Really ???

If this has happened to you, chances are you are just not working with a very skilled or experienced reverse mortgage professional.  The result of that fatal decision is an out-of-pocket expense of $400 or more for an FHA appraisal… only to learn that your home value is not what you anticipated.  Additionally, you have already spent $125 or more for the counseling session… since that FHA appraisal cannot be ordered by the lender unless counseling has been completed.  For most seniors, $525 out-of-pocket expense is a very heavy price to pay… simply to find out that they don’t qualify for the HECM (Home Equity Conversion Mortgage) or that they will not receive as much money as originally anticipated/needed.

Reverse Mortgage Professional

The professional reverse mortgage originator should never allow a senior borrower to reach this point.  From the very beginning, the originator should have helped you to calculate a realitic estimate of your home value.  He/she should already know your current real estate tax assessment (let’s say your home is assessed at $278,000 by your town or county).  And the originator should know published estimates of market or sales value (let’s say several public sources estimate market value at $293,000).  While discussing the subject with you during the initial interview, home value should always be a major talking point.  It is a critical component of the calculation that determines exactly how much you qualify for.

Guidance From Reverse Mortgage Professional

In the above example if you think your home is worth $375,000 and the originator blindly accepts your guess, you could be in for major disappointment… and needless expense.  Unfortunately, some loan officers may do exactly that because they are only interested in generating loan applications… that’s how they get paid.  They could care less if your loan ever actually closes.  Beware the phone bank, boiler room, telemarketing operations… this is how many of them operate.  The experienced professional, on the other hand, will work with you to set appropriate expectations.

If there is continued home value disagreement, he/she will recommend that you contact several real estate sales specialists in your area to request an “opinion” of value.  Real estate brokers are quite knowledgeable about the reasonableness of home values in their own local market.  “Opinions”, however, may range from a brief phone conversation to a multi-page written presentation with comparable sales details.  These are not actual “appraisals”, but if you contact several real estate brokers you should be able to arrive at a close approximation of your current home value. The brokers will be happy to provide documentation of their “opinion” in hopes that you might eventually sell and they might get your listing.

In the end, the value determined via the FHA appraisal is all that matters.  In our example above, the actual appraisal could come in lower than you would ever consider selling your home for.  But remember, you’re not selling the home.  You are mortgaging the home.

FHA appraisals are intended to estimate fair market value at a certain point in time based upon current market conditions and documented sales of like or comparable properties.  This is the value that will be used to begin the calculation to determine how much you qualify for under HECM rules and guidelines.  The resulting number should not be a surprise if you are working with a professional reverse mortgage loan originator who has your best interests in mind.

Most Important Reverse Mortgage Decision

It is worth repeating time and again – the single, most important decision you will ever make about reverse mortgages… is the loan officer you select to assist you in the process.  There can be no substitue for character, reputation and experience.  Absolutely no substitute!

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

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. Same applies to tax advice. Always consult an expert on these subjects. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

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COPYRIGHT 2012: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you

Reverse Mortgages & Health Issues

Last year Muriel was diagnosed by the family physician with early stage Alzheimer’s disease. After a quick visit to a local attorney a durable power of attorney was created giving one of the siblings authority to make decisions for Muriel. Peter, the eldest son, hurriedly contacted a mortgage originator via the internet to begin the process. Application documents were signed via mail (sometimes referred to as a “fedex loan” since there is never any actual face-to-face meeting). The loan was then submitted to a major reverse mortgage lender.  After several weeks of waiting, Peter began receiving messages from the telephone call center revealing a delay in processing… and notice that additional documentation would be needed.

The lender wanted explanation as to why 91-yr old Muriel did not sign the loan application herself. When Peter explained that his mom had Alzheimer’s, the lender responded with new requirements.  They wanted a letter from Muriel’s doctor stating (1.) the specific date of her diagnosis, (2.) that she was not currently competent to sign documents on her own behalf and, (3.) that Muriel had actually been mentally competent to execute a power of attorney on the day she signed it. Understandably, her doctor was reluctant to make an official statement on the last item for liability reasons and his letter failed to fully address that question.

Reverse Mortgages & Power of Attorney

Meanwhile, the title company closely examined the power of attorney document signed by Muriel and her son. In the words of the title examiner, it was judged a “poorly crafted document” and the title company was reluctant to accept it. (There are good lawyers and there are not-so-good lawyers – just like reverse mortgage originators). The loan continued to unravel and more delays were introduced. By this time in-home care expenses were in excess of $13,000 per month and Muriel’s family members were out of money.

