Reverse Mortgage Information

Muriel is 91 years old and in failing health. Her three children live nearby and they have tried to help her remain in her home but the cost of 24 hr in-home care has become a significant financial burden. Seems like an opportune time to do a reverse mortgage on mom’s home… and use the cash to pay the expenses. But there’s an unforeseen problem. Regrettably, the family selected an inexperienced loan officer to handle mom’s application for the Home Equity Conversion Mortgage (HECM) program.  Here’s how the scene unfolded… and how the loan unraveled.

Reverse Mortgages & Health Issues

Last year Muriel was diagnosed by the family physician with early stage Alzheimer’s disease. After a quick visit to a local attorney a durable power of attorney was created giving one of the siblings authority to make decisions for Muriel. Peter, the eldest son, hurriedly contacted a mortgage originator via the internet to begin the process. Application documents were signed via mail (sometimes referred to as a “fedex loan” since there is never any actual face-to-face meeting). The loan was then submitted to a major reverse mortgage lender.  After several weeks of waiting, Peter began receiving messages from the telephone call center revealing a delay in processing… and notice that additional documentation would be needed.

The lender wanted explanation as to why 91-yr old Muriel did not sign the loan application herself. When Peter explained that his mom had Alzheimer’s, the lender responded with new requirements.  They wanted a letter from Muriel’s doctor stating (1.) the specific date of her diagnosis, (2.) that she was not currently competent to sign documents on her own behalf and, (3.) that Muriel had actually been mentally competent to execute a power of attorney on the day she signed it. Understandably, her doctor was reluctant to make an official statement on the last item for liability reasons and his letter failed to fully address that question.

Reverse Mortgages & Power of Attorney

Meanwhile, the title company closely examined the power of attorney document signed by Muriel and her son. In the words of the title examiner, it was judged a “poorly crafted document” and the title company was reluctant to accept it. (There are good lawyers and there are not-so-good lawyers – just like reverse mortgage originators). The loan continued to unravel and more delays were introduced. By this time in-home care expenses were in excess of $13,000 per month and Muriel’s family members were out of money.

Often the story ends right here. The result is that Muriel is denied the HECM loan, she has to be admitted to a nursing facility and then the home is sold or eventually taken by the state to cover nursing home expenses. But it need not end like this!  Had Muriel’s family selected an experienced reverse mortgage loan originator, the result might have been different.  Next post we will examine how a professional, experienced reverse mortgage loan originator might have handled this transaction. The impact on Muriel and her family could have been much better if the loan officer had been experienced. The most important decision you will ever make concerning a reverse mortgage is the experience and background of the loan officer you select to work with.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. Same applies to tax advice. Always consult an expert on these subjects. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

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COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you

Bad information still circulates among seniors even as federally insured Reverse Mortgages from HUD/FHA reached record levels through 2009.  While 2010 & 2011 saw less dramatic growth, these same myths continue to originate from well-meaning but misinformed relatives, friends or even trusted advisors… who recall times past when the HECM reverse mortgage did not exist, was not insured and reverse mortgages were not regulated by the federal government.

Following are 10+ reverse mortgage myths still circulating.  Perhaps the assumption that there are only 10 of them is the greatest of all reverse mortgage myths!

Reverse Mortgage Myth #1 – The Bank Owns The House

Silly. As is the case with a conventional mortgage, the borrower continues to own the home. Title remains intact. You do not “sign the house over” to the lender. Of course, the reverse mortgage lender does have a lien against the property. But you make all decisions that impact your home, not the lender. Sell it if you want, leave it to the kids in your will, etc.

Reverse Mortgage Myth #2 – Borrower(s) Could Lose The Home

The borrower cannot be forced from the home as long as taxes and insurance are paid current and the home is reasonably maintained. Even if the borrower uses up all the money obtained from a reverse mortgage… the lender cannot require repayment until after the last borrower permanently leaves the home.

Reverse Mortgage Myth #3 – At The End, The Bank Takes The Home

Wrong! When all borrowers have permanently left the home, the borrower or the estate must pay off the balance owed to the lender… but ownership remains with the borrower, the heirs or the estate. The heirs or the estate might elect to sell the home and pay off the reverse mortgage balance and pocket the difference (net equity). Or an heir might inherit the home, obtain a conventional (forward) mortgage locally and pay off the reverse mortgage balance with those funds.

Reverse Mortgage Myth #4 – Nothing Left For The Kids

Under federal rules for government insured reverse mortgage programs it is impossible to initially borrow 100% of the equity in the home. In many cases there will be substantial “net equity” (home value minus loan balance) remaining in the property. Lenders are required to provide an Amortization Schedule that projects net equity through each year of the loan up to borrower age 99. The point at which all equity might be used up can be estimated from this document. Many borrowers probably will not live to an age where all equity is depleted.

Reverse Mortgage Myth #5 – Money Can Only Be Used For Repairs

What you use the money for is entirely up to you. There are no restrictions on use of the funds. Use the cash to pay credit card debt, supplement monthly income, complete needed home repairs, pay medical expenses or buy long term care insurance. By the way – the money you receive from a reverse mortgage is not actually income – therefore, it is not taxable. You will not receive a 1099 or W-2 from the lender. Check with your tax advisor for confirmation.

Reverse Mortgage Myth #6 – We Could End Up Owing More Than The Home Is Worth

An important safeguard with reverse mortgages is that the borrowers or the estate can never owe more than the home is worth at the time of repayment. If the borrower owes more than the home value, the difference is made up by FHA Mortgage Insurance in the case of HUD/FHA programs or absorbed by the lender in the case of most private programs.

Reverse Mortgage Myth #7 – Our Children Will Be Burdened With The Debt

Reverse mortgage loans are “non-recourse” loans. In simple terms, these loans are unique in that the borrower, the heirs and/or the estate have no personal liability for the debt. The only way the lender can be made whole is through the home value. If the home is eventually sold for less than the loan balance, the deficit is paid by FHA mortgage insurance or absorbed by the lender. The lender has no legal recourse against borrowers, lenders or the estate. Children, heirs or the estate do not inherit the debt.

