Reverse Mortgage Information

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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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. (Also – see previous terms in Reverse Mortgage Glossary – Part I)

Maximum Claim Amount

The FHA appraised value of the home or the maximum lending limit ($625,500 currently), whichever is less.  Example #1: your home appraises for $750,000 and the maximum lending limit is $625,500.  Maximum claim amount equals $625,500.  Example #2: Your homer appraises for $315,000 and maximum lending limit is $625,500. Maximum claim amount equals $315,000.  It is important to note that the FHA lending limit may be changed by FHA at any time.  $625,500 is only a temporary number raised from $417,000.

TALC

The TALC (Total Annual Loan Cost) is a required disclosure document  that should be presented to you by your loan officer before or during the loan application process.  This document contains a simple table to illustrate the estimated cost of your reverse mortgage expressed as an annual rate.  The table shows estimated costs for four loan terms: 2 years, half of youngest borrower’s life expectancy, actual life expectancy of that borrower, and 1.4 times that life expectancy.  The table also shows calculations based upon several property appreciation rates.  The rates in this table are based upon the total charges associated your loan. Typically, they include principal, interest, closing costs, annuity costs, mortgage insurance premiums, and servicing. The easiest method for comparing loans offered by different lenders is to compare the TALCs.  The lender offering the lowest total annual loan cost is the least expensive program.

Good Faith Estimate

The GFE is another important disclosure that reports all the known fees and costs associated with your reverse mortgage. Lenders are required to provide this disclosure at time of application and fees listed may not vary significantly at loan closing unless there has been a valid change of circumstances.

Right of Rescission

To rescind (cancel) certain mortgage transactions. The right of rescission was created under federal law by the Truth in Lending Act to protect consumers from unscrupulous lenders, and to give borrowers a cooling off period (72 hours)  and the time to change their minds after loan closing documents are signed. The right of rescission exists only on home-equity loans, home-equity lines of credit and refinances of existing mortgages in which the refinancing is done with a lender other than the current mortgagee. Since the right of rescission also applies to reverse mortgages, lenders will not disburse funds until after the 3-day waiting period (holidays and Sundays excluded) has expired.

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

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A sharp reduction in the Principal Limit (amount borrowers qualify for) with the new HECM SAVER product may be just the beginning of changes predicted for the Home Equity Conversion Mortgage program from HUD. Sources tell me that Lenders may soon require counselors and loan originators to calculate and document borrower ability to pay real estate taxes, home owner insurance and property maintenance expenses over the life of the reverse mortgage. In other words, HECM loans could be “means tested”.  This is a major departure from current practices where neither credit nor income factor in the loan decision.

Some Seniors Won’t Qualify For Future Reverse Mortgages

What this will mean is that many low income homeowners with high conventional mortgage balances will no longer be able to qualify for the life-saving HECM program. These seniors will be squeezed out of the market by the expected new underwriting “standards”.  Here’s an example; Mary Smith is 72 yrs old, lives alone and gets a Social Security check every month for $950. Her modest home is worth $225,000 but she owes about $139,000 in mortgages… including home equity loans that her local bank encouraged her to keep rolling over (as long as she paid the interest) to help keep her afloat these last few years.

Do the math! She owes way too much money to qualify for the new, highly touted lower cost HECM SAVER products. And the new HECM STANDARD product, although she does barely qualify, only leaves a very few dollars after all liens/mortgages are paid off.

Key Question From HECM Lenders

If Mary’s real estate taxes are $275/month, if her home insurance is $100/month and if normal home maintenance is another $100/month… how is she going to keep up these payments on her tiny income of $950/month? That’s the key question counselors will be looking to answer… and loan originators will have to document. We don’t know yet what ratios HUD will use but it seems unlikely that if the HECM loan provides (1.) no additional funds of any consequence and (2.) the housing expenses are 50% of income the loan would probably be denied.  That’s most unfortunate.  Mary represents a large group of seniors who most need a HECM loan.  But it looks like HUD wants to shift the focus to seniors who will view the FHA insured reverse mortgage program as an optional financial planning tool.

If you know a senior homeowner with limited income and in real need… I strongly urge you to connect them to a reputable loan originator right now. The proverbial handwriting is on the wall.  Time may be running out for this group of senior homeowners!

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

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“Byzantine, archaic and bureaucratic” is how one Reverse Mortgage Daily reader describes news that the Massachusetts Commissioner of Banks has not approved the HECM Saver product in Massachusetts.

