equity into a Retirement Income Strategy.” Journal of Financial Planning
  2. Pfeiffer, Shaun, C. Angus Schaal, and John Salter. 2014. “HECM Reverse Mortgages: Now or Last Resort?” Journal of Financial Planning

What are Reverse Mortgage CREDIT REQUIREMENTS?

As part of HUD’s 2015 rollout of Financial Assessment, every lender must now examine every applicant’s credit history and property charge history as well as their residual income. This is done to determine whether the reverse mortgage is a sustainable solution for the borrower. Please note that the lender is not looking at a FICO score; actual credit scores are not relevant to the underwriting decision.

Also known as “The WILLINGNESS Test” the lender’s underwriter will review an applicant’s credit report and property charge history records.

What is satisfactory CREDIT history?

Housing and installment debt payments are considered satisfactory if all payments were paid on time in previous 12 months with no more than two 30-day late payments in the previous 24 months.

Revolving account debt payments are considered satisfactory so long as there have been no major derogatory accounts in previous 12 months.

Note: Major derogatory credit is defined as payments made more than 90 Days after the due date, or three or more payments more than 60 Days after the due date.

What is satisfactory PROPERTY CHARGE history?

Satisfactory property charge history will show that all property taxes for all owned real estate are current with no property tax arrearages in prior 24 months.

In addition, all HOA, condominium, or PUD fees are current with no arrearages in the prior 24 months.

Note: If the borrower did not have homeowners and flood insurance (if applicable), borrowers must obtain coverage and prepay for 12 months at loan closing.

Unless the borrower can document extenuating circumstances that meet HUD’s guidelines, a failure of one of these tests (credit history or property charge history) will result in a fully-funded Life Expectancy Set-aside (LESA) to pay for critical property charges.

One difficult challenge for any reverse mortgage professional is getting a homeowner qualified after they’ve missed a mortgage payment or a property charge payment. If a homeowner falls short of HUD’s definition of “satisfactory credit” we’ll often need to set-aside enough principal to pay property taxes and homeowner insurance for that borrower over their expected lifetime.

For this reason, it is imperative that borrower’s seek assistance from a reverse mortgage professional before their credit history is damaged.

A common concern is whether a homeowner may obtain a HECM if they have a Chapter 7 or Chapter 13 bankruptcy on their record. The answer will depend on the type of HECM transaction.

HECM Refinance with a bankruptcy record

For a refinance, a bankruptcy alone does not disqualify a homeowner for a HECM. The underwriter will look at when a Chapter 7 was discharged and the payment history on a Chapter 13 bankruptcy.

HECM Purchase with a bankruptcy record

Bankruptcy is a bigger issue for a HECM for Purchase transaction. A Chapter 7 bankruptcy may require at least two years to have elapsed since the date of the bankruptcy discharge. If there were acceptable extenuating circumstances beyond the homeowner’s control, then less than two years, but not less than 12 months, may be acceptable.

A Chapter 13 bankruptcy will generally need to show that at least 12 months of the pay-out period under the bankruptcy has elapsed.

For more information on reverse mortgage guidelines, please purchase the book Understanding Reverse, and subscribe to my blog in the upper right corner of this page.

Dan Hultquist

Understanding the Reverse Mortgage Non-Borrowing Spouse

When a spouse is not a borrower in a HECM transaction, he or she is referred to as a non-borrowing spouse (NBS). This is often due to the spouse not meeting the age requirement of 62. Understanding Reverse-2021

A non-borrowing spouse (NBS) is the spouse of a reverse mortgage borrower that will not be a borrower. But the guidelines are not that simple and are commonly misunderstood.  Let’s see if I can explain the rules, and why they were created.

The Problem:

Some spouses are not included in the reverse mortgage. Although there are many reasons for this, in most cases this is because they are not old enough (age 62).

Regardless, prior to 2014, these non-borrowing spouses had little protection after the death of the last borrower. If the last borrower died or permanently vacated the home, the loan automatically became due and payable…. even if the surviving spouse was still living in the home. This is no longer the case.

The Solution [ML 2014-07]

FHA changed HECM guidelines in 2014 allowing certain “Qualified Non-Borrowing Spouses” to continue living in their home following the death of the last borrower. The “due and payable” status of the mortgage could be deferred if the spouse is “qualified”, meaning 1) they are married at the time of application and continue to be married over the life of the loan, and 2) the Non-Borrowing Spouse occupies the home and continues to occupy the home for the life of the loan.

This created another issue: Having an NBS generally meant the borrower would have access to less funds. This was because the borrower’s available funds became based on the youngest age, which was likely the non-borrowing spouse. This was true whether the NBS was qualified for the deferment or not.

The Clarification [ML 2015-02]

Some lenders argued that if an NBS is “NOT qualified”, they shouldn’t be required to use the age of the NBS in the calculation of the borrower’s principal limit. As a result, FHA issued Mortgagee Letter 2015-02 to create new designations – Ineligible and Eligible Non-Borrowing Spouses.