Reverse Mortgage Myth #8 – Home Must Be Debt Free To Qualify

Many homeowners actually do have an existing mortgage… and a majority use reverse mortgages specifically to eliminate a monthly mortgage payment… and improve their monthly cash flow.

Reverse Mortgage Myth #9 – The Fees Are Outrageous

Compared to what? Fees and charges are closely regulated on federally insured loans. Still, this is one of the most misunderstood issues with respect to reverse mortgages. Total costs are higher than home equity loans but not all money goes to the lender. Under HECM federal programs costs include (a.) an origination fee paid to the lender, (b.) 3rd party closing costs paid to attorneys, title companies, appraisers, etc., and (c.) an up-front FHA mortgage insurance premium (that is waived in the case of the new HECM Saver product).  Many lenders allow you to roll all of these fees and costs into the loan balance so there is usually no initial out-of-pocket expense. The new HECM Saver program very sharply reduces your up-front costs since the FHA mortgage insurance fee can be as much as 50% of total fees & costs.

Reverse Mortgage Myth #10 – It’s Cheaper To move To A Smaller Home

Maybe… if that’s really what you want. This strategy might be right for some… but senior homeowners should carefully analyze all costs before assuming that a smaller house is a cheaper option. Selling your existing home could cost $12,000 to $18,000 in real estate commissions alone. Add many thousands more to move furniture and appliances to a smaller home and that choice could be the most costly solution… not cheaper. Most seniors who do a reverse mortgage have already determined that they want to remain in the existing home for as long as possible. If you think you will move soon, don’t do a reverse mortgage unless you fully understand the costs.

Reverse Mortgage Myth #11 – If We Wait, Rates Will Be Lower

Rates are already at 50 year lows. Predicting future rates is difficult even for the experts. And with home values still declining in many regions, a home worth $300,000 today could lose 10-15% in value over the coming months. Since the appraised value of your home is a key factor in determining how much money you qualify for, waiting for interest rates to be more favorable might prove to be a major mistake.

Reverse Mortgage Myth #12 – My Social Security Or Other Benefits Will Decrease

Money from a reverse mortgage is borrowed money; not income. This money is usually not considered disqualifying for Social Security or Medicare. But for some special needs based benefit programs monthly draws must be spent and not accumulated. If you qualify for state administered Medicaid, SSI or for a subsistence program like fuel assistance you should consult your tax advisor. Generally, you should draw only a monthly amount equal to monthly expenditures to avoid accumulating excess funds.

Reverse Mortgage Myth #13 – Only For Seniors “In Need” Or “House Rich, Cash Poor”

Today, reverse mortgages are used by homeowners from all walks of life to enhance retirement years. Even seniors with million dollar homes have used reverse mortgages in estate planning in conjunction with advice from financial planners. The HECM is increasingly viewed as a financial tool by seniors and their advisers.

Reverse Mortgage Myth #14 – We Will Have To Pay Taxes On The Money Received

Money received from a reverse mortgage is income tax free….because it is already your money. In general, no income taxes will be due on money received from a reverse mortgage. Funds do not need to be reported on your income tax return. But consult with your financial or tax advisor.

Reverse Mortgage Myth #15 – We Plan To Leave The Home To The Children

Do the children really want you to do that? Seniors are encouraged to discuss reverse mortgage decisions with children. Often, the children are happy to learn that parents have a financial solution to help them live independently and financially secure.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. Same applies to tax advice. Always consult an expert on these subjects. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

FOR MY LICENSING & COMPANY INFORMATION: GO HERE

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We will never share your information with anyone without your permission.

COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you

Some of the following is taken directly from the Hud.Gov website. It’s worth repeating for those who need an introduction to the Home Equity Conversion Mortgage (HECM) program.

The Home Equity Conversion Mortgage (HECM) is FHA’s reverse mortgage program which enables you to withdraw some of the equity in your home. The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement social security, meet unexpected medical expenses, make home improvements and more. You can receive additional free information about reverse mortgages by downloading a free booklet from the National Council On Aging, “Use Your Home to Stay at Home.  (Note: This booklet is very dated. Some of the information no longer applies.)

1. What is a reverse mortgage?

A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence or fail to meet the obligations of the mortgage. You can also use a HECM to purchase a primary residence if you are able to use cash on hand to pay the difference between the HECM proceeds and the sales price plus closing costs for the property you are purchasing.

2. Can I qualify for FHA’s HECM reverse mortgage?

To be eligible for a FHA HECM, the FHA requires that you be a homeowner 62 years of age or older, own your home outright, or have a mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home. You are also required to receive consumer information free or at very low cost from a HECM counselor. (Note: You can find a HECM counselor by asking your loan originator for a current list of FHA approved counseling agencies in your area.)

3. Can I apply if I didn’t buy my present house with FHA mortgage insurance?

Yes. It doesn’t matter if you didn’t buy it with an FHA-insured mortgage. Your new FHA HECM will be FHA-insured.

4. What types of homes are eligible?

To be eligible for the FHA HECM, your home must be a single family home or a 1-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible. (Note: Many lenders have tightened up underwriting policies regarding condominiums and manufactured homes. Make sure your loan officer has the experience to help you.)

5. What’s the difference between a reverse mortgage and a bank home equity loan?

With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home, sales price or FHA’s mortgage limits, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you may borrow.

With a HECM, you don’t make monthly principal and interest payments, the lender pays you according to the payment plan you select. Like all homeowners, you still are required to pay your real estate taxes, insurance and other conventional payments like utilities. With an FHA HECM you cannot be foreclosed or forced to vacate your house because you “missed your mortgage payment.” (Note: Even HUD can be misleading here… unintentionally – you can certainly be foreclosed if you become seriously delinquent with real estate taxes, home insurance or if your home falls into very serious disrepair.)

