Reverse Mortgage Information

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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Seniors borrowers have been conditioned to think that the best choice among Home Equity Conversion Mortgage (HECM) programs is the one wherein fees & costs total the least amount of money. If a lender is steering you in this direction… watch out!  You are probably focused on the wrong objective and your loan officer may not be thinking about what’s best for you.

The product you select should meet your needs first.  Few seniors really understand the difference and lose hundreds of thousands of dollars in home equity over the life of the loan because the loan originator happily steers the conversation to fees & costs without any regard for exactly how you plan to use your money. Why would the originator be happy to turn the conversation to lowest fees & costs ?  Because he/she makes more money, silly!

Hidden Payments From Reverse Mortgage Lender

If fees & costs are lower how does the loan officer make more money?  The answer is that the lender pays a premium to the loan originator for putting you into one of these HECM programs that require you to draw all of the money at closing.  Brokers are forced by regulation to show the amount of this payment to them on the Good Faith Estimate but federally chartered banks are totally exempted.  You will never know that this fee is being paid to the originator if you are dealing with a bank’s retail loan representative.  But most seniors are intelligent enough to understand that nobody works for nothing.  While this backdoor payment isn’t coming out of borrower funds… borrowers still pay for it.  The trick is to figure out where it’s costing you.  Hint: look at the interest rate… the fees and costs have been buried in the much higher interest rate you have to pay!  That “no fees” loan might be much more expensive in the long run than the “regular fees” loan.

If you intend to use all of the money (repeat – all of the money!) you derive from a reverse mortgage to pay off an immediate debt (your large conventional mortgage, very large medical bill, etc.), these “no fees” products might be worth looking at.  But if you do not need to take all of the money for this purpose, you could be making a big mistake.  Interest will accumulate very rapidly on the funds that you must take. And, you may inadvertently place yourself into a position where you will be unable to qualify for medicaid or other means tested programs.  You could easily lose tens of thousands of dollars in home equity if the loan remains active and you live in the home more than a couple of years.

Reverse Mortgage Consultant

Work with a broker who takes a consultative approach with clients.  A broker that has your best interests in mind will make certain that you understand all of the advantages and disadvantages of these programs.  Believe it… the upfront fees and costs are not the most important consideration! Ask your broker to provide and fully explain a detailed Amortization Schedule for each loan HECM program you are considering. Look at your life expectancy… and then calculate how much equity you will have burned up under each HECM program. You might be shocked to find out that the “least expensive” (no fees) program is actually the most costly!

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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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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Several reverse mortgage lenders have announced the elimination of the $30 monthly servicing fee on their FIXED rate HECM product.  The result will be $3,500 to $5,000 more money available to an average borrower should they decide to place their FIXED rate HECM loan with these particular lenders.  No change has been announced to the more popular ADJUSTABLE rate HECM products, however.

Some in the industry are suggesting that this is merely a short term aberration and that the servicing fee will probably return once interest rates start to rise again.  Others have hailed the announcement as a small but positive step toward countering some of the devistating principal limit loss of October, 2009 when borrowers saw 10% shaved by HUD from the amount of their benefit.

More Principal Limit Cuts in 2010?

As of this moment, this may be the best environment borrowers can hope to see in 2010.  HUD has already announced the likelihood of another 5% cut to the principal limit before fiscal year end in October, 2010.  And, recent reports predict a principal limit cut as high as 20% if HUD fails to get approval of its budget request for $250,000,000 to subsidize the program.  Either of these increased cuts will cause more seniors to become ineligible for the federally insured reverse mortgage program.  The government continues to work overtime to destroy what was once a very beneficial loan program.

If you are dealing with a captive loan originator working for a single lender (e.g. a bank), you could easily miss out on this opportunity if that lender does not offer the no service fee policy.  Same story if you elect to place your loan with a telemarketer.  Best bet for most seniors continues to be to find an experienced reverse mortgage broker with connections to multiple lenders. Odds are good that you will find the best opportunities where there are multiple options… and where your loan officer is not beholden to a single source.  That’s the way the business works and you obviously benefit from diversity in this case.

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

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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.

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

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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.

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

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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!

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

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Do a quick Google search for reverse mortgage lenders or HECM lenders and you will generate a multitude of sources for “preferred” lenders.  Just what is a “preferred” lender, anyway?  Don’t be fooled!

In all but a few of these cases you will generate a list of lenders (1.) who have paid to be listed on a particular web site or (2.) an incomplete, out dated and inaccurate compilation.  In more than several cases, your name, address and phone number will likely be sold to a lender as a “lead”.

