Reverse Mortgage Information

Not widely reported yet, reverse mortgage counselors are experiencing much difficulty passing a new mandatory licensing test.  This follows multiple reports of reverse mortgage loan originators struggling greatly to pass their own government mandated nationwide examination under the S.A.F.E. Act.

Reverse Mortgage Counselors Stumped

A Charleston, SC newspaper (The Post and Courier) ran a story today with a quote from Debbie Kidd, a very experienced counselor and head of the Homeowner Resource Center at Family Services Inc where she said she has failed the new counselor test four times in a row.  Kidd says, “It’s humiliating…. I’ve done this for 20 years… Why can’t I pass this test?”  Debbie is an acquaintance and we know of her long time service to seniors and her standing in the counseling profession.  Her knowledge of the industry is exceptional.  I would say her knowledge of the subject matter is unquestionable.

HUD Fixes Things… Again

In their wisdom, the U.S. Department of Housing and Urban Development (HUD) decided to make the licensing exam for counselors more difficult.  This action is just one more badly conceived response to a cadre of poorly informed,  loud-mouthed housing advocates who continue to beat the drum about so-called abuses to the Home Equity Conversion Mortgage (HECM) program.  According to an article in the Post and Courier, a HUD spokesperson said the agency “acknowledges the test is intentionally difficult, but we believe it needs to be so because of the vulnerable population” who seek reverse mortgages.  In other words, HUD thinks all seniors are stupid and need to be protected from themselves.

After receiving complaints from test takers, HUD posted more study material online. But in South Carolina, only one counselor in Columbia and one in Greenville have passed this test so far.  Seniors trying to get counseling for the HECM program have even fewer options now.  Who knows what the statistics might be in other states.

Seniors Will Get Less

The result of all the unanswered negative publicity that has been hammering the HECM program for many months is that seniors now qualify for less money, see lower home values, are forced to pay out-of-pocket for appraisals directly, are forced to pay for counseling out-of-pocket directly… and now they will be certain to have more trouble finding a “qualified” counselor.  The mounting unintended consequences of poorly conceived changes to the HUD program are destroying it piece-by-piece.  At this pace, soon… there will be no HECM program remaining for for seniors.

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

A recent experience of one of my clients is demonstration of why you should always (1.) safeguard your original reverse mortgage loan documents and (2.) maintain contact with your loan officer long after your loan closes.

Mr. & Mrs. Johnson (names changed to guard client privacy, of course) did their HECM loan with me back in 2003 when I originated for BNY Mortgage – Reverse Mortgage Division. Since that time the corporate name on my office door has changed several times due to merger & acquisition or better opportunity.  But I have always notified my clients and provided details on how to contact me should they need my assistance.

Reverse Mortgage Account Number Changed

Mr. & Mrs. Johnson’s loan was initially serviced by Seattle Mortgage and all went well for many years. But sometime in 2008 the Seattle Mortgage Reverse Division was purchased by Bank of America. Bank of America dutifully notified Mr. Johnson that they were assigning a new account number to his reverse mortgage account.  The new statements soon began arriving addressed to Mr. Johnson at his home in Massachusetts.  Balances appeared to be correct and the  Johnsons continued to draw a small amount of cash several times during the year to stay current with their financial obligations.  Then, unexpectedly, Mr. Johnson passed away in January of this year.

Within a few weeks, Bank of America forwarded a form letter to Mrs. Johnson advising that according to the terms of the agreement the reverse mortgage was now due and payable.   She was given a period of time to settle the outstanding balance due but the line of credit on the account was immediately terminated.  Mrs. Johnson was shutoff from any further draw on her account at a time when she most needed the emergency money.

Her phone calls to Bank of America were unproductive. She was repeatedly transferred from department to department and given inaccurate information.  At one point, a representative even suggested she refinance her reverse mortgage to avoid the possibility of foreclosure.  A very inappropriate recommendation.  She did not know how to resolve this very serious problem.

Help From Your Reverse Mortgage Loan Officer

Finally, Mrs. Johnson recalled communications from me informing her of my new position and encouraging contact for any reason.  She turned to me for advice and assistance. I could sense that she was distraught and emotionally drained.  I immediately met with her at her home accompanied by her daughter and her son. After some investigation we found an original copy of the Loan Agreement signed at closing by both Mr. & Mrs. Johnson.  We determined that an official copy of the reverse mortgage document with both signatures was on file at the county registry of deeds. An original deed to the property with both names was also located.  It then became obvious that when Bank of America assigned the new account number to Mr. & Mrs. Johnson’s loan, they arbitrarily dropped Mrs. Johnson’s name from their records. All future monthly statements and communications from Bank of America contained only Mr. Johnson’s name. Even checks drawn on the account were made out to Mr. Johnson only.