The new HUD approved reverse mortgage program drastically reduces overall costs for senior borrowers 62 years old or over who own their own homes… but this is apparently not acceptable to the Division of Banks in Massachusetts.

Now… Massachusetts seniors will have to wait until lenders comply fully with state regulations requiring every lender to submit an application to offer the program plus allow the Commisioner’s office to review all associated documentation.  Interestingly, there are almost no changes to documentation except some language reducing borrowers upfront costs for mortgage insurance.

What Do You Think ?
Is this over the top ??? What’s your opinion???

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

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In a Mortgagee Letter published last week, HUD announced introduction of a new Home Equity Conversion Mortgage (HECM) product with upfront fees reduced by as much as 50%.  HECM Saver is added to HECM Standard and HECM for Purchase to give senior homeowners 62 years of age and older even more choices among the federally insured reverse mortgage products.

HECM Saver Details

HECM Saver will carry the usual third party closing costs associated with most any real estate transaction (e.g. attorney fees, title insurance, recording fees, flood certification, appraisal costs, etc).  But the requirement for FHA Mortgage Insurance paid directly to FHA has been changed. Previously, FHA mandated mortgage insurance at 2% of the appraised value of the home or $12,500, whichever is less.  HECM Saver chops that fee to .01% or $62.50, whichever is less, giving seniors a very significant savings in upfront costs. (While we refer to these fees as paid “upfront” – virtually all borrowers roll the fees into the loan so there is no actual out-of-pocket expense)

HECM Saver Disadvantages

The news is not all good, however. HECM borrowers have always been required to pay an additional amount each month for FHA mandated mortgage insurance as well as the upfront charge. This was accomplished by adding .50% (1/2 point) to the annual interest rate. If the interest rate on the reverse mortgage was 2.50%, borrowers were charged 3.00% to include the extra amount for insurance. The new HECM Saver product dramatically increases that monthly charge to 1.25%.  If your interest rate on the HECM Saver is 2.50%, it boosts the total interest to 3.75%.

Seniors will also receive less money under the HECM Saver plan. This new product will qualify senior homeowners for about 10% to 20% less (depending upon age) than they receive under the HECM Standard plan. Since a very large percentage of seniors select a reverse mortgage solely to eliminate an existing forward (conventional) mortgage, HECM Saver may be a poor choice for most if the existing mortgage balance is higher than the amount provided.

Senior Borrowers Seek Professional Assistance

There are now three (3) different types of HECM products for senior homeowners (Saver, Standard, and Purchase) and there are numerous variations related to interest rates, origination fees, monthly service fees, mortgage insurance, 3^rd party closing costs, etc. More than ever before… you need to work closely with an experienced reverse mortgage specialist. The program with the lowest upfront fees may not be the cheapest and it may not be the best HECM program for you.

Choose a Broker for your HECM Loan

Remember… choose a broker who can show you the full range of available products from a multitude of lenders and is willing to take the time to meet with you face-to-face in your home. And choose a broker who encourages you to include family members and trusted financial advisors in the discussion. Avoid lenders with one-size-fits-all offerings… an obvious bias toward the minimal range of products they can present. Unlike a phone/call center rep or captive big-bank rep, brokers can usually present many, many more options for you to choose from. Why limit yourself ?

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

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The Home Equity Conversion Mortgage (HECM) program offered to senior homeowners 62 years of age or older mandates that borrowers must receive “counseling” from a HUD approved agency. Loan officers are required to provide a list of approved sources but they are prohibited from steering borrowers to any specific source.

Reverse Mortgage Counseling Protocol

New rules from HUD with respect to counseling requirements give counselors the authority to deny certificates to borrowers who fail to understand the basic elements of the reverse mortgage program. For borrowers working with an experienced reverse mortgage loan officer willing to meet  face-to-face and educate/inform them, this will not be an issue. Borrowers who have conducted business over the phone exclusively, however, are more likely to be poorly prepared on the subject matter.

The new counseling session protocol dictates the use of a “Financial Interview Tool” (FIT) to complete a comprehensive budget review. The goal is to help counselors determine whether a reverse mortgage is the most appropriate option and whether the borrower(s) is(are) still able to meet obligations, such as payment of taxes and insurance and maintaining structural soundness of the home if a reverse mortgage is approved.