6. Will I still have an estate that I can leave to my heirs?

When you sell your home, you or your estate will repay the cash you received from the reverse mortgage plus interest and other fees, to the lender. The remaining equity in your home, if any, belongs to you or to your heirs.

7. How much money can I get from my home?

The amount you can borrow depends on:

• Age of the youngest borrower
• Current interest rate
• Lesser of the appraised value of your home, the HECM FHA mortgage limit for your area or the sales price
• The initial Mortgage Insurance Premium (MIP) option you choose (2% HECM Standard option or .01% HECM Saver option)
• Your choice of HECM Standard programs or HECM Saver programs

You can borrow more with the HECM Standard option. Your costs will be lower with the HECM Saver.  Also, the more valuable your home is, the older you are, and the lower the interest rate, the more you can borrow. If there is more than one borrower, the age of the youngest borrower is used to determine the amount you can borrow.

8. Should I use an estate planning service to find a reverse mortgage?

FHA does NOT recommend using any service that charges a fee for referring a borrower to any  lender. FHA provides this information free.

9. How do I receive my payments?

You have five options:

• Tenure – equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
• Term – equal monthly payments for a fixed period of months selected.
• Line of Credit – unscheduled payments or installments, at times and in amounts of your choosing until the line of credit is exhausted.
• Modified Tenure – combination of line of credit with monthly payments for as long as you remain in the home.
• Modified Term – combination of line of credit plus monthly payments for a fixed period of months selected by the borrower.

10. How do I find a lender offering HECM loans?

Both lenders and brokers may offer HECM loans if appropriately licensed or registered with the National Mortgage Licensing System (NMLS).  (Note: First Integrity Mortgage, LLC offers HECM loans and/or will refer you to a broker or lender in your area. Call Bob Irving at 1-877-994-2265.)

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. Same applies to tax advice. Always consult an expert on these subjects. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

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COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you

Counseling rules may be changing in your state soon… Massachusetts will try it first. This regulation will not be good for many seniors.

New rules from the Executive Office of Elder Affairs in Massachusetts may be well meaning… but an unintended consequence will be that fewer seniors will be able to utilize the Home Equity Conversion Mortgage (HECM) program guaranteed by FHA.  Effective August 2012, senior reverse mortgage borrowers may no longer be counseled via telephone.  Face-to-face counseling is mandated.

More Seniors Excluded From HECM Program

Unfortunately, requiring face-to-face COUNSELING in Massachusetts is going to exclude a lot of seniors from the most popular reverse mortgage (HECM) program. Common sense would lead one to acknowledge that seniors will have much more difficulty traveling to/from the very few counseling sites available to meet in person with the required FHA counselor. Worse, interested family members, spouses and/or financial advisors will also be greatly inconvenienced.  Unable to monitor the session via telephone, they will very likely skip the counseling altogether.

This requirement is well meaning… but poorly thought through, in my opinion. FHA reverse mortgage counseling is not the problem… the process of applying for the programs is where most issues become evident. And that process of applying for the program is where the greatest opportunity for specific discussion and education exists. The focus by regulators ought to have been a requirement that APPLICATIONS must be done face-to-face; not the initial counseling. Seniors in Massachusetts will be at a distinct disadvantage when this face-to-face counseling law is implemented.

Unlicensed Reverse Mortgage Originators

Lenders with large telephone call-center loan operations are well protected by these new regulations.  Loan applications may still be completed via telephone from a distant location via an unlicensed, faceless originator. Few borrowers know that they could be speaking with an untested loan originator with very little knowledge of the program. Critical documents to be signed by the borrower are simply shipped overnight back and forth even though a responsible, professional, ethical and fully licensed loan originator (who has passed a criminal records background check, by the way) sitting face-to-face with the senior borrower would want to explain every line of every document to his/her client.

Here are a few more related posts you might want to review:

Reverse Mortgage Experts

New Reverse Mortgage Counseling Requirements

Reverse Mortgage Counseling

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you

So you’ve been watching a little too much cable TV lately… and noticed more former movie stars, TV personalities and ex-politicians urging you to call for a free DVD/CD that tells everything you ever needed to know about reverse mortgages.  Robert Wagner has been hustling these “free discs” for years… adroitly switching company sponsorship without missing a beat. Now his daughter, Katie, has joined the ad campaign to emphasize involving family members in your decision. Few people, however, can actually identify what company he presently sponsors.  Jerry Orbach, deceased star of Law and Order, was the original spokesperson but Wagner is king today.  New spokesman include Fred Thomson, Henry Winkler and even Pat Boone. Shortly you will see Barbara Eden of “I dream of Jeanie” fame pushing the “free DVD/CD”.

What happens when you call for the free information? A polite person in a call center somewhere takes your name, address and phone number with a promise to send the package out as soon as possible.  Usually you will be subjected to additional questioning in an effort to “qualify” you for the reverse mortgage.  If you resist supplying that personal detail, don’t worry. You will still get the info package and the free disc from the call center.

FHA recently made changes to lender requirements that could mean expansion of these revere mortgage call center operations.  I’m not certain any of this process is a good thing for senior borrowers.  Representatives of Robert Wagner, Fred Thomson and/or Henry Winkler could soon be calling you at dinner time or in the late evening if you innocently respond to these slick cable TV ads targeted specifically to senior homeowners. Be forwarned! You will be targeted for telemarketing calls

Free Reverse Mortgage Info?

“Call now and get a free DVD about reverse mortgages…” is the common message.  Reality,  is that the TV advertisers are simply looking to identify you as a sales prospect… and obtain your name and phone number.  Telephone calls to “follow up” will soon come pouring in from sales people in call centers around the country.  Sometimes these “leads” (your information) are sold to other companies/brokers and sometimes the call center is operated strictly for the benefit of the sponsoring lender that placed the TV ads. Many clients tell me that these annoying phone calls to them are made repeatedly day after day for months.