Correcting Reverse Mortgage Bank Error

Mrs. Johnson has retained an attorney to represent her to communicate with the bureaucracy at Bank of America to suggest they get their records corrected immediately. However, an error like this should never happen. And when it happens to an elderly person who has just lost a spouse, the confusion and desperation can be completely overwhelming.  Bank of America or any other lender should make a better effort to help customers deal with these situations. I’m sure this is not the first time something like this has happened.

Moral of the story: Save your paperwork and choose a loan officer who will be there to help you many years later if a problem arises. Keep at least your Loan Agreement and your Mortgage in a safe place known to both spouses. Always check your monthly statement for balances and note carefully any name, address or account number changes.  Contact the service provider immediately if you note anything out of the ordinary. Take names when you talk to people.

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

If you are a condominium owner thinking about doing a Home Equity Conversion Mortgage (HECM) but have not yet applied for the program you might be out of luck.  You might have waited too long!

New rules go into effect February 1st eliminating the old “spot approval” process. If your complex is not already FHA approved, there is little probability that your project could/would earn necessary FHA approval.  The process is far too costly for most associations to initiate.  While a very savvy lender just might be able to navigate the process to win spot approval for you under the new rules, that lender would assume liability for your loan and any other reverse mortgage loan completed in your project… even if other loans were done by another lender. Seems unlikely anyone would take the risk.

Many projects that are presently FHA approved will be subject to review because conditions have changed and much time has passed since these projects were initially approved.

So many changes are coming down with respect to the Home Equity Conversion Mortgage program that it is difficult even for the professionals to keep abreast of them.  If you even think that a reverse mortgage is in your future over the next six to twelve months, you should be talking to an experienced professional. Waiting is probably a poor strategy given the numerous changes to the program.

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

Big changes to the Home Equity Conversion Mortgage (HECM) program are in store for 2010. You will need to make certain you are dealing with a very experienced loan officer to avoid delays and surprises.

New Principal Limits

Principal Limits were reduced by FHA in October of 2009 by 10%. Many seniors went underwater at this point because they owed too much to qualify after the overnight implementation by HUD. There is strong likelihood that Principal Limits could be reduced again in 2010. HUD continues to struggle to make the HECM program “deficit neutral” so that taxpayer money will not be required to make up any shortfall in insurance coverage. An alternate suggestion is that FHA Mortgage Insurance might be raised beyond the current 2% limit. It is possible that both events could take place in 2010.

FHA Appraisals

New rules regarding FHA appraisals go into effect on January 1, 2010. Basically, all appraisals will be assigned from a pool of approved appraisers instead of individual selection. The theory is that brokers and originators will no longer be allowed to communicate with appraisers and, therefore, values will be determined objectively – without undue influence. An unintended consequence is that an appraiser 50 miles distant may not be familiar with your local community and most anticipate values will be driven down.

HECM Condo Approval

If your home is a non-FHA approved condominium, it will also be more difficult to qualify for a HECM after February 1, 2010. The elimination of the “spot approval” process was scheduled for implementation several times in 2009. Latest cutoff date is now set to February 1st. If the project you live in is not FHA approved, it is unlikely that your association will be willing to undergo the expense to obtain FHA approval. Many seniors who are condo homeowners will become ineligible and unable to do the government insured HECM reverse mortgage after February 1st. I strongly advise submitting an application immediately and well before February. This will extend your eligibility and you could always withdraw your application if you ultimately decide against a reverse mortgage.

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

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (“SAFE Act”), was passed on July 30, 2008.  As you will note from the updated graphic below, most states have already come on board.  California is the latest (but this is not yet indicated on the map).  According to ProSchools, an industry training source, the Conference of State Bank Supervisors has estimated as many as 45,000 loan originators in CA will need to take the SAFE Act National Test but admits some of those may simply drop out of the business. New Jersey is another recent addition with estimates of 22,000 loan originators.

State regulators continue to warn loan originators not to wait to take the National and/or State components of the examination.  Approved schools offering the required 20-hour course are also warning their students that the test is very difficult. For even the most experienced reverse mortgage originators without any forward lending experience, the test is really difficult.

If loan orignators wait until the very last minute to take this test and fail, they must wait 30 days before a retake is allowed.  If the deadline is December 31st and you wait until the last minute… and fail, you will be out of business until you retake and pass the SAFE Act Test.  During that period you will not be able to take a loan application.  Given the high initial failure rate, it is just too risky to wait. Do it now!

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

Outrageous fees! This is perhaps the hottest topic one could chose to address about reverse mortgages. I especially like the analysis of an experienced Minnesota reverse mortgage loan originator, Beth Paterson on this subject. Please read her blog at Beth’s Reverse Mortgage Blog  In a June, 2009 post she published a great analysis of specific costs of  the HECM reverse mortgage vs. a conventional forward mortgage and she shows a side-by-side comparisons of the numbers. If you are interested in facts… as opposed to falsehoods or myths perpetuated by the uninformed, read on.