Seniors with incomes below 200% of the federal poverty level (less than $2428 monthly for a couple) will also be required to complete a BenefitsCheckUp (BCU) screening as part of the counseling session. BenefitsCheckUp is a web based service to screen for more than 2,000 benefits programs for seniors with limited income and resources.

Reverse Mortgage vs. No Reverse Mortgage – You Decide!

While the HUD counseling requirement is an important component of the HECM program, borrowers need to be frequently reminded that counselors have absolutely no training as financial planners or as financial experts. Most counselors have no training in mortgage lending or banking for that matter. Some even have little exposure to the Home Equity Conversion Mortgage program – the very program they are counseling. Most important, they have absolutely no authority to make suitability decisions for borrowers nor should they be rendering advice of any kind to borrowers.

Seek A Professional Reverse Mortgage Consultant

Now, more than ever, it is critical that you work closely with a reverse mortgage consultant whom you can trust. Anyone can take an application over the phone and mail you a booklet… but a professional will take the time to prepare you properly for your counseling session, meet with you, your family, and your trusted financial advisor(s) in your home or in their office as many times as necessary.

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

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Who do you turn to when you have an important financial decision to make?  Does your attorney, your accountant, or your financial planner come to mind?  Or do you have a close friend that you discuss intimate details of your financial situation with?

A recent borrower told me that he received some of his information about reverse mortgages … “from the guy at the dump”!  The dump guy told him he should never do a reverse mortgage because the bank owns the house and the bank can throw you out anytime they want. Absolutely false information!

Maybe it’s not quite so obvious but you could get equally bad advice about reverse mortgages from all of the above sources.  The guy at the dump is clearly not a reliable source of information regarding reverse mortgages.  But you also can’t assume that your attorney or your financial planner is any better informed.  Some of these professionals may have a smattering of knowledge picked up from general news articles or from their own professional publications. None of them actually study the subject in detail and very few have any experience with reverse mortgages.

Unfortunately, unless the authors are reverse mortgage professionals… much of the material printed today, even in professional journals, about reverse mortgages is full of falsehoods and misinformation.  The myths get repeated over and over, too.  Even noted news sources like TIME, CONSUMER REPORTS & MSNBC are guilty of bad research and shallow reporting.  Few of these “authorities” seem to get it right and all of them repeat comments from uninformed politicians looking for their 15 minutes of fame.

And if you really think that Robert Wagner and/or Fred Thomson offer advice that is any more reliable than our friend – the guy at the dump… good luck!  These TV pitchmen know nothing about the product(s) they hustle.  They just want the check when the TV ads run.  Yes, you’ll get a free DVD but you will also get somebody calling you every 4 hours to “follow-up” (sell you).

Rule -1 Do your own basic research. Check as many different sources as possible on the internet – but remember, in many cases you could be reading information that is in error or outdated. Do not plug in your name, address and phone information at any web site unless you want to be bombarded by companies running a boiler room phone operation designed to pressure you into completing an application.

Rule – 2  Discuss the concept of reverse mortgages with a trusted financial adviser. Be very careful here. First, question your adviser and ask “Do you have any direct experience with reverse mortgages?”  then, “Do you work with a reverse mortgage professional?”  Even some highly regarded attorneys and financial planners have only a vague understanding of the modern day reverse mortgage program… and few really understand all the pros/cons. The better one’s have established relationships with reverse mortgage experts whom they trust.  Get a referral to that consultant.

Rule -3 Locate an EXPERIENCED reverse mortgage consultant. You may need to interview 2 or 3 to find someone you feel comfortable with. Is this person willing to come to your home to answer your questions? Some will only do business over the phone – making it very difficult to judge character and professionalism.  Does this person suggest involving your children or your attorney? If your “expert” wants you to avoid involving family members or your trusted adviser, run away as fast as you can.  Is the initial conversation satisfying – did your questions get answered directly or were you fire-hosed with detail that overwhelmed you? Beware, too, of the person who stresses how much more money you qualify for under a Fixed Rate HECM – he makes much more money if you go for it and may not have your best interests in mind. Your needs will lead you to the right product.

Rule -4 Verify that your reverse mortgage consultant has completed all licensing requirements for your state. Go to Consumer Access NMLS and plug in the person’s unique number. No number? – chances are they are not registered in your state. Find someone else who is.

