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

Reverse Mortgage Waiting Risks…

The loss noted above can be attributed solely to increases in the 10-year US Treasury Rate which is only one of the factors used to generate principal limit benefit.  (Principal limit is the specific dollar amount you qualify for under the HECM program).  Other factors include FHA appraised home value, youngest borrower age, and FHA lending limit – currently set at $625,500 nationwide.

Risk #1 – US Treasury Rates.  As interest rates move up, borrowers qualify for less money under the terms of the Home Equity Conversion Mortgage (HECM) program.  In the short term these rates fluctuate… but it is pretty much assumed that the 10-yr US Treasury Rate (currently at historic low levels) will increase over coming years.  The higher the rate, the less you will qualify for under HUD calculations of borrower benefits.

Risk #2 – FHA Lending Limit.  HECM program rules allow for calculations based upon the first $625,500 of FHA appraised home value. If the home is worth more, that additional equity will not be factored into the calculation of your benefit.  What most potential borrowers don’t know is that this $625,500 limit is only temporary and is set to expire at the end of the fiscal year; September 30th. The permanent limit is $417,000.  If your home appraises somewhere in between these two numbers you stand to lose a significant dollar amount in terms of reverse mortgage benefit after September 30th.

Risk #3 – Counseling Fees. After September 30th HUD will no longer subsidize the cost of required borrower counseling.  Agencies that presently waive the $125 fee will begin charging for the counseling session as soon as their funds are exhausted. Several have already begun  to levy the charge and a few have increased fees to $150 for the counseling session.

Risk #4 – Credit/Income Qualification. There is much current discussion related to these subjects and recommendations are that borrowers should be required to meet certain income and credit benchmarks.  Such restrictions do not currently exist but industry pundits expect some criteria to be developed and applied to potential borrowers in the very near future.  If your credit is poor and/or your income is low you may not even be able to “qualify” for the HECM in the future if these proponents have their way.

Risk #5 – Home Values.  Some seniors believe that if they can hold on long enough, the value of the home they own today will bounce back to the astronomical levels of a few years ago. It’s hard to believe that the $450,000 home they have proudly owned for many years is only worth $305,000 today.  Reality is that the home will probably continue to decline in value because of the massive numbers of foreclosures that still have not worked through the system.  The home might only be worth $280,000 when the market actually bottoms out in 2013 or beyond. The greatest risk to most seniors is focused on this risk factor.

Risk #6 – Appraisal Costs. It is not talked about much, but FHA appraisal costs (averaging around $425 in most areas) are not being “financed” as willingly by brokers and lenders since newly imposed federal restrictions on fees, costs and appraisals have been instituted.  Failed appraisals have become commonplace.  Financially troubled potential borrowers may not be able or may not be willing to pay for the appraisal if the loan is not approved.  In such a case the broker or lender will have to pay the appraiser initially.  Therefore, many lenders now measure their risk and attempt to gauge the likelihood that a loan will be approved before extending credit to the borrower.  The unintended consequence is that more borrowers will need to bear the initial cost of $425 for the appraisal plus $125 for counseling from their own funds.  For some, this upfront out-of-pocket expense of $575 is a deal killer.

Conclusion – Waiting to do Reverse Mortgage is Risky

The longer you wait, the more you will probably lose. If you think you need to do a reverse mortgage, do it now!

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.

According to the office of the Commissioner of Banks, MetLife Bank and Bank of America are the only lenders to continue to wait for approval.  Given BofA’s announcement last week to exit the reverse mortgage business immediately, approval for them is a moot point.

HECM Saver offers significantly reduced fees to homeowners 62-years and older interested in the HUD Home Equity Conversion Mortgage program.

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.

Some Seniors Won’t Qualify For Future Reverse Mortgages

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

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

Key Question From HECM Lenders

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

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

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

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

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

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

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

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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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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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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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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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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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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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Reverse Mortgage Counselors Stumped

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

HUD Fixes Things… Again

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

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

Seniors Will Get Less

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

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

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

“Now let’s compare the Lender Fees:

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

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

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

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

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

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

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

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