Below is an excerpt from her June 27th post Reverse Mortgage Closing Costs – High or Mythical? She closely examines fees & costs and shows total cost calculations in a summary chart at the end. The property in the example is a $200,000 home. Her conclusion is that reverse mortgage costs are not outrageously different from traditional mortgage costs. Following is a excerpt but please read her entire post to follow the analysis from beginning to end:

“Now let’s compare the Lender Fees:

FHA’s Mortgage Insurance Premium (MIP) is paid directly to FHA.  This is 2% of the home value for the reverse and 1 ½% for a forward.  The advantages with FHA insuring the reverse mortgage include:

• Guaranteeing the funds are available for you.
• Guaranteeing the lender against default or shortfalls which means the interest rates are lower (currently under 4%) compared to other mortgages.
• Providing a line of credit growth rate (available only with reverse mortgages).
• Insuring as a reverse mortgage it is a non-recourse (no personal liability) loan.

The origination fee is what the originating lender receives to cover the loan officer’s salary, overhead to run the business, i.e. staff salaries, administration costs, computers, electricity, office supplies, marketing expense, gas mileage, health insurance of employees, etc..  The origination fee also includes the processing and underwriting costs which are generally separate and charged to the borrower on forward loans.  HUD regulates the reverse mortgage origination fee to be 2% of the 1^st $200,000; 1% thereafter with a cap of $6,000.

The reverse mortgage fees are based on the full home value because over time borrowers can access more than the home value at the time of origination.

An estimate based on a $200,000 home value:

*Typical points on Forward loans are 0-4%; this example is based on $100,000 loan at 2% points
** Forward loans often have a 1% backend fee
*** Number of points are directly related to interest rate charged; the more points paid the lower the interest rate; the lower points paid, the higher interest rate

Note:  THE DIFFERENCE IS BASICALLY THE FHA MORTGAGE PREMIUM!”

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

In this and following posts we review the 4 reverse mortgage documents you need to examine closely as you research, select, and finally apply for your loan. This is only an overview and is not intended to be an exhaustive explanation of every line in every document.

Consider these as your pre-application documents. You should have received these documents from your loan officer prior to making your decision. They include (1.) the Reverse Mortgage Loan Comparison sheet, (2.) the Good Faith Estimate, (3.) The Amortization Schedule and, (4.) the Total Annual Loan Cost (TALC) calculation.  With these documents in hand you should be able to make an independent, informed decision.  You should also be able to accurately compare offers from a number of lenders if you have done your research properly.  If you do not fully understand the information contained in these documents, you need to find a reverse mortgage specialist willing to meet face-to-face in your home with you, your family and your financial advisor to explain every detail.

Reverse Mortgage Loan Comparison

We begin at the beginning; researching and accumulating information specific to your situation.  The single most important document to request from your loan officer is the Reverse Mortgage Loan Comparison sheet. To get an accurate estimate (at this point, it is only an estimate, not a guarantee) of how much you might qualify for, the loan officer will need to ask some questions about you and anyone else on the title to the property.  Then the data is loaded into a special calculator and the document is produced. Note that this information is much more detailed and accurate than online calculators designed to identify you as a reverse mortgage prospect.  If the information here has not been supplied by you, it is probably inaccurate.  Print out the sample Reverse Mortgage Loan Comparison and follow along as we go over some of the important items on this summary document. This document has almost everything you need to help you to make an informed decision.

Different lenders might have slightly different forms but the Reverse Mortgage Loan Comparison summary sheet should be arranged in 4 distinct columns. The extreme left column identifies each of the categories such as initial interest rate index, total principal limit, liens and disbursements, etc. found in each of at least 3 different specific HECM loans programs; the remaining columns.  (If you have been given a loan comparison sheet that only shows 1 or 2 options, find another loan officer.

The upper left corner shows borrower names (be certain all owners are listed), the principal residence property address and borrower ages (FHA rounds up to the nearest birthday within 6 months).  The youngest borrower is listed first and an assumed property value is indicated.  Note that this should not be the property assessed (tax) value.  It should be an informed, educated guess based upon recent sales of like homes in your neighborhood. Since this value is a critical factor in determining how much you qualify for, consult with your loan officer who should have the experience to help you to arrive at a reasonable estimate.  A seasoned reverse mortgage specialist will advise caution.  Better to be conservative here to avoid disappointment if the FHA appraisal comes in significantly lower.

If you later decide to work with more than one loan officer, be certain to use the same details, same numbers so you compare apple to apples.  Specifically note the date at the bottom left corner of the document.  Interest rates change every week (another critical factor in your calculation) so if you fail to make the comparisons from lender to lender in the same week – your comparison is probably flawed. You will be comparing apples to oranges.