Questions To Ask Reverse Mortgage Phone Callers

A face-to-face meeting with a local, experienced reverse mortgage professional (5 years or more as a specialist in the product) is a far better source of information.  But if you do make a conscious decision to speak with these call center personnel, here are a few questions to ask before you ever begin to reveal your confidential information:

1 – Are you personally licensed by (state where you reside) to originate reverse mortgage loans in (your state)?

2 – What is your National Mortgage Licensing System (NMLS) ID number?

3 – What is the name of the lender you represent and what state are you presently calling me from?

4 – How long have you been originating reverse mortgages?

5 – Are you personally willing to meet with me face-to-face in my home to provide information and answer questions about reverse mortgages?

Listen To Reverse Mortgage Call Center Answers

Pay close attention to exactly how these questions are answered.  If the answers are deflected in any way, let that be a warning sign.  For example, a phone center sales person might respond to question #1 above with a reply such as “My company is permitted to operate in all 50 states”.  That response dodges the question. You want to know if the person you are speaking with is specifically licensed in your state. Do you really want to deal with someone who will not honestly respond to a specific and direct question?

Armed with a response to question #2 above, go to the internet to NMLS Consumer Acces and plug in that ID number to learn who the person actually represents, exactly where they are licensed plus other significant details about their background. If licensed in Massachusetts, they have been required to pass a C.O.R.I. criminal records background investigation plus a credit check. You are, therefore, reasonably certain that you are not dealing with a felon… or with an individual with a history of personal financial difficulties. You certainly don’t want people of this character providing financial advice to you.

Question #4 above is obvious. Many of the call center operators are young enough to be your grandchild. There is nothing wrong with being young… but somebody your own age probably knows how to relate to you much better and understand your issues/situation(s).  I love my grandchildren very much…. but I don’t want their advice when making significant financial decisions.

The most important question might be #5 above.  If the caller is (a.) unwilling/ unable to come to my home to discuss details of the complex reverse mortgage product, (b.) answer my questions face-to-face and (c.) provide an opportunity for me to size them up in person… why would I ever want to do business with them? What will I do when I run into a problem during loan processing, or several years later when an issue pops up?  Will they still be around or will they have moved on to selling used cars or insurance.  Be careful who you deal with… it’s your own home that’s at stake.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you

Anyone with 6 months of experience seems quick to hold themselves out as an “expert” in just about any field. When it comes to reverse mortgages you have a lot to lose if you pick the wrong loan originator. Many will just run the numbers you provide and if you fail their test… you lose, next case!

Reverse Mortgage Denied !

Those so-called experts will quickly dismiss you with any one of the following comments… then move on to the next “prospect”.

- Your spouse is under 62 years of age and, therefore, you are not qualified.
- Your home is owned by an irrevocable trust and, therefore, you are not qualified.
- Your mortgage is too high and, therefore, you are not qualified
- There are tax liens on your property and, therefore, you are not qualified.
- You are not connected to town sewer/water and, therefore, you are not qualified.
- Your home is in disrepair and, therefore, you are not qualified.
- Your are divorcing and, therefore, you are not qualified.
- Your home value is too low and, therefore, you are not qualified.
- Your home is actually a manufactured home and, therefore, you are not qualified.
- Your home is in a non-FHA approved condo complex and, therefore, you are not qualified.
- Your home is a multi-family and, therefore, you are not qualified.
- You just filed Chapter 13 bankruptcy and, therefore, you are not qualified.

But I will tell you that I have been able to do reverse mortgages for every single one of these borrowers.  What’s more, I do it all the time… over and over and over again.  So, too, have many fellow professionals around the country.  It’s simply a matter of how much experience your reverse mortgage loan originator has… and how much effort he/she is willing to expend on your behalf.  The 6 month “experts” won’t be able to help you because they don’t know what to do.  They don’t have the experience… they’ve never seen the problem before and, therefore, you are not qualified.

Reverse Mortgages – Have It Your Way

Spend time interviewing your reverse mortgage loan originator. Do it face-to-face… not over the phone!  Anyone unwilling to travel to you is just not worthy of your trust.  If uncomfortable meeting in your home, meet at the local Burger King (or Starbucks… or local library).  Study his/her credentials thoroughly before you decide who to pick.  Record and verify licensing numbers.  It is the single most important decision you will make. It might mean the difference between success or failure… yours! You need all the help you can get in this market.

Want more info? See the related posts listed below:

Advice From the Guy at the Dump

How to Checkout Your Loan Officer

Choosing Your Reverse Mortgage Loan Officer (Read all 3 posts)

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

Subscribe to Reverse Mortgage Information by Email

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you

Sandra and Martin Walsh represent a new breed of homeowner facing a dilemma that is increasingly common. After 45 years of marriage they agreed amicably to divorce.

Their $400,000 family home, however, presented a major problem that they struggled to resolve. Martin wanted to retain the home and continue to live there… but he simply did not have the financial resources to buy out his ex-partner. Of course, Sandra’s name was still on the deed and she remained responsible for the mortgage balance. She wanted relief from that financial burden plus fair payment for her share of equity in the home.The only sensible solution seemed to be to sell the home, pay off the mortgage and split the leftover cash.

Their personal financial planner counseled against that option, however.

Fortunately for Mr. & Mrs. Walsh, their planner was knowledgeable and well informed about a popular, unique loan program available to senior homeowners who are 62 years old and own their own home. This situation proved to be an excellent opportunity to make use of a federally insured HECM loan program from HUD often referred to as a reverse mortgage…or a Home Equity Conversion Mortgage.