An INELIGIBLE Non-Borrowing Spouse:

  • Generally does not occupy the home,
  • Is not protected by the “due and payable” deferral provisions, and
  • Does not have their age used in the calculation of the borrower’s principal limit

An ELIGIBLE Non-Borrowing Spouse:

  • Occupies the home
  • May be protected by the “due and payable” deferral provisions, and
  • Has their age included in the calculation of the borrower’s principal limit

2021 Changes to NBS Guidelines

There were two significant changes in 2021 that improved protection for non-borrowing spouses.

The first eliminated the requirement for the NBS to “obtain ownership of the property or other legal right to remain in the property” within 90 days after the death of their spouse. This was a big hurdle for a grieving spouse. This now makes it easier to qualify for the due and payable deferral.

The second expanded the criteria that would qualify for the deferral period. Until this mortgagee letter, the borrowing spouse had to die for the spouse to qualify for the deferral. Now, the spouse may still qualify for the deferral if the borrower resides in a health care facility for more than 12 consecutive months.

Frequently Asked Questions

  • Can a non-borrowing Spouse remain on title?

YES. HUD made additional regulatory changes in 2017 that redefined the terms “mortgagor” and “borrower.”  That change allowed an NBS to remain on title as a mortgagor. Keep in mind, this does not make them a borrower in any way.

  • What are the obligations off the non-borrowing Spouse?

After the last borrower dies or permanently vacates the home for mental or physical illness, the NBS will need to make sure to keep up with all the obliga­tions of the HECM including the payment of property charges. While they may be able to remain in the home, they will need to ensure the loan does not become due and payable for other reasons.

  • Can a non-borrowing Spouse draw from the line of credit?

NO.  the NBS is not a borrower or party to the loan in any way. No disbursements can be made during the deferral period other than repair charges paid through a repair set-aside. This means that the line-of-credit and monthly payments will cease, including a Life Expectancy Set-Aside (LESA) used to pay property charges.

  • What are the exceptions to the rule?

These protections only apply to HECM loans with FHA Case numbers assigned on, or after, August 4, 2014. For loans originated prior to that date, the lender has the option, but not the obligation, to assign the loan to HUD. This assignment of the loan may provide similar protection for the NBS.

For more information on reverse mortgage guidelines, please purchase the book Understanding Reverse, and subscribe to my blog in the upper right corner of this page.

Dan Hultquist

Do Interest Rate Caps on Reverse Mortgages Matter?

The answer is maybe, but probably not for the reason you think. Rate caps restrict the movements of interest rates, and the conventional wisdom is that more restrictive caps are better for the borrower, right? Not necessarily.

Of course, we do not know what the future holds, but the easier question to answer is have they mattered in the past? While that depends on which Home Equity Conversion Mortgage (HECM) product was selected and when the loan was originated, I can answer the question.

Keep in mind the following items when discussing reverse mortgage rate caps:

  • Monthly-adjusted HECMs do not have regulated cap structures. Historically, they have been offered with a Lifetime cap of 10% above the starting rate. Only in recent years have 5-cap monthly ARMs been offered.
  • Annually-adjusted HECM ARMs do have regulated cap structures – the rate cannot move more than 2% (up or down) from year to year, and no more than 5% (up or down) from the starting rate.
  • The LIBOR index was used from 2008 to 2020. However, for this analysis we’ll focus on the currently-used 1-year CMT index which dates back to the origins of the HECM program.
  • The interest rate is the sum of the lender margin plus the appropriate index rate. Because the margin never changes and is not relevant to the analysis, we will only focus on the index portion.

Monthly HECM – 10% Lifetime Cap

Historically speaking, the monthly 10-cap HECM has never had interest rates restricted. We know this because the 1-year CMT has ranged between a low 0.06% and high 9.78% since the foundation of the HECM program in the late 1980s. Consequently, the interest rate has never moved more than 10% (up or down) during that time.

Monthly HECM – 5% Lifetime Cap

It doesn’t appear the monthly 5-cap HECM has been capped either. However, it should be noted that this cap option is relatively recent – offered on and off over the last 10 years when index rates have been low.

Annual – 2% Periodic and 5% Lifetime Caps

YES, this option has been capped in the past. Remember, annually adjusted HECM rates cannot go up OR down by more 2% from year to year or 5% over the life of the loan. Most of the restricted rates occurred on the lower bound (falling rates), not on the upper bound (rising rates).

For example:

Consider a borrower that obtained a HECM 20 years ago in January 2001.

  • Starting date: 1/1/2001
  • Starting index rate: 4.81%

The following chart demonstrates how the Annual HECM cap structure restricted the interest rate for this borrower over a 20-year period:

As you can see, this borrower’s interest rates would have been capped three times over the last 20 years; all three were a result of interest rates falling rapidly. Consequently, this borrower’s average index rate over the life of the loan is higher – calculated at 1.75%. A borrower with a monthly adjustable product would have benefited from an average index rate of 1.58% where their rates were free to drop freely.

While most borrowers think more restrictive caps protect them and always work to their advantage, this example proves that is not always the case. The monthly adjustable with 10% caps had lower index rates while the annual product with more restrictive (2%/5%) caps had higher rates because of the cap structure.

For more information on reverse mortgages, please subscribe to this blog and consider buying your copy of Understanding Reverse.