(More – next post)

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

Recent stories in Consumer Reports, Parade Magazine and a study from the National Consumer Law Center, Boston trash the reverse mortgage industry and falsely claim that these loans are the next subprime fiasco. Those offering reverse mortgages are tagged as predators poised to target senior homeowners. These particular articles are inflammatory, poorly researched and the so-called study acknowledges contributions from individuals known to have serious conflicts of interest. All of the cases cited are old news. Federal regulations have been in force for some time aimed at preventing the same mistakes from reoccurring.

Following is a rebuttal to all that bad press about the reverse mortgage industry. It’s time to fight back! Here is some documented good news:

1 – Since 1989, more than 500,000 Home Equity Conversion Mortgages (the most popular reverse mortgage and accounting for 90% of industry volume) administered by the U.S. Department of Housing and Urban Development (HUD) have been completed. There are 499,994 “good” reverse mortgage loan stories out there but the media are solely focused on the same, tired old 6 cases. Those cases are the exception, not the rule.

2 – AARP and industry sponsored surveys have reported consistent satisfaction rates among reverse mortgage senior borrowers ranging from 93% to 97% over the last few years. No other loan product is so well received. The news stories never mention this critical fact.

3 – Comments made by the Comptroller of the Currency John C. Dugan in June (that started the recent avalanche of bad press) are out of context and Dugan is misquoted in all of the above cited publications. The publications conveniently fail to include his positive comment that “reverse mortgages can provide real benefits”.

4- Congressman Barney Frank (D-MA and Chairman of the Financial Services Committee) is a strong supporter and proponent of the government insured Home Equity Conversion Mortgage (HECM) program administered by HUD and offers rebuttal to those who claim that reverse mortgages could become the next subprime fiasco. His summary, given in specific reference to the Dugan quote, is that this (the next subprime mess) is a completely ridiculous assertion. There is no possible comparison to reverse mortgages, according to Representative Frank.

5 – For several years, HUD has worked to tighten regulation of the HECM program in order to prevent repeat of abuses featured in the above referenced publications. For example, while the bad publicity warns of unscrupulous reverse mortgage lenders cross-selling annuities or other insurance products to seniors, this activity has long since been prohibited and substantial federal penalties have been applied in cases where the practice continued.

6 – At the request of the National Reverse Mortgage Lenders Association (the reverse mortgage industry trade group) both HUD and state banking regulators nationwide have been repeatedly asked to report any and all known cases of HECM abuse. According to NRMLA, no cases have been reported to date. But those same few cases from prior years seem to be publicized repeatedly by the press. Bad news, it seems, sells papers and generates grant money.

7 – The SAFE Mortgage Licensing Act of 2008 is another federal government effort to insure that all mortgage loan originators are registered with the Nationwide Mortgage Licensing System (NMLS). Also, mortgage originators who do not represent a depository institution such as a bank, credit union, or savings bank (about 85% of loan originators do not), must complete 20 hours of pre-licensing education and pass a tough national license exam. Individual states (MA and NH included) also require a state specific exam administered separately from the national exam. Fingerprinting, credit check and criminal background check are also required. The NMLS registry will be opened up to consumers in 2010 so that complaints may be recorded, tracked and individual qualifications may be verified. This will be a major asset to borrowers, enabling them to know more about the loan officer they select.

8 – HECM borrowers must complete a counseling session with an independent FHA certified counselor before a reverse mortgage application may be registered with FHA. Non-borrowing spouses (not on deed) are required to attend and adult children are encouraged. Participants are now required to pass a test administered verbally by the counselor to insure that each has a clear understanding of the loan product. Non-borrowing spouses and even adult children living in the home are required to acknowledge in writing that the reverse mortgage carries consequences that could impact them.

There is nothing inherently wrong with a reverse mortgage. As is the case in any industry, it is the people you deal with that make the difference. Second, there are an increasing number of 62+ year old homeowners using reverse mortgages who are certainly not destitute. Some, in fact, might be considered affluent. For many seniors who wish to remain in their home, the reverse mortgage is a useful financial tool if fully understood and used properly.

Reverse Mortgage Advice

Work closely with a professional who has specific reverse mortgage training, long experience in the reverse mortgage industry, personal integrity and a strong reputation in that field. Ask your accountant, your real estate attorney, financial planner, elder law specialist or other financial professional to bring in a reverse mortgage specialist for a face-to-face meeting to educate you, your spouse and family as well as your advisor. Only then can you intelligently and independently decide if a reverse mortgage meets your specific needs. Don’t risk your home based on bad advice or misinformation perpetuated by the media.

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

When it comes to reverse mortgage expertise, even the mighty Wall Street Journal can get it wrong.  Or, in this case, at least partially wrong.  Below is a question posed to Karen Damato in a recent Q&A column in Personal Finance.  She turns to AARP spokewoman, Nancy Thompson for the answer. Thompson’s answer, in my opinion, is short-sighted and indicates she may not be very current in her knowledge of “most reverse mortgage borrowers”.   Here’s a summary of the column;

——————————————–
Q – Several years ago, when reverse mortgages first started getting popular, my wife and I took out a reverse mortgage on our home. We have noticed something that is a bit bothersome. The interest and fees charged monthly by the lender are high, but that isn’t the problem I am upset about. Rather, I find that these interest charges and fees aren’t deductible from our income taxes. Why not? If this were a regular mortgage we could at least deduct the amounts in our income-tax calculations. That is certainly not fair.

