Reverse Mortgage Information

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

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

Reverse Mortgage Account Number Changed

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

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

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

Help From Your Reverse Mortgage Loan Officer

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

Correcting Reverse Mortgage Bank Error

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

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

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

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

New Principal Limits

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

FHA Appraisals

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

HECM Condo Approval

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

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

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

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

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

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

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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This evening I face the unpleasant task of notifying all my prospective clients that their procrastination is about to cost them as much as $30,000 (or more) in reverse mortgage benefits.

Just moments ago HUD released Mortgagee Letter 2009-34 which will reduce Principal Limits by as much as 10% for all HECM loans with FHA case assignments dated October 1, 2009 or later.

Your lender can’t receive a FHA case assignment for you without an original, signed, dated counseling certificate.   If the certificate cannot be produced before next Thursday – an impossible task unless you opt for face-to-face counseling – you lose!  If you have a really experienced, sharp loan officer working with you… he/she is calling you this very moment with ideas and suggestions.  If not, you lose!  I have already contacted my clients, of course.

Hesitate and Lose

This is just one more example of why it is often foolish to wait.  Property values might come back… but real estate will never increase at previous rates for years to come… and certainly not fast enough to compensate for these blindside announcements from HUD.  And who knows what the House & Senate will contribute in coming months to “fix” a program that has benefited hundreds of thousands of senior homeowners to date.

More Help?

We suspect HUD acted with uncharacteristic speed to try to head off damaging legislation presently before the House and Senate.  The politicians are determined to help seniors by “fixing” the HECM program.  Watch out for “help” from the folks in Washington – it will cost you even more money.  Bet on it.

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

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Before you do business with a reverse mortgage lender it would be prudent to confirm that the loan officer who will be working closely with you is actually licensed to do business in your state.  This might sound shocking but many loan officers have never been required to pass a formal licensing test in your state.  Even more have never been vetted with either a criminal records check or a credit check.  How do you know who you are dealing with?  How confident can you be that your personal information is protected?

Different State Regulations

Up to now, licensing requirements for brokers and loan originators have been quite different from state to state.  In some, all that is required is payment of a modest license fee.  In other states, licensing requirements are both tough and costly.  Massachusetts, for example, requires payment of a substantial annual fee ($500 for loan originators – much more for brokers), plus a criminal record information check (MA keeps a record of every criminal court appearance in its state courts), a comprehensive credit check, license application submission and tracking via the Nationwide Mortgage Licensing System (NMLS), basic education courses with annual continuing education requirements.  It may be one of the toughest states to become licensed in and stay licensed in.

Nationwide Mortgage Licensing System (NMLS)

Massachusetts and a growing number of states throughout the U.S. have joined the NMLS system and more will follow in 2010.  See map at beginning of this discussion.  Tracking license information will be easier when details are collected and licensing is initiated through a central source.  But each state continues to set there own rules and regulations.  Eventually, NMLS will be opened up to consumers so that borrowers will be able to learn if complaints have been recorded against any licensed individual.  NMLS helps states to standardize licensing requirements and add/track educational components.  This is a good first step but thorough or not-so-thorough licensing supervision still depends on the location and varies greatly.

Loan Officers With No Licenses

If the loan officer works for a bank or a federally chartered institution, state licensing requirements may be completely avoided.  This situation is changing, but right now you should know that you could actually be talking to someone who (1.) is not licensed in your state, who (2.) may have no specific education in reverse mortgage lending and who (3.) might be advising you on your finances while their own fiscal house is a disaster.

Solution

By year end some loan originators will be required to take the federal SAFE Act test.  For others, the test may not be required until later in 2010.  In the meantime, I would advise my own mom & dad to deal face-to-face with an originator who is licensed in the state where the home is located.  I would specifically recommend that they avoid any lender that does not or will not come to the home.  Who knows who you might be talking to?

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

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Below is a graphic representation of the steps and the time these steps usually take in the reverse mortgage process.  From the time a lender sits with you to write your application (never do an application over the phone – see Choosing a Lender) to the time  you actually get your money is about 5 weeks.   Lately, however, processing has bogged down with some lenders and you can count on about 6 to 8 weeks for your loan to get to closing.  This assumes there are no issues that come up during underwriting that might take even more time to resolve.

