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Hey home buyers, this bill's for you

Tucked away in the controversial 1990 housing bill passed by Congress this month are mortgage-money programs that should draw raves from cash-strapped senior home-owners, borrowers angry with lenders over servicing abuses, and first-time home buyers seeking creative low down payment loans. Controversy over the legislation focuses mainly on its changes to the FHA (Federal Housing Administration) mortgage program. Congress raised the minimum-cash outlays required from borrowers seeking FHA mortgage insurance. The estimated bottom line for buyers applying for a $100,000 FHA loan: an extra $1,226. House and Senate conferees were persuaded by data that predicted bankruptcy for the FHA fund without reforms to cut its losses.

But put aside the pros and cons of the FHA debate: The 1990 housing bill is loaded with goodies. Some examples:

Reverse mortgages for seniors. The new legislation will enable 25,000 home-owners 62 years of age or older to pull hard cash from their real estate to add to their incomes. The homes can be located in any state. The hard cash can be either monthly checks from a lender or a line-of-credit arrangement allowing drawdowns when you need them. No restrictions apply on what the recipients spend the money on. The key requirement is that the house be debt-free or nearly so.

Here's how it can work for you, your parent or other senior home-owners: A reverse mortgage is a real-estate loan that works backward. Your lender sends you money _ monthly or on demand _ over a period of years. You usually don't have to pay it back as long as you live in the house and don't sell it. The sole exception is if you have a fixed-term reverse mortgage with a specific future date for repayment, like five or 10 years down the road.

After years of receiving checks or credit-line drawdowns, typical borrowers will have converted thousands of dollars of their real-estate equity into spendable cash. The payback of that cash, plus an agreed-upon interest charge, normally won't begin until the borrower sells the house, moves out or dies.

The new legislation expands FHA's existing "experimental" reverse-mortgage program by tenfold. It is designed to be large enough to attract lending institutions nationwide into the program, beginning next year.

Mortgage-servicing abuse crackdown. If you've been angered by foul-ups _ or outright rip-offs _ by the lender in servicing (administering) your home loan, the new bill offers some relief. It opens the door to large-scale financial penalties against

Areverse mortgage is a real-estate loan that works backward. Your lender sends you money over a period of years.

lenders who violate new standards on mortgage servicing. Among the requirements: Lenders will now have to give consumers a minimum 15-day advance notice of a loan-servicing transfer, plus the name, toll-free number and contact person at the new firm. For 60 days after a service switch, lenders no longer will be able to impose late fees when home-owners send payments on time to the old lender.

New rules also require mortgage lenders to respond quickly to all consumer loan-account inquiries, and to provide all customers with clear, annual statements detailing inflows and outflows from escrow accounts.

If a lender breaks the federal rules, its customers will be able to initiate class-action lawsuits seeking compensation for all "damages" suffered, plus punitive penalties up to the lesser of $500,000 or one percent of the lender's net worth, or $1,000 for each consumer harmed. Individual suits will allow consumers to be awarded damages for actual financial losses suffered, plus $500 in punitive damages.

Creative, low-cost financing, including "soft-second" mortgages. One major innovation in the 1990 housing bill is the creation of a new, multibillion-dollar national funding pool for low-rent and low down payment housing. Dubbed "HOME," the fund will distribute money to state and local governments for a wide variety of affordable-housing programs. Among those will be what are known as "soft seconds." Lower-income home buyers will be able to obtain a second mortgage at the time of home purchase. The second loan will cut the size of the required down payment drastically and will not require any payment whatsoever during the first five years. After that _ or at the sale of the home _ interest will be computed at a minimum rate of just 4 percent a year.

Get ready for HOME. It could put you into one.

1990, Washington Post Writers Group

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