A – There’s a big difference between paying interest on a regular mortgage and on a reverse mortgage, and it has to do with timing: With a standard mortgage, borrowers pay interest each month, and they can deduct it on their taxes each year. With a reverse mortgage—which older homeowners can use to convert the equity in a home into spendable cash—the interest and certain fees that accrue each month are typically added to the balance of the loan.

The actual payment “doesn’t take place until the loan is repaid when the borrower either dies or sells the home—so the borrower can’t claim a tax deduction until that point,” says Nancy Thompson, a spokeswoman for AARP, an association for older adults.

In the year the reverse mortgage is repaid, the interest would be deductible against any income-tax liability of the borrower or the estate, Ms. Thompson says. But she adds that most borrowers won’t actually get a tax deduction because “most reverse-mortgage borrowers have low incomes and little tax liability.”
——————————————

AARP Reverse Mortgage Advice Poor

The problem with the answer is that it is only partially correct. A better response might have been to advise the borrower to make monthly payments back to the lender to cover the interest accruing on the loan. While it is not necessary to do this, it can be done… and then you would be able to deduct that interest on your tax return each year. Why would anyone whine that it is “not fair” to be prohibited from deducting interest that has not yet been paid?

Thompson’s second point that most reverse mortgage borrowers have low incomes is simply not an accurate statement.  Many of the reverse mortgage borrowers I work with today are middle class (or better) retirees with substantial home equity and retirement portfolios. They are using the reverse mortgage as a financial tool, often on advice of a financial planning professional. They are certainly not last resort borrowers. That perception is dated and pure myth. It is not helpful to have AARP representatives making such comments, in my opinion. It only contributes to the misinformation surrounding reverse mortgages.

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

On the lighter side….some senior homeowners agonize over the decision to do/not do a reverse mortgage.  One of my own clients has been “thinking” about it for 5 years.  Take heart, there is now a “collective knowledge” program that will lead anyone through the process step by step.  Actually, it’s interesting.  The more people who use the thing, the smarter it should get.  It will help you decide on a diverse range of topics … to buy a Porsche or to get a reverse mortgage.

HUNCH is the brainchild of a group of MIT students.  The 10-person design team who built the core algorithm says (We are)… ” mostly a bunch of MIT nerds with backgrounds in computer science and math, which comes in pretty handy when you’re building a massive collective knowledge project based on machine learning.”   Hunch is a decision-making site that gets smarter the more it’s used.  After asking you 10 questions or fewer, Hunch will propose a concrete and customized result for hundreds of decisions of every kind. You could jump right to your reverse mortgage decision problem by clicking the link above. But for better results, run through the initial questions on the site Home page so HUNCH can get to know you.

Flickr Co-founder Caterina Fake is a Hunch Co-founder and Chief Product Officer.   Hunch opened to the public on June 15, 2009.  According to Fake, “decision-making is dark and lonely work.  Coin-flipping, I Ching consultation, closing your eyes and jumping, postponing the inevitable, Rock-Paper-Scissors, and asking your sister are all time-honored means of coming to a decision – and yet we think there’s room for one more: Hunch.”

Hunch is a decision-making site, customized for you. Which means Hunch gets to know you, then asks you 10 questions about a topic (usually fewer!), and provides a result – a Hunch, if you will. It gives you results it wouldn’t give other people.

DISCLAIMER: We’re just having a little fun here. We do not propose that you use HUNCH to make your reverse mortgage decision.  However, if you need an excuse to buy a Porsche… ?  Check out PorschePurist

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

Reverse Mortgage Video by AARP – Worth Watching!

Below is a reasonably informative video produced by AARP. It’s about 27 minutes in length but worth viewing all of it. Starts off slow but picks up interest a few minutes into it. AARP is to be congratulated on a fair and balanced piece. It’s about time somebody did it right!

Sheilah Kast, the hostess, makes a good effort at explaining reverse mortgages. But she incorrectly states that “… to find out if a reverse mortgage is right for you, you must talk to a reverse mortgage counselor.” This is simply not correct. You are never required to speak to a counselor just to learn about reverse mortgages. And when you do attend a session, the counselor does not/should not make any decisions for you. You should do your own homework and research … including speaking with a very experienced reverse mortgage loan officer. Get your info from a variety of sources and make up your own mind if a reverse mortgage is your best option.

Rep Barney Frank (D-MA) makes excellent points in rebuttal to an assertion that reverse mortgages are destined to become the next sub-prime lending mess. Frank also quickly debunks the unfounded recent public comments of the Comptroller of the Currency.