An experienced reverse mortgage originator (5 or more years direct reverse mortgage experience) will help you avoid any possible black holes.  He/she should be able to estimate the total time your loan will take based upon a thorough understanding  of your situation.

NOTE:  If your originator is a broker (not an employee of a captive lender like Bank of America, Wells Fargo, MetLife, Financial Freedom, etc.) he/she should be able to help you select a lender that might process faster or a lender that has less stringent underwriting requirements relative to issues that impact you.

Carefully choose your originator.  There is a difference among lenders even though the program is regulated heavily. All lenders are not the same!

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

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The most popular reverse mortgage, referred to as the Home Equity Conversion Mortgage (HECM), is not a government loan.   The loan is not made to you by FHA… in spite of what you may have been told or what you might have read.  HECMs are loans that are made by lenders/financial institutions and guaranteed by FHA.  There’s a big difference here.  The government is not lending you the money; the bank is.  The bank is following guidelines set by FHA and will eventually sell your loan to Fannie Mae.  HECM loans generally do not remain within the lender’s portfolio.

HUD/FHA establishes the rules & regulations for the HECM program and the bank, in strict adherence to these rules, makes the loan and eventually secures the government’s endorsemment.  Once the loan is qualified, all financial institutions sell these loan to Fannie Mae – a quasi-government organization.  There is currently not a large market for these endorsed loans so Fannie Mae remains the primary investor.

While it is the bank lending you the money, very few banks actually offer this product for two reasons.  First, there is not a huge demand by consumers for HECM loans when compared to other loan types (such as home equity or conventional mortgage loans).  Second, reverse mortgage loans are unique among lending products.  Extensive initial training and ongoing education is required to gain some level of expertise in origination, processing and educating consumers about the details.  These skills are generally not transferrable from experience with other loan products.  Loan officers with conventional mortgage lending experience know almost nothing about reverse mortgages.  They often make the worst originators if they choose to cross over to the reverse side because most of the marketing & sales skills honed over the years must be unlearned.

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

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Your Loan Officer Does Not Work For You

It’s important for seniors to know that your loan officer is not an agent.  In other words, your loan officer does not have a fiduciary responsibility to provide you with all the information available – bad and good – about the mortgage deal you are contemplating.  Unlike a real estate person that you might hire to sell your home, the loan officer is not working for you. He/she is working for the lender and the responsibility is to the lending institution or to the broker’s owners and shareholders.

Opinion

Please understand, we are not trying to provide legal advice here and we certainly do not claim expertise with respect to agency law. We are speaking in general terms about the role of the loan officer.

A good loan officer will work hard to earn your trust and should be totally honest and straightforward with you at all times.  Fortunately, most in the profession who have been well trained and also have some experience originating Reverse Mortgage are very careful to disclose everything to you.

Finding a good Reverse Mortgage Specialist

We suggest you look for indiviuals wiith a long history in the reverse mortgage business (5 years or more – that’s a long time in reverse mortgage terms).  One of the first questions you should ask is “How long have you been doing reverse mortgage loans?”  Listen very carefully to how that question is answered. If the response is “Well, I’ve been doing mortgages for 25 years” – let me remind you that wasn’t your question. It’s an evasive answer.  You loan officer might have been doing sub-prime loans or commercial real estate deals for all of that time… and entered the reverse mortgage industry last week.  Believe me, prior mortgage experience in any other field except reverse mortgages is not useful.

Certified

The paperwork for a Reverse Mortgage can be overwhelming. You want to deal with somebody that subscribes to a code of ethics & standards – perhaps a certificated professional like a CSA (Certified Senior Advisor) or CFP (Certified Financial Planner).  You want to be confident that all the disclosures you sign and all the paperwork is fully explained to you.  An experienced professional loan officer will not hurry you through and will explain every document put in front of you…fully.  Pay close attention to who you pick for a loan officer – this might be more important than other issues seniors focus on.  Certification is not necessarilly evidence of honesty or expertise but it indicates a level of professionalism. These groups also publish Standards & Ethics and remove members who violate them.

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

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