If you try to follow the above rules, you should have no trouble gathering information and making an informed decision. Reverse mortgages are not difficult to understand once you do your homework.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086
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A primary lender announced this week that approval has finally been received by the Massachusetts Division of Banks for the “HECM for Purchase” reverse mortgage  program. It’s been a long time coming here in the Commonwealth. While this special reverse mortgage program backed by FHA has been available in many other states for some time, volume has been disappointing to date. The program has not yet achieved popularity. This will change as seniors begin to understand the special advantages of HECM for Purchase. But it’s going to take some serious effort on the part of lenders to teach these benefits.

How Regular Reverse Mortgages (HECMs) Work

Let’s review.  The Home Equity Conversion Mortgage (HECM) program is a reverse mortgage program guaranteed by FHA for seniors 62 years of age and older who own their own homes. Most often, seniors taking advantage of the special HECM programs fully intend to remain in their present home as long as possible. They use the equity built up over the years to supplement monthly income and/or eliminate conventional mortgage payments without selling the home. Some need to payoff home equity loan notes accumulated in years when banks touted the benefits of “cashing out” the rapidly increasing home value… implying that it would go on forever. Others have large debt that has become a serious burden in retirement. But the single most common characteristic of these borrowers is that they choose to remain in their existing home. The regular HECM program was originally designed specifically for them.

Well, what about seniors wanting to down-size in retirement?  The 4 bedroom, 2 bath home  now seems difficult to maintain, heat, and keep clean.  Or  what about others wanting to move closer to older children and grandchildren?  Or seniors wanting to enjoy a warmer climate?  Each of these clients could eventually do a reverse mortgage, but the process was cumbersome, complex and costs were terrible; closing expenses for original purchase of the new home or condo plus closing expenses again to convert the regular conventional mortgage to a HECM. Only very experienced reverse mortgage loan originators knew how to make this happen seamlessly.

HECM for Purchase Example

HECM for Purchase allows the senior to sell an existing home and keep much of the cash realized from the sale.  Here’s an example – Joe & Mary are in their mid 70s and sell their 4 bedroom home in Cambridge, MA for $650,000.  They are left with about $450,000 after paying off several home equity loans, the real estate broker, and closing costs.  The plan is to buy a much smaller home or condo in the western part of the state to be close to grandchildren… and Tanglewood (a popular classical music venue in the Berkshires).  They locate a nice 2 bedroom condo near their daughter and negotiate a price of $280,000. If they pay cash for the new condo, they will have about $170,000 remaining that will go into CDs at the local bank and earn about 1/2 percent interest.

If they opt instead to use the HECM for Purchase  program, they qualify for about $170,000 on the new home.  That means they only need to come up with $110,000 at closing instead of the full $280,000 as originally planned.  The extra cash that they keep ($170,000) will also go into CDs giving them a total of $340,000 in the bank.

Results

With the HECM for Purchase program, Joe & Mary are in a new home close to Tanglewood and the kids. They will make no mortgage payments as long as one of them remains in the home.  And… they have $340,000 cash remaining in the bank.  The result is the same but they have twice as much money in the bank.  Life is good!

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant
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I can think of few industries where the personal integrity of the individual dealing with a senior client is more important than in the reverse mortgage business. Yet too many seniors fail to understand this when selecting a loan officer. The consequences can be devastating… both to the senior and to the loan officer who trys to do the right thing.

Background: Reverse Mortgage Details

Doctor Harrison is an 89 year old retired surgeon in frail health living in a very affluent community west of Boston.  He was referred to me by a former loan officer and friend who had been working with him for 3+ years before leaving the reverse business.  I agreed to meet with Dr. & Mrs. Harrison. I explained the available HECM programs, listened to their well thought out needs as expressed to me during our face-to-face interview and took an application.  They were determined to work through MetLife Bank and I agreed with their choice. They had no mortgage to payoff but they had some credit card debt of about $30,000.  The goal was to pay this debt, throw away the credit cards and leave the remainder of their money in a line of credit. They would draw from the line of credit to meet unexpected expenses as needed.  Total available to them was about $410,000… a hefty sum of money. It was unlikely that they would ever use it all… but some money would be needed to supplement monthly cash flow.  When Dr. Harrison passed away or entered a nursing home, much more would be needed.

Interestingly, their son and their lawyer were opposed to the reverse mortgage.  I was to find out later that they may have known more than me about the mental stability of my client.