Here’s how it worked out. The financial planner called in a reverse mortgage specialist to consult and help the Walsh’s understand the pros/cons of the variety of HECM programs. After a thorough analysis of the facts of their situation it was determined that they were qualified and the HECM loan program would provide enough funds to pay off the remaining mortgage in full; cancelling Sandra’s future liability. They also qualified for an additional amount equal to about 50% of the remaining equity in the home… and that was turned over to Sandra at loan closing in exchange for removing her name from the deed.

It was a win/win situation. Martin remained in the home that he loved and Sandra received her fair share of the equity in the home and did not need to worry about any future liability since the mortgage was paid in full.

Not all situations work out this well, of course. But it’s important to understand that the HECM program is no longer strictly for little old ladies trying to exist on $600 per month social security. Savvy financial planners and elder law attorneys have recognized that the program is useful for their clients in numerous ways. It has become an important financial tool for many senior homeowners trying to solve a financial problem.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you.

This is not a post about how terrible things might happen if you do a reverse mortgage.  If that’s your thinking about the popular Home Equity Conversion Mortgage (HECM) product, see the typical news media 15-second analysis recently screened on CNN (see CNN Wrong on Reverse Mortgages…Again).

But… you should know that storm clouds are gathering on the horizon for reverse mortgages.  If you have been thinking about the possibility of doing a reverse mortgage you really need to seize the moment and educate yourself.  Don’t depend upon Robert Wagner (see Robert Wagner… He’s Back !!!) or Fred Thomson to teach you the pros & cons.  Get aligned quickly with a professional loan specialist with at least 5 years direct experience in the reverse mortgage industry.  I emphasize the words “direct experience”.   Don’t bother with people who tout “30 years of loan experience” – reverse mortgage lending is unique and a recognized specialty.  Any experience in the conventional mortgage industry is meaningless.  These people are simply trying to learn the complex business at your expense. You don’t need to work with amateurs. For more information on how to find a professional see Choosing a Reverse Mortgage Loan Officer – Part I

Reverse Mortgage Warning #1

Financial Freedom and Bank of America recently decided to exit the reverse mortgage lending industry.  These organizations were number two and number three respectively in the business.   Each lender represented thousands of HECM loans originated every month.  Now… the bombshell !  Wells Fargo has just announced that they, too, will exit this business immediately.  WF has been number one in the industry for many years… with more than 1,500 originators and staff dedicated exclusively to reverse mortgage production.  They were always the elephant in the room with 26% market share…head and shoulders above anyone else.  So in the last 12 months we have seen the top three (3) leaders in the market leave the business entirely.  They did not sellout to someone else… they quit the industry.  This can’t be a good thing.

Reverse Mortgage Warning #2

The current temporary lending limit on reverse mortgages as set by HUD is $625,500. This means that if your home is appraised at any value up to $625,500, that number will be used in the calculation of your benefits under the HECM program.  However, few seniors know that this is only a temporary limit.  The bet is that HUD will revert to the permanent limit of $417,000 after September 30th… the end of the fiscal year.  If your home appraises above that old permanent limit after September 30th, you stand to lose all that added value. The consequences will be devastating to many seniors with homes valued higher than $417,000.

Reverse Mortgage Warning #3

If you are a senior homeowner and own a condominium, HUD has made it unbelievably difficult to get FHA approval for your complex. Without the approval you won’t be able to do a HECM reverse.  We recently worked through the new process with a senior who lived in an upscale community and owned a unit worth over $700,000 in a mature, well manicured complex with an excellent track record. The process was so difficult that we probably will turn down any future deal that involves a complex that is not already FHA approved. The effort is too costly and too burdensome.

Reverse Mortgage Warning #4

Reverse mortgage interest rates will never be lower than they are right now. A fixed rate reverse mortgage, in some cases, can be had for less than 4.50%.  An adjustable rate reverse mortgage is offered at less than 2.00%.  We will not see these interest rates again. At the rate our Federal Reserve has been printing money, look for interest rates to start moving up shortly.

Reverse Mortgage Warning #5

Your home value may have dropped another 5% in the first quarter of this year. It will be quite some time before the trend is reversed and values start to go back up. Experts are talking many years before that might happen.. if at all. As your home value continues to fall, you will qualify for less money through this HUD reverse mortgage program. Seniors who did their reverse mortgage 4 and 5 years ago are pretty happy today to know that they maximized the amount of home equity available to them. They would get much less today. You will probably get much less in the future if you wait any longer.

So – if you’ve been on the fence or if you have just been curious about a reverse mortgage…. hurry to your reverse mortgage loan specialist for some education about the pros & cons. Timing is everything. The longer you wait, the bigger your disappointment might be. (See also Reverse Mortgages – The Risks of Waiting)

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you.

For those of us who have been in the reverse mortgage industry for any length of time it is puzzling to understand how so many “financial experts” continue to be misinformed when it comes to reverse mortgages.   The latest misinformation is repeated by a certified financial planner, Doug Flynn, in a CNN HelpDesk video released May 17, 2011.  While discussing pros/cons of a reverse mortgage, Mr. Flynn cites a hypothetical example to demonstrate that a borrower with a $200,000 home who qualifies for a reverse mortgage benefit of $100,000 would instantly owe fees of about $20,000.

Reverse Mortgage Expert

This is total nonsense.  It is evidence that yet another “expert” just does not know what he is talking about with regard to reverse mortgages.  Depending upon the specific Home Equity Conversion Mortgage (HECM) program this particular sample borrower selects… fees would normally range from $4,600 to $10,805.  Mr. Flynn is substantially in error on his claim that fees would be $20,000.

Worse, the certified financial planner cautions that the amount owed compounds “in a phantom way”.  There is nothing phantom about compound interest and any financial planner should be able to explain this elementary concept to any client.  He also claims that borrowers will likely disinherit children because at some future point the amount owed will be greater than the $200,000 home value.