Often the story ends right here. The result is that Muriel is denied the HECM loan, she has to be admitted to a nursing facility and then the home is sold or eventually taken by the state to cover nursing home expenses. But it need not end like this!  Had Muriel’s family selected an experienced reverse mortgage loan originator, the result might have been different.  Next post we will examine how a professional, experienced reverse mortgage loan originator might have handled this transaction. The impact on Muriel and her family could have been much better if the loan officer had been experienced. The most important decision you will ever make concerning a reverse mortgage is the experience and background of the loan officer you select to work with.

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

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. Same applies to tax advice. Always consult an expert on these subjects. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

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COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you

Counseling rules may be changing in your state soon… Massachusetts will try it first. This regulation will not be good for many seniors.

New rules from the Executive Office of Elder Affairs in Massachusetts may be well meaning… but an unintended consequence will be that fewer seniors will be able to utilize the Home Equity Conversion Mortgage (HECM) program guaranteed by FHA.  Effective August 2012, senior reverse mortgage borrowers may no longer be counseled via telephone.  Face-to-face counseling is mandated.

More Seniors Excluded From HECM Program

Unfortunately, requiring face-to-face COUNSELING in Massachusetts is going to exclude a lot of seniors from the most popular reverse mortgage (HECM) program. Common sense would lead one to acknowledge that seniors will have much more difficulty traveling to/from the very few counseling sites available to meet in person with the required FHA counselor. Worse, interested family members, spouses and/or financial advisors will also be greatly inconvenienced.  Unable to monitor the session via telephone, they will very likely skip the counseling altogether.

This requirement is well meaning… but poorly thought through, in my opinion. FHA reverse mortgage counseling is not the problem… the process of applying for the programs is where most issues become evident. And that process of applying for the program is where the greatest opportunity for specific discussion and education exists. The focus by regulators ought to have been a requirement that APPLICATIONS must be done face-to-face; not the initial counseling. Seniors in Massachusetts will be at a distinct disadvantage when this face-to-face counseling law is implemented.

Unlicensed Reverse Mortgage Originators

Lenders with large telephone call-center loan operations are well protected by these new regulations.  Loan applications may still be completed via telephone from a distant location via an unlicensed, faceless originator. Few borrowers know that they could be speaking with an untested loan originator with very little knowledge of the program. Critical documents to be signed by the borrower are simply shipped overnight back and forth even though a responsible, professional, ethical and fully licensed loan originator (who has passed a criminal records background check, by the way) sitting face-to-face with the senior borrower would want to explain every line of every document to his/her client.

Here are a few more related posts you might want to review:

Reverse Mortgage Experts

New Reverse Mortgage Counseling Requirements

Reverse Mortgage Counseling

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

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you

So you’ve been watching a little too much cable TV lately… and noticed more former movie stars, TV personalities and ex-politicians urging you to call for a free DVD/CD that tells everything you ever needed to know about reverse mortgages.  Robert Wagner has been hustling these “free discs” for years… adroitly switching company sponsorship without missing a beat. Now his daughter, Katie, has joined the ad campaign to emphasize involving family members in your decision. Few people, however, can actually identify what company he presently sponsors.  Jerry Orbach, deceased star of Law and Order, was the original spokesperson but Wagner is king today.  New spokesman include Fred Thomson, Henry Winkler and even Pat Boone. Shortly you will see Barbara Eden of “I dream of Jeanie” fame pushing the “free DVD/CD”.

What happens when you call for the free information? A polite person in a call center somewhere takes your name, address and phone number with a promise to send the package out as soon as possible.  Usually you will be subjected to additional questioning in an effort to “qualify” you for the reverse mortgage.  If you resist supplying that personal detail, don’t worry. You will still get the info package and the free disc from the call center.

FHA recently made changes to lender requirements that could mean expansion of these revere mortgage call center operations.  I’m not certain any of this process is a good thing for senior borrowers.  Representatives of Robert Wagner, Fred Thomson and/or Henry Winkler could soon be calling you at dinner time or in the late evening if you innocently respond to these slick cable TV ads targeted specifically to senior homeowners. Be forwarned! You will be targeted for telemarketing calls

Free Reverse Mortgage Info?

“Call now and get a free DVD about reverse mortgages…” is the common message.  Reality,  is that the TV advertisers are simply looking to identify you as a sales prospect… and obtain your name and phone number.  Telephone calls to “follow up” will soon come pouring in from sales people in call centers around the country.  Sometimes these “leads” (your information) are sold to other companies/brokers and sometimes the call center is operated strictly for the benefit of the sponsoring lender that placed the TV ads. Many clients tell me that these annoying phone calls to them are made repeatedly day after day for months.