Competitor Without a Conscience

Several weeks after we started their application, MetLife introduced some new reverse mortgage programs and canceled some old programs with higher margins.  Before I could notify him, Doctor Harrison trolled the internet and discovered the newly introduced HECM Fixed Rate – No Origination Fee & No Service Fee program courtesy of a web-based broker who had less than honorable intentions.  With telephone contact only, that broker quickly sold the 89 year old failing senior that he could do this new program  for him.  So could I, of course,  but I needed to clearly explain the consequences to a client who might be drifting in and out of rationality.  It would be $5,000 cheaper in terms of closing costs and it would get him about $12,000 more.  But it clearly did not meet the goals we had previously discussed.  Sometimes borrowers confuse the total amount of money they can get from a reverse mortgage program with the actual value of their home… as if they were selling; not borrowing.  It’s tempting to elect a program that offers more money up front.

It was all downhill for me from that point.  The client would not speak to me and refused to meet with me so that I could explain the disadvantages of what the other broker proposed.  My client was placing his trust and risking all equity in his home in someone he had never met… who was giving him very bad financial advice over the phone.  And someone who was solely focused upon how much commission money he would make placing a Fixed Rate HECM loan that required the borrower to take all the money at closing.

Reverse Mortgage Amortization Schedule

This new program clearly did not meet their needs and a simple amortization schedule or projection showed that the cost of this new Fixed Rate HECM program would eat up substantial home equity over the remaining life span of Dr. & Mrs. Harrison.  While initial fees and additional money offered appeared to be a good deal… it clearly was not… for them.  The Adjustable Rate HECM program that I had proposed had an interest rate of about 2.03% vs the 5.49% Fixed Rate HECM proposed by my telephone boiler room competitor.   Worse, Dr Harrison would be forced to take all the cash available at loan closing under terms of this Fixed Rate HECM program and the interest clock, therefore,  would start ticking immediately on the entire amount plus fees.  When you are talking about taking a loan for $437,000 (including fees), the interest compounds rapidly.  The remaining equity in the home would be gone in a flash.

Lost Reverse Mortgage Deal

Sorry, there’s no happy ending here. The faceless phone bank competitor got the deal transferred to him.  I tried to do what was right for the borrower but sometimes, logic and rationality go out the window.  No good deed goes unpunished, as they say.  Unfortunately there are still some loan officers preying upon seniors who are just too smart (or too ill) for their own good.  I’ve lost deals before… but this one hurt because I know that this borrower was not properly served.  The competitor pocketed some very big commission money and moved on to continue dialing for dollars.  He clearly put his own needs before the needs of this client by confusing him and by failing to properly analyze all loan options. We need to rid the industry of these questionable people! They are just as reprehensible as those who steal openly from our seniors. What’s your opinion?

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

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At least one-half of all states in the US are now connected to the Nationwide Mortgage Licensing System (NMLS). To become licensed to do business in any state that participates in NMLS, loan originators must now register with NMLS and follow the specific requirements of the state(s) they to do business in.

Some states have very substantial requirements for licensees. Massachusetts, for example, requires that your reverse mortgage loan originator must pass the S.A.F.E. Act training and testing component as well as undergo a CORI criminal records check, credit check and fingerprinting. Other states might be more lenient with respect to requirements. But everyone in these states must now at least register with NMLS.

Reverse Mortgage Professional Experience

It’s easy to check the qualifications/background of your reverse mortgage loan officer. Simply go to NMLS Consumer Access (<- here) and enter the loan officer’s NMLS registration number. You will be asked to confirm understanding of use of the system and you will be able to see the individual’s record in the system. The past 10-year job history plus info for each state where the loan originator is licensed will be reported. Click on “view employment details” to see how much experience your originator has.  Be certain to click on “view details” in each record to see if the person you are working with is currently licensed in your state.  You could be looking at a record where the loan originator has surrendered or failed to renew a license. Don’t assume the license is current just because you see the state listed.

Even If you don’t know the loan originator’s NMLS number, you are able to search the database by originator name. This is a little more tricky as the system may report the name in a slightly different format than the person customarily uses – Bill Smith, for example, might be listed as William F. Smith in the NMLS database.  You might need to try a few variations on the name.

Another simple search technique is to enter the zip code of the loan originator’s office represented on his/her business card. You should see the appropriate record along with all other lenders in that same zip code.