Shame on Mr. Flynn. He correctly calculates that interest is added to the amount a client borrows and that this amount will increase over time.  After all, no repayments are made to the lender during the life of the loan. However, he conveniently fails to recognize that over the same time period the value of the home should also increase.  In fact, a required disclosure that every HECM borrower receives and carefully reviews with his loan officer is an Amortization Schedule that estimates future loan balance, home value and remaining borrower equity for each year up to age 100.

A 62-year old borrower might qualify for $100,000 but elect to take his benefit in terms of a tenure (lifetime) payment of about $600 every month.  At age 100, reasonable projections show he would still have amost $245,000 equity left in the home… because the asset has also been rising in value over the prior 38 years.

Another borrower with completely different needs in different circumstances might elect to take all the available money at closing.  Still… upon reaching a future total loan balance of around $200,000 (at about the 12 year point according to the Amortization Schedule) he would have approximately $100,000 of equity remaining in the home because the home value has also increased over this period.  And in this case, initial fees might have been as low as $4000 or about 20% of Mr. Flynn’s wrongful assertion.

Work With a Real Reverse Mortgage Expert

The moral to the story here is be careful where you get your information.  Work with a veteran reverse mortgage loan specialist (with credentials and expertise in reverse mortgages) who will help you properly understand the real pros and cons. Stay away from self promoting media stars… who often don’t know what they are talking about or have some ulterior motive for slanting the facts.  Sit down face-to-face with your experienced broker specialist and demand clear, concise answers to your questions and you will do just fine.  Reverse mortgages are not that difficult to figure out if you have the right people helping you.

See video here ->  CNN HelpDesk video

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are, of course, not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, too. Tell a friend or link to the site.

COPYRIGHT 2011: All posts herein are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and the blog. You may not copy or republish without crediting the author and referencing the post

Reported several months ago by Jerry Wagner at Ibisreverse.com,  a long time reverse mortgage industry calculator expert, the average  65-year old has lost about 23% in reverse mortgage benefits since mid-October by delaying a reverse  mortgage decision. That translates, according to Wagner, to a loss of $36,250.  So much for the advice to wait.  If you are thinking about doing a reverse mortgage – do it now!  Waiting will probably cost you even more.

Reverse Mortgage Waiting Risks…

The loss noted above can be attributed solely to increases in the 10-year US Treasury Rate which is only one of the factors used to generate principal limit benefit.  (Principal limit is the specific dollar amount you qualify for under the HECM program).  Other factors include FHA appraised home value, youngest borrower age, and FHA lending limit – currently set at $625,500 nationwide.

Risk #1 – US Treasury Rates.  As interest rates move up, borrowers qualify for less money under the terms of the Home Equity Conversion Mortgage (HECM) program.  In the short term these rates fluctuate… but it is pretty much assumed that the 10-yr US Treasury Rate (currently at historic low levels) will increase over coming years.  The higher the rate, the less you will qualify for under HUD calculations of borrower benefits.

Risk #2 – FHA Lending Limit.  HECM program rules allow for calculations based upon the first $625,500 of FHA appraised home value. If the home is worth more, that additional equity will not be factored into the calculation of your benefit.  What most potential borrowers don’t know is that this $625,500 limit is only temporary and is set to expire at the end of the fiscal year; September 30th. The permanent limit is $417,000.  If your home appraises somewhere in between these two numbers you stand to lose a significant dollar amount in terms of reverse mortgage benefit after September 30th.

Risk #3 – Counseling Fees. After September 30th HUD will no longer subsidize the cost of required borrower counseling.  Agencies that presently waive the $125 fee will begin charging for the counseling session as soon as their funds are exhausted. Several have already begun  to levy the charge and a few have increased fees to $150 for the counseling session.

Risk #4 – Credit/Income Qualification. There is much current discussion related to these subjects and recommendations are that borrowers should be required to meet certain income and credit benchmarks.  Such restrictions do not currently exist but industry pundits expect some criteria to be developed and applied to potential borrowers in the very near future.  If your credit is poor and/or your income is low you may not even be able to “qualify” for the HECM in the future if these proponents have their way.

Risk #5 – Home Values.  Some seniors believe that if they can hold on long enough, the value of the home they own today will bounce back to the astronomical levels of a few years ago. It’s hard to believe that the $450,000 home they have proudly owned for many years is only worth $305,000 today.  Reality is that the home will probably continue to decline in value because of the massive numbers of foreclosures that still have not worked through the system.  The home might only be worth $280,000 when the market actually bottoms out in 2013 or beyond. The greatest risk to most seniors is focused on this risk factor.

Risk #6 – Appraisal Costs. It is not talked about much, but FHA appraisal costs (averaging around $425 in most areas) are not being “financed” as willingly by brokers and lenders since newly imposed federal restrictions on fees, costs and appraisals have been instituted.  Failed appraisals have become commonplace.  Financially troubled potential borrowers may not be able or may not be willing to pay for the appraisal if the loan is not approved.  In such a case the broker or lender will have to pay the appraiser initially.  Therefore, many lenders now measure their risk and attempt to gauge the likelihood that a loan will be approved before extending credit to the borrower.  The unintended consequence is that more borrowers will need to bear the initial cost of $425 for the appraisal plus $125 for counseling from their own funds.  For some, this upfront out-of-pocket expense of $575 is a deal killer.

Conclusion – Waiting to do Reverse Mortgage is Risky

The longer you wait, the more you will probably lose. If you think you need to do a reverse mortgage, do it now!

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are, of course, not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, too. Tell a friend or link to the site.

COPYRIGHT 2011: All posts herein are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and the blog. You may not copy or republish without crediting the author and referencing the post.