Questions To Ask Reverse Mortgage Phone Callers

A face-to-face meeting with a local, experienced reverse mortgage professional (5 years or more as a specialist in the product) is a far better source of information.  But if you do make a conscious decision to speak with these call center personnel, here are a few questions to ask before you ever begin to reveal your confidential information:

1 – Are you personally licensed by (state where you reside) to originate reverse mortgage loans in (your state)?

2 – What is your National Mortgage Licensing System (NMLS) ID number?

3 – What is the name of the lender you represent and what state are you presently calling me from?

4 – How long have you been originating reverse mortgages?

5 – Are you personally willing to meet with me face-to-face in my home to provide information and answer questions about reverse mortgages?

Listen To Reverse Mortgage Call Center Answers

Pay close attention to exactly how these questions are answered.  If the answers are deflected in any way, let that be a warning sign.  For example, a phone center sales person might respond to question #1 above with a reply such as “My company is permitted to operate in all 50 states”.  That response dodges the question. You want to know if the person you are speaking with is specifically licensed in your state. Do you really want to deal with someone who will not honestly respond to a specific and direct question?

Armed with a response to question #2 above, go to the internet to NMLS Consumer Acces and plug in that ID number to learn who the person actually represents, exactly where they are licensed plus other significant details about their background. If licensed in Massachusetts, they have been required to pass a C.O.R.I. criminal records background investigation plus a credit check. You are, therefore, reasonably certain that you are not dealing with a felon… or with an individual with a history of personal financial difficulties. You certainly don’t want people of this character providing financial advice to you.

Question #4 above is obvious. Many of the call center operators are young enough to be your grandchild. There is nothing wrong with being young… but somebody your own age probably knows how to relate to you much better and understand your issues/situation(s).  I love my grandchildren very much…. but I don’t want their advice when making significant financial decisions.

The most important question might be #5 above.  If the caller is (a.) unwilling/ unable to come to my home to discuss details of the complex reverse mortgage product, (b.) answer my questions face-to-face and (c.) provide an opportunity for me to size them up in person… why would I ever want to do business with them? What will I do when I run into a problem during loan processing, or several years later when an issue pops up?  Will they still be around or will they have moved on to selling used cars or insurance.  Be careful who you deal with… it’s your own home that’s at stake.

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

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you

Reverse Mortgage Denied !

Those so-called experts will quickly dismiss you with any one of the following comments… then move on to the next “prospect”.

- Your spouse is under 62 years of age and, therefore, you are not qualified.
- Your home is owned by an irrevocable trust and, therefore, you are not qualified.
- Your mortgage is too high and, therefore, you are not qualified
- There are tax liens on your property and, therefore, you are not qualified.
- You are not connected to town sewer/water and, therefore, you are not qualified.
- Your home is in disrepair and, therefore, you are not qualified.
- Your are divorcing and, therefore, you are not qualified.
- Your home value is too low and, therefore, you are not qualified.
- Your home is actually a manufactured home and, therefore, you are not qualified.
- Your home is in a non-FHA approved condo complex and, therefore, you are not qualified.
- Your home is a multi-family and, therefore, you are not qualified.
- You just filed Chapter 13 bankruptcy and, therefore, you are not qualified.

But I will tell you that I have been able to do reverse mortgages for every single one of these borrowers.  What’s more, I do it all the time… over and over and over again.  So, too, have many fellow professionals around the country.  It’s simply a matter of how much experience your reverse mortgage loan originator has… and how much effort he/she is willing to expend on your behalf.  The 6 month “experts” won’t be able to help you because they don’t know what to do.  They don’t have the experience… they’ve never seen the problem before and, therefore, you are not qualified.

Reverse Mortgages – Have It Your Way

Spend time interviewing your reverse mortgage loan originator. Do it face-to-face… not over the phone!  Anyone unwilling to travel to you is just not worthy of your trust.  If uncomfortable meeting in your home, meet at the local Burger King (or Starbucks… or local library).  Study his/her credentials thoroughly before you decide who to pick.  Record and verify licensing numbers.  It is the single most important decision you will make. It might mean the difference between success or failure… yours! You need all the help you can get in this market.