HUD Reverse Mortgage Lenders

HUD.gov may be the only semi-reliable place to go for a full list of HECM lenders in your area.   But even HUD’s lender list is woefully out of date.  In some cases, HUD even reports listings for organizations that have been banned from reverse mortgage lending after having been shut down by state regulators.  But this list may be the best we have for now.

HECM Lenders

HUD’s list is not too user friendly.  When searching the HUD list, be certain to check the “HECM” box. This limits selection results to lenders who have completed at least one HECM loan in the last 12 months.  You don’t even want to talk to a lender who can’t meet this requirement.

Beware the mileage “radius” box.  Enter the maximum 100 miles to see all lenders within your state.  Just because a lender has a location within 1 mile of your home bears absolutely no relationship to the level of expertise or service you might expect.  No matter how far away the lender’s office, you should expect the lender to first come to your home for a face-to-face or family meeting to answer your questions.  The physical location of an office is not really relevant.  The willingness of the loan officer is critical.  If he/she can’t get to your home in a reasonable time, move on to somebody else.

Reverse Mortgage Lender List Problems

Unfortunately, the HUD List will only show you lenders physically located in your state. This is a huge shortcoming with the HUD list. Within 100 miles of your home might be several other states with HECM lenders licensed to do business in your home state. If you plug in Manchester, NH, for example, you generate a list of 26 NH lenders.  But there are over 100 more lenders in nearby Massachusetts that you will never see unless you also search in Massachusetts.  A large number of these Massachusetts lenders are licensed in New Hampshire and, in fact, do a substantial volume of their business in NH.  Add Maine to the mix and your options further expand.  Do a thorough search and don’t short-change yourself.  The “best” choice for you might be just over the border.

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

I have recently taken and passed the new SAFE Act national mortgage loan originator test required of all persons who take a loan application whether mortgage banker, broker or loan officer.  Originators who work for a deposit-taking institution (about 15%) are exempt.

Make no mistake, this is a very difficult test.  This is especially the case for reverse mortgage loan officers with no forward lending experience since the examination deals heavily in conventional mortgage products, practices and procedures. The regulations and ethics sections certainly do apply to us, but the exam is difficult.

Interestingly, schools that provide the 20 hour pre-licensing course are warning graduates and students not to underestimate the degree of difficulty of this exam.  Some broker offices are already reporting high failure rates among well experienced loan officers.  Most are missing the passing grade by only a few points – but the benchmark is only 75%.  Some 20 year veterans have been embarrassed and will need to retake their exam after a thirty day wait period.  They have a total of three chances to retake the test (each after a 30 day wait period) and beyond that they must wait six months before a fourth retake attempt is approved.

Note that these loan originators may not take an application without passing the exam.  Few will be solvent enough to remain in the business for up to 9 months without ability to do loan applications and they will need to find a new career.  After that many chances, perhaps they should.

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

Most seniors do not yet know that the SAFE Mortgage Licensing Act of 2008 is coming on stream in many states starting right now.  This is an effort to insure that all mortgage loan originators are registered with the Nationwide Mortgage Licensing System (NMLS).  In addition, mortgage loan originators who do not represent a depository institution such as a bank, credit union, or savings bank (about 85% of originators do not), must complete 20 hours of pre-licensing education and pass a very tough national licensing exam.  Individual states also require a state specific component administered separately from the national exam.  Fingerprinting, credit checks and criminal background checks are also required.  8 hours of continuing education each year is also required by each of the states.

I have recently completed these testing requirements for New Hampshire and I can tell you that the national exam is very tough.  A reverse mortgage specialist will not pass this exam without serious study.  Unfortunately, the exam is totally geared toward forward mortgage lending with almost no actual relevance for reverse mortgage people.  I know of few originators who work both sides of the equation; forward and reverse.  Reverse people, therefore, will need to burn the midnight oil to achieve a satisfactory grade on the national exam.

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State exams are not easy, either. They, too, are an unfair measure of what a reverse specialist needs to know but the additional exam is a requirement in all states effective 2010. New Hampshire is among the first to require it in 2009.

Beneficiaries of SAFE Act implementation are consumers.  At last, consumers should have some guarantee that their loan officer did not enter the business last night.  They have full assurance that the loan originator has not previously been convicted of a felony related to financial matters.  And they have some assurance that the originator is not providing recommendations on financial product options while his own house is in fiscal disaster.  Finally, consumers will have a single source to go to in the event that they want to register a complaint against a specific mortgage loan originator. Beginning in 2010 the Nationwide Mortgage Licensing System (NMLS) will be opened up to consumers for this purpose.

