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

Subscribe to Reverse Mortgage Information by Email

>>> Subscribe to Reverse Mortgage Information – Click Here <<<

>>> 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 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.