We publish a regular monthly column in the local newspaper responding to questions borrowers ask about reverse mortgages.  These questions might be similar to questions you have about the HECM program.  Following is a current sampling;

Q – Please help us to understand the fees & costs for a reverse mortgage. They seem excessive. Carol S. – Lawrence MA
A – Don’t be overly focused on fees. They are what they are.. and they are not substantially different from regular conventional loans except that the details are more transparent when it come to federally insured reverse mortgages. The costs for a HECM (Home Equity Conversion Mortgage) loan can be broken down into three (3) simple categories. When this is quoted in a single lump sum the costs do seem high. But once you understand the breakdown the costs are fairly easy to grasp.
1- Origination Fee. This is the fee that the bank or the mortgage broker charges you, the borrower, for completing all the necessary details with respect to your application for the federally insured HECM program. Included is education and expert advice on selection of the most appropriate reverse mortgage loan program (there are several) and the pros/cons of each choice. Also, your loan officer coordinates and facilitates the underwriting process with the lender on your behalf. This fee is closely regulated by HUD and it is restricted to no more than 2% on the first $200,000 of the Maximum Claim Amount (usually the home value) and 1% on the remaining amount. This fee is limited by HUD to no more than $6000. If your home is worth $300,000, the origination fee will be no more than $5,000.
2 – FHA Mortgage Insurance Premium. This is an upfront cost mandated by FHA to insure your loan. It is the largest cost in ther transaction… usually more than 50% of total fees & costs. This fee is required by, regulated by and paid directly to FHA. The charge is 2% of the Maximum Claim Amount (usually the home value). On a $300,000 home, the FHA fee is $6,000. In addition to this upfront cost, you will pay an additional 1.25% added to your loan interest rate on an ongoing basis.
3 – 3rd Party Closing Costs. No matter what type of loan you do (forward, home equity or reverse), there are always requirements by the lender that involve third parties. In a reverse mortgage you will pay for an attorney to represent the lender’s interests, a title search and title insurance to guarantee ownership of the property, an FHA appraisal to establish fair market value of your home, a credit report, flood certification, plus recording fees to properly record mortgage documents. 3rd party closing costs vary from state to state. In some states lenders may also require a municipal lien certificate to insure that there are no current liens on your property. Courier fees are sometimes also included in this category.

Q – A lender told me that the new HECM Saver program with substantially reduced fees is not available in Massachusetts. Is this true? Byron – North Andover MA
A – This is NOT true! The loan officer you are speaking with is not being 100% straightforward. What he/she really means is that HIS/HER LENDER source is not approved. The Massachusetts Division of Banks has indeed approved several reputable lenders to offer the new HECM Saver program with vastly reduced fees. (In some cases fees are 50% lower than the HECM Standard program.) Please contact us and we will provide the information to you.

Q – We are confused. One lender is telling us that he charges no Origination Fee and no upfront FHA Mortgage Insurance fee on HECM loans. A second lender is quoting fees almost twice as high. What’s the story? Billy G – Salem NH
A – Unfortunately there are some loan officers who fail to adequately explain all available HECM programs to clients. Sounds like you may be talking to different lenders about two (2) distinctly different HECM programs. You could be comparing apples and oranges, in other words. Your loan officer also sounds confused as FHA Mortgage Insurance IS REQUIRED on every HECM loan. Sit down with an experienced reverse mortgage specialist you can trust… and ask for an explanation of each and every program and the associated costs. Discuss the disadvantages as well as the advantages. Some programs do have substantially lower costs than others. But as with most things, the devil is in the details. You might get much less money and/or you might be required to take all money you qualify for at loan closing increasing your interest cost over the life of the loan. You might also be paying a higher interest rate on the loan with the lower costs. The key is to find a loan officer you can trust… who will meet with you face-to-face as many times as necessary to insure that you fully understand all options, all benefits and all consequences. Don’t deal with anyone who won’t meet with you face-to-face in your home and at your convenience.

Q – How do I know what HECM reverse mortgage program is best for me? Louisa – Pelham, NH
A – Contact a reputable reverse mortgage specialist. Have an honest discussion to jointly determine what your actual needs are… monthly income, a large lump sum of money (to pay some bills, for example) or the ability to draw from a line of credit as necessary. Work through the details of each HECM program (Costs, dollar benefit, payment options) and the proper choice will become obvious.

Q – It seems like there have been a lot of recent changes to the HECM program. Should we continue to wait in case things get even better? Beth & Frank – Lawrence MA
A – This is a very frequently asked question. The short answer is if you need to do a reverse mortgage… don’t wait! Here’s why: Home values are continuing to fall (meaning you will likely qualify for less money the longer you wait), FHA counseling requirements are stiffening (borrowers are now tested on their understanding of the HECM program) and needs-based analysis with credit investigation will be implemented soon. HUD could decide tomorrow that potential borrowers who fail to meet a certain income level or credit score may not qualify for a reverse mortgage at all. Finally, the present maximum lending limit of $625,500 is just a temporary limit. Some believe HUD will revert to the former $417,000 limit… meaning borrowers with homes valued higher will not qualify for that additional amount. Of course, if you don’t really need a reverse mortgage… wait.

See more Frequently Asked Questions here

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are, of course, not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, too. Tell a friend or link to the site.

COPYRIGHT 2011: All posts herein are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and the blog. You may not copy or republish without permission from the author.

The Commonwealth of Massachusetts Division of Banks has approved 3 lenders to offer the new HECM Saver reverse mortgage product in the state. Approved lenders who have submitted full documentation and have received approval to offer the product to senior homeowners are Genworth Financial, Generation Mortgage and a third lender with very few outlets in MA.

According to the office of the Commissioner of Banks, MetLife Bank and Bank of America are the only lenders to continue to wait for approval.  Given BofA’s announcement last week to exit the reverse mortgage business immediately, approval for them is a moot point.

HECM Saver offers significantly reduced fees to homeowners 62-years and older interested in the HUD Home Equity Conversion Mortgage program.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

Subscribe to Reverse Mortgage Information by Email

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>>> Free Referral to Consultant In Your Area – Click Here <<<

DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are, of course, not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, too. Tell a friend or link to the site.

COPYRIGHT: All posts herein are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and the blog. You may not copy or republish without permission from the author.