Peter Bell of NRMLA is a good spokesperson and discusses the code of conduct for the reverse mortgage industry. He also mentions recent changes that lowered fees and prohibited some kinds of past abuses practiced by a few unscrupulous individuals.

Consumers are very adequately represented by Suzanne Montezemolo, Center for Responsible Lending. She advocates for more extensive counseling and acknowledges that it is not the actual loan that could become a problem… it is often the inappropriate use of the money.

The most articulate, I think, is Mary Beth Franklin, Senior Editor at Kiplinger Magazine who is the last guest. She does, however, stumble a little in explaining the new HECH for Purchase product but does a great job overall.

Suze Orman Reverse Mortgage Video – Advice!

Here’s another good video – a very short one, too:

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

The drone continues. Parade Magazine this week is the latest to publish a grossly misinformed piece about reverse mortgages.  Before that we suffered a ton of stories in the national and regional press referencing “reverse mortgages – the next big subprime mess”.

Several weeks ago Consumer Reports hit the stands with an inflamatory and irresponsible piece about reverse mortgages.  Many of these stories were generated from comments made by the Comptroller of the Currency, self-serving hearings held by Sen Claire McCaskill (D- MO) and have been fueled more recently by a National Consumer Law Center study published in October. (I’m suspicious of “studies” when I note that some report contributors listed under “Acknowledgements” have made a public career out of bad-mouthing reverse mortgages.)

Yet AARP reports that 93% of seniors who completed a reverse mortgage are reasonably happy. This proves that only bad news sells newspapers and magazines.  Good news is a waste of time for these organizations.  Where are the stories about the hundreds and hundreds of thousands of seniors who have been helped by reverse mortgages?

We encourage you to read these articles and studies. But be forewarned. This doom and gloom is old news.  Sure, there have been seniors who have been victims of dishonest lenders and brokers.  But there have also been borrowers who have learned to game the system… claiming they didn’t know this or that.  These cases are the exception, not the rule!  New regulations from HUD are already in place and make the scenarios of several years ago described in these articles and reports very unlikely if not impossible today.

Decide for yourself!  Read the “bad news”.  If you’re a reasonably intelligent person who has made it to senior status and has retained ownership of a home, raised a family, and tried to prepare financially for retirement… you know how to pick the right professional(s) to help you determine if a reverse mortgage is good or bad for you.  Don’t let yourself be bullied by pushy “salesmen”. And certainly don’t let yourself be bullied by fear-mongering reporters or pseudo-experts with an agenda from the “think tanks”.  And a final piece of advice for Consumer Reports – stick to toasters and washing machines!

Consumer Reports article here

Parade Magazine article here

National Consumer Law Center study here

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

Here is PART 2 of the most frequently asked questions about the Home Equity Conversion Mortgage:

May I switch reverse mortgage payment plans in the future?

Yes, for a nominal fee (currently $25), you may switch payment plans at any time.

Will my heirs/children owe anything to my reverse mortgage lender if I die?

Upon your death, the HECM loan balance becomes due and payable if you are the last remaining borrower living in the home. Your heirs may either repay the loan balance or sell the property at “fair market value” through a licensed real estate broker.  When selling, if the loan balance due exceeds the value of the property, your estate owes ONLY the value of the property at that time. Any remaining balance will be forgiven.  No additional financial claims may be made against the estate or your heirs. If your heirs wish to purchase the home any pay the balance owed they may do so.

If my home’s value appreciates during the reverse mortgage mortgage term, who will be entitled to that money?

Under the terms of the HECM, you are legally required to pay back only the outstanding loan balance.  Any money remaining after the mortgage is paid goes to you or, upon your death, to your heirs.

What if I decide to sell my home and I have a reverse mortgage on it?

If you choose to sell your home, the outstanding reverse mortgage loan balance becomes due and payable at settlement. You or your estate will receive any proceeds exceeding the loan balance.

If I decide to pay off my HECM loan is there a prepayment penalty?

There is no prepayment penalty on HECM loans. You may pay back the loan anytime. If you have a reverse mortgage that is not a HECM, it could have a prepayment penalty.

Can I sell my home to my children and continue to live in it if I have a reverse mortgage?

If you sell your home to your children or any other individual, the HECM will be due and payable at settlement.  After the loan is repaid, any arrangement for your continued occupancy of the property must be made with the new owner(s). Consult your attorney about the pros/cons of a life estate which may accomplish your goal and is permitted by HUD under the HECM program.

What is the Federal National Mortgage Association’s (“Fannie Mae) role in the HECM program?

Fannie Mae has agreed to purchase adjustable rate HECM loans from lenders who originate them. They provide an active wholesale market for the securities.

Are all reverse mortgage loan officers licensed by my state?