One more thing.  If your loan officer works for a bank or bank subsidiary – he/she is not required to complete the 20 hour pre-licensing course, nor take the national exam nor even the state exam(s).  Presumably, this is because loan officers working for a depository institution or a subsidiary are required to “register” with the federal banking agencies defined in the SAFE Mortgage Licensing Act.  This includes the Federal Reserve System, Comptroller of Currency, Director of Thrift Supervision, National Credit Union Administration, and Federal Deposit Insurance Corporation.  Knowledge testing and/or continuing education are policy mandated for employees of several of the very largest of the national banks.  But employees of smaller banks have told me they have no such education or licensing regulations.  Perhaps this is another good reason for borrowers to seek out an experienced state licensed mortgage broker rather than a bank?

PS – My scores were 85% National Exam and 93% NH State Exam.  I will need to take the MA State Exam in 2010.  ME has not yet joined NMLS but requires licensing.

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

Chase Manhattan Bank announced that they intend to offer reverse mortgages to customers throughout their branch network.  They hope to join Bank of America, Wells Fargo, Financial Freedom (the post IndyMac Bank bankruptcy version), MetLife Home Loans and various other big dogs with a large reverse mortgage retail footprint.  Smaller regional banks and even some credit unions have jumped on the bandwagon, too.  Pretty soon you should be able to walk into your neighborhood bank and walk out with a Home Equity Conversion Mortgage (HECM).  Right?  Well… maybe not.

Reverse mortgages are unique loan products.  They are offered to seniors only… who naturally have a healthy dose of skepticism when it comes to their own finances.  It’s hard to imagine how a teller will be able to explain all the pros and cons and all the features and benefits of reverse mortgages to customers.  Even though banks have always offered mortgage products, they have concentrated on the conventional (forward) mortgage business with specialized staff.

No Experience

With respect to reverse mortgages, however, banks have no institutional experience to draw from.  The forward mortgage business is not at all like the reverse business.  Skills do not easily transfer.  Banks must go outside to recruit and hire specialists.  Then they have to train their specialists.  After a number of years of mistakes, lots of trial and error, these newly minted specialists eventually become skilled.  The amount of time required to become an “expert” in the reverse mortgage business is pretty substantial – maybe five years of full time focus, at least.

So why would anyone risk becoming the victim of a neophyte so early on the learning curve?  A reverse mortgage is the second most important financial decision you make in your life.  Why wouldn’t you seek out the most directly experienced person you could find to guide you, your family and your trusted attorney, financial planner, etc. through your reverse mortgage due diligence?  This is not the time to go to a one-size-fits-all supermarket. Perhaps you are better served with a specialty store (or boutique) likely to have exactly what you need with a highly knowledgeable employee/owner at your call.

Botique Broker

OK, I just made up the term boutique broker.  But I do think it helps conjur the image of a seasoned, expert, mortgage professional who has no institutional bias and no product bias.  This is a critical point; the bias.  This distinguishes the broker from the bank rep.  Admittedly, some bank reps are experienced, but they are also captive.  Bank policy dictates what products to show you and what prices to charge.  Brokers have access to many lenders with many programs.  Bank reps only have access to products offered by their own institution. That product may or may not be competitive today or tomorrow.  More important, that product may or may not exactly match your needs. The boutique likely has exactly what you need.

More Options For Your Benefit

Brokers also have more processing options.  For example, if lender B is overwhelmed this month and slow to complete loans, Lender C may be faster.  And perhaps Lender D is not quite so strict when it comes to underwriting issues that could impact you.  Finally, bank reps probably have limited authority to reduce fees.  Brokers do have the authority… and will, if necessary.  They don’t need to have a board of directors meeting to discount a couple of hundred dollars.

House Calls

But the best part of dealing with the Botique Broker is that it will be a face-to-face transaction.  The broker who is a true specialist (focused on reverse borrowers exclusively) will meet with you and your family in your home to respond to everyone’s questions… try to understand your needs.  The broker will visit your attorney and/or your financial advisor in his/her office to answer questions and detail your proposal and costs. Your broker will come to your home to take your application. Your broker will personally monitor your paperwork throughout the processing and underwriting steps keeping you informed each step of the way.  And your broker will bring the lender’s attorney to your home to close the loan so that you will not be inconvenienced by travel to a regional banking center.  That’s personal service just like you might expect from a specialty store… or boutique.  Or, you could go wait in line at your branch!

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

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