Some seniors will believe anything that’s in print.  The same applies to anything published on the internet. Unfortunately, much information published on the internet is simply wrong.  Take the subject of trusts as they apply to reverse mortgages .

HECMs & Revocable/Irrevocable Trusts

Self-proclaimed experts confidently report in news articles and on the internet that if your home is held “in a trust”, you are automatically prevented from completing a Home Equity Conversion Mortgage (HECM). Others laboriously explain the legal difference between revocable & irrevocable trusts… concluding with the falsehood that HUD will permit a reverse mortgage if home ownership is held by a revocable trust… but reject the HECM if ownership is in the form of an irrevocable trust.

Such a conclusion is simply not correct. And it illustrates why you absolutely need to work with a competent, experienced reverse mortgage specialist. Only an individual with direct reverse mortgage experience over a long period of time can guide you through this maze. Newcomers to the business simply do not have the broad exposure or weight of long experience to adequately assist you.

So what’s the correct answer? Well…. it depends.

Many revocable trusts are acceptable to HUD. But your loan officer and the lender will need to carefully review your trust document to make certain that it contains acceptable language… or that the trust can be amended to include that necessary language.  Also, the borrowers themselves need to be the beneficiaries of the trust. Trustees (as well as borrowers) will need to sign several of the reverse mortgage documents at closing; namely the loan agreement, the mortgage and the promissory note. Finally, you will need to locate the original trust document so that it may be recorded.  An experienced reverse mortgage specialist will understand each of these issues and help you to overcome possible hurdles. An inexperienced loan officer will fail to anticipate possible issues and might even cause your loan to blow up at the closing table.

Can I Do a Reverse Mortgage With an Irrevocable Trust?

Even some very experienced reverse mortgage professionals are quick to point out that irrevocable trusts are absolutely not acceptable to HUD.  Guess what… they’re wrong!  I just completed a Home Equity Conversion Mortgage for a client within the last month wherein the property was held by an irrevocable trust.  Experience (as always) is the key… and as a broker with nine (9) years reverse mortgage experience and multiple lender connections… I was able to find a lender for my borrowers that was willing to do the loan. It took some extra effort, it wasn’t easy but we got it completed without delay.

I continue to urge you to learn everything you can about your loan officer.  (See Choosing a Reverse Mortgage Loan Officer – Part I – III).  Always ask direct questions about his/her experience, licensing, training, actual number of reverse loans completed, character of the organization he/she represents.  Be wary of vague or incomplete answers.  Too many borrowers focus exclusively upon the fees and select the loan officer that promises to charge a few dollars less.  If that’s your focus, I promise that you will get what you pay for… and probably much less!

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are, of course, not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, too. Tell a friend or link to the site.

COPYRIGHT: All posts herein are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and the blog. You may not copy or republish without permission from the author.

HECM loans presently have modest credit requirements. Borrowers may not have unresolved bankruptcies in order to qualify… and that’s about it.  The key word is “unresolved”… meaning you could have filed bankruptcy (destroying your credit) previous to applying for a HECM loan, but as long as it was “resolved” you will be approved. Look for credit related underwriting standards to change in the near future. In fact, some changes are already in place as borrowers who have experienced recent counseling know.

13,000 Reverse Mortgage Defaults

Noise in the reverse mortgage industry is increasing almost daily with discussions and proposals floated as to what to do about 13,000 Home Equity Conversion Mortgages (HECMs) that are presently in default due to failure to pay taxes and/or home insurance. These borrowers, for whatever reason, have been unable to make regular payments on their real estate taxes or keep their homeowner’s insurance policy in force.  Average default balance is about $5,000.

Admittedly, this is not a huge number of loans when compared to forward (conventional) mortgage lending where the defaults and resulting foreclosures are significantly more. But it is enough to worry HUD officials and politicians. Some rules have already changed with respect to the required HUD counseling. As of very recently If borrower income is less than 200% of the federal poverty level (about $1,800 or $2,400 per month for single or couple) borrowers must undergo extended counseling to include a benefits assessment… to determine if municipal, state or other federal programs will benefit them.

Credit Scores a Factor for Reverse Mortgage?

There is talk now about minimum credit scores for HECM borrowers. Presumably, this would lower the risk of future defaults. This could be a major disqualifier for many seniors who have serious financial need for the Home Equity Conversion Mortgage program.

Add these possible new credit standards to continuing depressed home values and resultant low appraisals… it does not seem prudent to delay application for a reverse mortgage. In another year your home could easily be worth 10% less and your credit history and your income could become new underwriting hurdles. You might not qualify if the rules change. We think the biggest risk you could take… is waiting!

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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The average age of reverse mortgage borrowers has fallen rapidly according to industry sources.  Only several years ago, the average borrower was about 75 years old. Today, the average client is mid sixties.

Reverse Mortgage New Financial Tool

Several years ago, that average borrower was also in serious financial difficulty and the reverse mortgage was about the only rescue option available. Today, however, the younger borrower seems to be using the reverse mortgage less as a rescue option and more as a practical financial tool.

According to a report from one major wholesale reverse mortgage lender an emerging use is to activate the Home Equity Conversion Mortgage (HECM) loan to help supplement retirement income… in order to delay collecting Social Security benefits until age 70.  While a person who starts collecting Social Security benefits early at age 62 might receive $750 per month,  if they are able to wait to age 70 to begin collecting, that amount increases to $1,320 per month.  That’s almost double the amount.

Funds received from a reverse mortgage at age 62 might be very close to that early Social Security payment.  It would enable an individual or a couple to wait before drawing the larger amount at age 70. Remember, also, monthly payments from the HECM loan are not taxable so the net payment could even be greater in some circumstances.

This strategy won’t work for everyone.  But it is important to at least discuss this option with your financial planner and your independent reverse mortgage consultant.  Thinking outside the box just might help to improve your retirement income dramatically.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086

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