Probably not. Only state regulated loan originators are required to be licensed by a state.  Some nationwide organizations operating Call Centers (telephone origination) are exempt. State licensed originators are screened with a criminal records check and a credit background check in some states and are supervised by a state entity… such as the Commissioner of Banks in Massachusetts. By 2010, it is expected that most states will require loan originators to be registered with the Nationwide Mortgage Licensing System (NMLS). For a map of states presently requiring NMLS registration, go here

Who determines the value of my home for a reverse mortgage?

Under HUD rules, an FHA certified appraisal must be done on your property to establish value.  Appraisal guidelines are very stringent.  Your home must meet FHA standards and the value arrived at could be less than your perceived estimate of full market value.  (Property values in most areas have fallen substantially in recent months.)  The most important thing to remember is that HUD/FHA is not offering to purchase your home… they are simply attempting to arrive at a reasonable, timely, verifiable estimate of value for purposes of the HECM program.  If you are not satisfied with an appraisal you may order a second FHA appraisal (advance payment required) but it is not likely to differ significantly from the original.

See Also Reverse Mortgage Frequently Asked Questions – Part 1

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

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Here is PART 1 of the most frequently asked questions about the Home Equity Conversion Mortgage:

What is a Home Equity Conversion Mortgage?

The HECM (heck-um) is a special type of FHA mortgage program that enables homeowners age 62 and over to benefit from the equity in their home with no repayment needed for as long as they continue to occupy the home as their primary residence

Who is eligible for a HECM?

You, and any co-borrowers, must be at least 62 years old and either own your home free and clear or have a mortgage balance that can be paid off at loan closing.  Your home must be a single-family or two-to-four unit dwelling.  Units in condominiums are also eligible if they meet FHA guidelines.  You must also agree to accept mortgage counseling from a HUD approved independent counseling agency.  Family members are encouraged to attend.  Call us for a referral to a counselor in your area.

How do Home Equity Loans and HECM loans differ?

With a Home Equity loan, you must begin to make monthly payments to repay the loan as soon as the loan is taken out.  You also must be able to prove that you have the monthly income to qualify for the home equity loan, and you may be required to re-qualify after the loan is taken out.  With a HECM loan, there are no monthly payments and no monthly income requirements for setting up the program…. ever!

Will I qualify for a reverse mortgage if I already have a conventional mortgage or a home equity loan… or both?

It’s OK to have a regular mortgage or home equity loan or both. Many borrowers have an existing mortgage or liens on the property. As long as you qualify for enough money to pay off the existing loans, you will be eligible for a HECM.

How much money can I borrow under a reverse mortgage plan?

The maximum amount that can be borrowed is based on a HUD formula that factors in the age of the youngest borrower, the interest rate, and the maximum claim amount.  The maximum claim amount is the lesser of the appraised value of your home or the maximum principal amount for a one-family residence that can be insured by FHA in your area. Currently $625,500 in most states.

What payment plans are available with a HECM?

You may choose from five different payment plans:

TERM:  You receive equal monthly payments for the fixed period of time selected by you.

TENURE:  You receive equal monthly payments for as long as you occupy your home as your principal residence.

LINE OF CREDIT: You may draw up to a maximum amount of cash at times and in amounts of your choosing as long as you occupy the home as your principal residence.

MODIFIED TERM: You may set aside a portion of your loan proceeds as a line of credit and receive the rest in the form of equal monthly payments for a fixed time period as specified by you.

MODIFIED TENURE: You may set aside a portion of your loan proceeds as a line of credit and receive the rest in the form of equal monthly payments for as long as you occupy the home as your principal residence.

How will the reverse mortgage payment amount be calculated?

The amount depends on the age of the youngest borrower, the interest rate, the maximum claim amount defined above, the amount of the monthly servicing fee, and the length of time that you will be receiving payments – for a fixed period or for as long as you live in your home.  The older you are, the larger your payments are likely to be.

Will HECM payments affect Social Security or Medicare benefits?

HECM proceeds will not affect eligibility for retirement, survivor, disability, or Medicare benefits payable under the Social Security Act.  However, eligibility for need-based programs, such as Supplemental Security Income (SSI) could be affected if advances are not spent in the month received.  Other state-administered programs such as Medicaid, AFDC, and food-stamps all have different eligibility requirements.  Therefore, we suggest that you speak with a benefits specialist.

Are fixed rate HECM loans available?

Yes, however there are some disadvantages.  Fixed rate HECM loans (1.) start out at a higher rate of interest and (2.) offer less money to senior borrowers (sometimes).  (3.)  Fixed rate products also require that borrowers take all money at closing.

Will I have to pay any fees to obtain a HECM loan?