Want more info? See the related posts listed below:

Advice From the Guy at the Dump

How to Checkout Your Loan Officer

Choosing Your Reverse Mortgage Loan Officer (Read all 3 posts)

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

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you

But… you should know that storm clouds are gathering on the horizon for reverse mortgages.  If you have been thinking about the possibility of doing a reverse mortgage you really need to seize the moment and educate yourself.  Don’t depend upon Robert Wagner (see Robert Wagner… He’s Back !!!) or Fred Thomson to teach you the pros & cons.  Get aligned quickly with a professional loan specialist with at least 5 years direct experience in the reverse mortgage industry.  I emphasize the words “direct experience”.   Don’t bother with people who tout “30 years of loan experience” – reverse mortgage lending is unique and a recognized specialty.  Any experience in the conventional mortgage industry is meaningless.  These people are simply trying to learn the complex business at your expense. You don’t need to work with amateurs. For more information on how to find a professional see Choosing a Reverse Mortgage Loan Officer – Part I

Reverse Mortgage Warning #1

Financial Freedom and Bank of America recently decided to exit the reverse mortgage lending industry.  These organizations were number two and number three respectively in the business.   Each lender represented thousands of HECM loans originated every month.  Now… the bombshell !  Wells Fargo has just announced that they, too, will exit this business immediately.  WF has been number one in the industry for many years… with more than 1,500 originators and staff dedicated exclusively to reverse mortgage production.  They were always the elephant in the room with 26% market share…head and shoulders above anyone else.  So in the last 12 months we have seen the top three (3) leaders in the market leave the business entirely.  They did not sellout to someone else… they quit the industry.  This can’t be a good thing.

Reverse Mortgage Warning #2

The current temporary lending limit on reverse mortgages as set by HUD is $625,500. This means that if your home is appraised at any value up to $625,500, that number will be used in the calculation of your benefits under the HECM program.  However, few seniors know that this is only a temporary limit.  The bet is that HUD will revert to the permanent limit of $417,000 after September 30th… the end of the fiscal year.  If your home appraises above that old permanent limit after September 30th, you stand to lose all that added value. The consequences will be devastating to many seniors with homes valued higher than $417,000.

Reverse Mortgage Warning #3

If you are a senior homeowner and own a condominium, HUD has made it unbelievably difficult to get FHA approval for your complex. Without the approval you won’t be able to do a HECM reverse.  We recently worked through the new process with a senior who lived in an upscale community and owned a unit worth over $700,000 in a mature, well manicured complex with an excellent track record. The process was so difficult that we probably will turn down any future deal that involves a complex that is not already FHA approved. The effort is too costly and too burdensome.

Reverse Mortgage Warning #4

Reverse mortgage interest rates will never be lower than they are right now. A fixed rate reverse mortgage, in some cases, can be had for less than 4.50%.  An adjustable rate reverse mortgage is offered at less than 2.00%.  We will not see these interest rates again. At the rate our Federal Reserve has been printing money, look for interest rates to start moving up shortly.

Reverse Mortgage Warning #5

Your home value may have dropped another 5% in the first quarter of this year. It will be quite some time before the trend is reversed and values start to go back up. Experts are talking many years before that might happen.. if at all. As your home value continues to fall, you will qualify for less money through this HUD reverse mortgage program. Seniors who did their reverse mortgage 4 and 5 years ago are pretty happy today to know that they maximized the amount of home equity available to them. They would get much less today. You will probably get much less in the future if you wait any longer.

So – if you’ve been on the fence or if you have just been curious about a reverse mortgage…. hurry to your reverse mortgage loan specialist for some education about the pros & cons. Timing is everything. The longer you wait, the bigger your disappointment might be. (See also Reverse Mortgages – The Risks of Waiting)

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

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, as well. Tell a friend or link to the site.

COPYRIGHT 2011: All posts are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and this blog. Thank you.

Reverse Mortgage Expert

This is total nonsense.  It is evidence that yet another “expert” just does not know what he is talking about with regard to reverse mortgages.  Depending upon the specific Home Equity Conversion Mortgage (HECM) program this particular sample borrower selects… fees would normally range from $4,600 to $10,805.  Mr. Flynn is substantially in error on his claim that fees would be $20,000.

Worse, the certified financial planner cautions that the amount owed compounds “in a phantom way”.  There is nothing phantom about compound interest and any financial planner should be able to explain this elementary concept to any client.  He also claims that borrowers will likely disinherit children because at some future point the amount owed will be greater than the $200,000 home value.