Caution Searching For Reverse Mortgage Data

Again…be very certain to drill down in each state shown in the loan officer’s record to make sure your reverse mortgage loan originator is currently licensed and “approved to do business” in that state.  Finally, note that reverse mortgage loan originators working for FDIC banks are completely exempt from state licensing. There is, of course, a big difference between licensing and merely registering.  You won’t find any background information on these originators and they may not have been checked for criminal background or credit. You have no way to know who these people are or what their professional experience is. While they must register with NMLS, the information is limited at best.

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

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Here’s a great video on reverse mortgage counseling… how it works. It is my understanding that this organization is presently offering FREE counseling.

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

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This is the final post of a multi-part discussion on how to select a loan officer for your reverse mortgage.  Please read all sections before making your decision.

Reverse Mortgage Directory Listings

“Experts” will often recommend that you select a lender by consulting some kind of national list on the internet. Plug in your zip code, they advise, and the directory will provide a list of lenders that serve your area. This may be the simplest way to select a lender/loan officer but it may also the dumbest approach of all.  Just because a lender or broker is a member of some organization does not guarantee the honesty, professionalism and character of the person who will respond.   AARP does not endorse nor do they recommend any lender.  They publish no list.   A loan officer claiming direct endorsement is misrepresenting.  NRMLA (the National Reverse Mortgage Lenders Association) does tout a list of its members by state – but these members have paid a very substantial annual fee to become members of this trade association – or lobbyist.   Some of the best local brokers may not be willing to pay the annual fees charged by this group.  Even HUD’s lender directory is woefully inadequate and incomplete.  Finally, the internet is loaded with various other directories of “preferred lenders”.  Most, if not all, are marketing gimmicks and paid referral sources.

Conclusion

Don’t choose your lender based upon price.  There are too many more important issues to consider.  Besides, HECM prices change from week to week until your application is actually completed… so too few seniors actually understand how to do comparison shopping correctly.  (We will save that subject for the next post.)  Choose your originator based upon your investigation of his/her direct experience, multiple resources and willingness to work with you face-to-face.

Rely upon other professionals (attorneys, financial planners, elder law specialists, case workers, etc.) who have had direct experience working with the best loan officers in the area.  Reputation is everything… and it should be your most important consideration, too – reputation, longevity, experience, character, referral.  If you choose the right loan officer, he or she will work hard with your best interests in mind… and may even suggest ways or programs to help you get more money or lower fees.  If you choose the wrong loan originator, you are just whistling in the dark!

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

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This is PART II of a multi-part post on how to select a reverse mortgage loan officer… the most important decision you will make.  Please read each post carefully before selecting your reverse mortgage loan officer.

Criminal Background Check

Many seniors are worried about scams and frauds because the news media loves to highlight these stories. One of the best ways to protect yourself is to have a full criminal background check completed by a law enforcement authority on the candidate before you. Not practical ? Guess again!  If you selected a loan originator licensed by Massachusetts or any other state that is a member of the Nationwide Mortgage Licensing System (NMLS), that person has already been required to (1.) pass a national licensing knowledge test (S.A.F.E. Act), (2.) has been fingerprinted, (3.) has had a CORI check (criminal records investigation), (4.) has had a full credit check and (5.) has been assigned an identification number as proof that all of these tasks have been accomplished.  NMLS will allow you to search their database to learn if any complaints have been filed against this person.  Get your candidate’s NMLS number and search the database before arranging a meeting.  Rule of thumb: no NMLS registration – run away!  You have a right to expect that the person you are dealing with has been thoroughly vetted and is of good moral character.

Deal With Banker or Broker?

Understand fully what type of organization you are dealing with.   Ask the candidate “Are you a Banker or a Broker ?”  “Are you licensed to do business in MY STATE?”  Most mortgage brokers are state licensed and are, therefore, subject to many of the regulations cited above. On the other hand… and surprisingly…, loan originators who work for a federally chartered bank are not subject to state licensing at all.  They are exempt due to successful lobbying efforts of their trade organizations. You have no way to know, therefore, if these candidates have been properly vetted or even adequately trained.  There is no specific requirement for a knowledge test, credit check, criminal background check.  Many are paid by the number of applications taken – not by the number of completed loans.  They could have no vested interest in closing your loan or not.  Shamefully, a bank loan officer is not even required to reveal all fees earned on your loan.  A broker, however, is required to report every detail.  Undoubtedly, there are many very reputable loan originators working at banks but be forewarned that they may not have had as extensive a background check as the broker.