Yes.  These fees and costs may be included in your loan balance so that you do not have to pay them in cash.  You pay an origination fee, ordinary closing costs, and an FHA mortgage insurance premium (2% up-front and a ½% annual FHA renewal premium on the outstanding balance).  A monthly servicing fee will also be charged each month.  This may also be financed into the loan balance, so you will not have to pay it in cash.  An FHA appraisal and home inspection fee is also required.  Ordinarily, this fee may also be rolled into the loan balance so that there will be no out-of-pocket initial expenses to worry about except the counseling fee of $125. Frequently, this fee may also be financed

Are there restrictions on the use of the reverse mortgage money?  What if I just want to buy a new car or pay tuition for a grandchild?

The lender does not ask any questions regarding the use of the loan proceeds.  This is your money, and how you spend it is completely up to you!

Will I have to sell or leave my home if the money I owe on the reverse mortgage exceeds the value of my home?

NO! As long as you continue to live in your home as your primary residence, you will never be asked to sell or move out of your home as long as you abide by the loan agreement which states that you will pay all property taxes and keep the property well maintained and properly insured. The FHA insurance you acquire in connection with the HECM covers any potential financial obligation to your lender.

Are there any special requirements to get a HECM?

You must agree to accept mortgage counseling from a Department of  Housing and Urban Development (“HUD”) approved counseling agency via phone or in person. This is provided to assist you in understanding the HECM loan program so that you can be comfortable in knowing whether or not the program is right for you. We encourage you to bring friends and family members to the session. FHA requires that you pay the fee (usually $125) direct to the agency that counsels you. Lenders may not reimburse this fee.

See Also Reverse Mortgage Frequently Asked Questions – Part 2

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

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Throughout this blog we may use terms you might not be familiar with. Following are some definitions. Some are unique to posts in the blog and some are unique to reverse mortgage lending. We will expand as time and circumstance permit.  Check this post frequently for updates.

Big Dog

A national lender that has a specialized reverse mortgage division. These are direct lenders (processing and actually lending in their own name under FHA authority).  Included are Wells Fargo (largest in terms of unit volume), Bank of America, Financial Freedom (post IndyMac bankruptcy), MetLife Home Loans and a very small number of others.   These institutions usually have both retail and wholesale operations.  Customers walk into the local branch (retail) of any of these organizations and are routed to an internal specialist.  Other borrowers (wholesale) are brought to them by brokers, agents and correspondents – who might be your local mortgage broker or regional bank or local credit union.

Boutique Broker

A phrase we made up to help illustrate the significant value a broker provides to you while you are considering a reverse mortgage transaction.  Most (not all) offer close personal attention and are available 24/7.  Ever try calling your local bank on Sunday morning with a troubling question or concern?  Each of my clients has my cell phone number and instructions to call me anytime… anytime.  Even years after the loan closes I am still in touch with most of my customers.

Call Center

A call center is a physical place where customer and other telephone calls are handled by an organization, usually with some amount of computer automation. Typically, a call center has the ability to handle a considerable volume of calls at the same time, to screen calls and forward them to someone qualified to handle them, and to log calls. Call centers are used by mail-order catalog organizations, telemarketing companies, computer product help desks, and any large organization that uses the telephone to sell or service products and services.

Direct Lender

Very few institutions qualify as reverse mortgage direct lenders.  Nationwide, there may only be a handful.  Almost all “lenders” except the big dogs are agents, correspondents or brokers allied with the handful of direct lenders.

NMLS

Nationwide Mortgage Licensing System. NMLS website

Preferred Lender

There is no such thing as a “preferred” lender as far as HUD/FHA is concerned. It’s really important to understand that this terminology is merely somebody’s opinion – probably because the lender paid a fee to be listed in a directory and/or online source. Lenders are either FHA approved (have met the requirements) or they are not.  NRMLA (National Reverse Mortgage Lenders Association), the reverse mortgage industry’s trade group, publishes a list of “preferred” lenders but this is nothing more than a membership roster. If you pay your annual dues, you get listed.  If you research the AARP web site you don’t get much help, either. They simply refer you to the HUd.gov list or NRMLA’s list of paid members.

Principal Limit

The Principal Limit is the gross amount of money the lender is willing to lend to the borrower… based upon a formula using the following criteria: the lower of the FHA appraised value of the home or the Maximum Claim Amount (currently $625,500), the age of the youngest borrower, and the expected interest rate based upon 10-year LIBOR (London Interbank Offered Rate).

SAFE Act of 2008

On July 30, 2008 President Bush signed into law the Secure and Fair Enforcement (S.A.F.E.) Mortgage Licensing Act of 2008 as part of the Housing and Economic Recovery Act. This provision sets forth procedures, requirements, education, testing, and standards including mandatory registration and state licensing of mortgage loan originators through the creation of a Nationwide Mortgage Licensing System and Registry (NMLSR). The goals NMLSR hopes to accomplish are: 1- Helping ensure that loan originators be required to “act in the best interests of the consumer”, 2- Giving consumers easy access to a loan originator’s employment history, and any disciplinary/enforcement actions taken, 3- Uniform education and licensing requirements, and 4- Accountability and tracking of loan originators

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