Shame on Mr. Flynn. He correctly calculates that interest is added to the amount a client borrows and that this amount will increase over time.  After all, no repayments are made to the lender during the life of the loan. However, he conveniently fails to recognize that over the same time period the value of the home should also increase.  In fact, a required disclosure that every HECM borrower receives and carefully reviews with his loan officer is an Amortization Schedule that estimates future loan balance, home value and remaining borrower equity for each year up to age 100.

A 62-year old borrower might qualify for $100,000 but elect to take his benefit in terms of a tenure (lifetime) payment of about $600 every month.  At age 100, reasonable projections show he would still have amost $245,000 equity left in the home… because the asset has also been rising in value over the prior 38 years.

Another borrower with completely different needs in different circumstances might elect to take all the available money at closing.  Still… upon reaching a future total loan balance of around $200,000 (at about the 12 year point according to the Amortization Schedule) he would have approximately $100,000 of equity remaining in the home because the home value has also increased over this period.  And in this case, initial fees might have been as low as $4000 or about 20% of Mr. Flynn’s wrongful assertion.

Work With a Real Reverse Mortgage Expert

The moral to the story here is be careful where you get your information.  Work with a veteran reverse mortgage loan specialist (with credentials and expertise in reverse mortgages) who will help you properly understand the real pros and cons. Stay away from self promoting media stars… who often don’t know what they are talking about or have some ulterior motive for slanting the facts.  Sit down face-to-face with your experienced broker specialist and demand clear, concise answers to your questions and you will do just fine.  Reverse mortgages are not that difficult to figure out if you have the right people helping you.

See video here ->  CNN HelpDesk video

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

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are, of course, not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, too. Tell a friend or link to the site.

COPYRIGHT 2011: All posts herein are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and the blog. You may not copy or republish without crediting the author and referencing the post

HECMs & Revocable/Irrevocable Trusts

Self-proclaimed experts confidently report in news articles and on the internet that if your home is held “in a trust”, you are automatically prevented from completing a Home Equity Conversion Mortgage (HECM). Others laboriously explain the legal difference between revocable & irrevocable trusts… concluding with the falsehood that HUD will permit a reverse mortgage if home ownership is held by a revocable trust… but reject the HECM if ownership is in the form of an irrevocable trust.

Such a conclusion is simply not correct. And it illustrates why you absolutely need to work with a competent, experienced reverse mortgage specialist. Only an individual with direct reverse mortgage experience over a long period of time can guide you through this maze. Newcomers to the business simply do not have the broad exposure or weight of long experience to adequately assist you.

So what’s the correct answer? Well…. it depends.

Many revocable trusts are acceptable to HUD. But your loan officer and the lender will need to carefully review your trust document to make certain that it contains acceptable language… or that the trust can be amended to include that necessary language.  Also, the borrowers themselves need to be the beneficiaries of the trust. Trustees (as well as borrowers) will need to sign several of the reverse mortgage documents at closing; namely the loan agreement, the mortgage and the promissory note. Finally, you will need to locate the original trust document so that it may be recorded.  An experienced reverse mortgage specialist will understand each of these issues and help you to overcome possible hurdles. An inexperienced loan officer will fail to anticipate possible issues and might even cause your loan to blow up at the closing table.

Can I Do a Reverse Mortgage With an Irrevocable Trust?

Even some very experienced reverse mortgage professionals are quick to point out that irrevocable trusts are absolutely not acceptable to HUD.  Guess what… they’re wrong!  I just completed a Home Equity Conversion Mortgage for a client within the last month wherein the property was held by an irrevocable trust.  Experience (as always) is the key… and as a broker with nine (9) years reverse mortgage experience and multiple lender connections… I was able to find a lender for my borrowers that was willing to do the loan. It took some extra effort, it wasn’t easy but we got it completed without delay.

I continue to urge you to learn everything you can about your loan officer.  (See Choosing a Reverse Mortgage Loan Officer – Part I – III).  Always ask direct questions about his/her experience, licensing, training, actual number of reverse loans completed, character of the organization he/she represents.  Be wary of vague or incomplete answers.  Too many borrowers focus exclusively upon the fees and select the loan officer that promises to charge a few dollars less.  If that’s your focus, I promise that you will get what you pay for… and probably much less!

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

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DISCLAIMER: The information presented in this blog is accurate and correct to the very best of our ability. We are, of course, not legal experts and we do not attempt to give legal advice. If you think we report something inaccurate, please let us know right away. If we write something you like, let us know about that, too. Tell a friend or link to the site.

COPYRIGHT: All posts herein are copyrighted by Robert H. Irving. You may link to any post as long as you properly credit the author and the blog. You may not copy or republish without permission from the author.

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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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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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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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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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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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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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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