How Many Reverse Mortgage Lender Connections ?

Another critical factor you should consider when choosing your lender is how many lending sources does his/her organization work with. If you are dealing with a bank, odds are that there is only one wholesale lender on their list. All reverse mortgage business goes to that single lender. A broker, however, typically deals with 3 or 4 lenders. Lender A (used by both the bank and the broker) might not offer the same products, interest rates and fees as Lender B (also used by the broker but not the bank). For example, in today’s market only a handful of lenders are offering Fixed Rate HECM loans with no origination fee & no service fee. If your bank loan originator is not connected to that particular wholesale lender, you will never be offered that product. Brokers have no institutional product bias… they have multiple sources and they can offer you the best products, interest rates and fees. No need to have a board of directors meeting to get a $100 discount, either. The broker can (and will) approve it on the spot.

Processing Problems

Products and interest rates are not the only reason why it is in your best interests to deal with an experienced broker. Almost any mortgage can have something odd develop in the processing of the loan.  Lender underwriting staff are required to follow specific FHA and lender policies… but some items may be subject to interpretation.  An experienced broker knows the hot buttons of each lender and may choose to place your loan with Lender C because your “problem” is not a significant issue for their underwriters. Lender A, however, might be more demanding and your loan could be delayed or even rejected because your bank originator has no secondary source. Only experience allows a broker to be able to anticipate these issues and work for you to resolve or avoid them completely.

Choosing a Reverse Mortgage Loan Officer – Part III (next post).

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

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Too often seniors select a reverse mortgage lender for all the wrong reasons.  What follows is a multi-part, thorough discussion of the most important issues to consider when choosing who to do business with.  Please read all posts completely before you select a lender and loan officer.

Reverse Mortgage Price Quotes

Counselors and financial advisors admonish borrowers to “get at least 3 quotes” before making a decision on who to select for your reverse mortgage. This is the worst advice imaginable... because it infers that price is the sole determining factor in choosing a lender. Price is the very last thing you want to consider. If you blindly follow this advice you are well on the way to making a bad decision.

Ask yourself… have you merely had phone conversations with these 3 candidates… or have you actually met with them in your home; eyeball-to-eyeball ? Any lender who won’t or can’t come to your home for an initial meeting with you, your spouse and your children plus your trusted financial advisor is just not worthy of your business. Eliminate these people immediately. What’s more, if your loan officer is unwilling to meet individually with your children, your attorney and/or with your financial advisor in their respective offices or homes, run away.

Reverse Mortgage Telemarketers

Best advice is to avoid them! Telemarketing operations (boiler room phone banks) could be staffed with people who are poorly trained, of questionable background and pressured to fill sales quotas.  If there is a problem processing your loan, good luck getting the help you will need.  Some staff in these shops could have 15 minutes experience in the business.  Last week the same “loan advisor” might have been selling tires over the phone.  Do you really want a quote from this person?  When you call back next week, who will answer the phone?

Meet Reverse Mortgage Originators Face-To-Face

Meet your candidates face-to-face! You can tell a whole lot about people when you interact and observe their personal appearance. Seniors, in particular, have learned to be pretty good judges of character by observation. If you’re uncomfortable inviting a stranger into your home, arrange to meet at the local Macdonalds or Burger King. The important point is that you need face time with each of your candidates to see if they inspire you….. or do they avoid eye contact, dress unprofessionally, dominate the conversation, etc.

Ask Specific Questions – Listen to Answers

During that initial meeting, ask key questions about the originator’s personal background. This is a major financial decision you and your spouse are about to make so you want to be certain that you are dealing with an experienced, reputable individual. Questions to ask include “Exactly how many reverse mortgage loan applications have you completed ?” A reasonable number is 150 or more. “Over how many years ?” A reasonable time frame is 3-5 years. Pay exceptionally close attention to how these questions are answered. If the candidate generalizes or avoids specific and direct answers, find somebody else who can be honest with you. If the response is “I’ve been in the mortgage business for 18 years” – this is not the question you asked. You are looking for specific reverse mortgage experience and an evasive answer like that shows the character of the individual in question. Move on!

Choosing a Reverse Mortgage Loan Officer – PART II (next post).

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

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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.

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

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