Reverse Mortgage Information

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

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

Reverse Mortgage Account Number Changed

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

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

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

Help From Your Reverse Mortgage Loan Officer

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

Correcting Reverse Mortgage Bank Error

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

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

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

Too much is made of the constant warning that seniors should NEVER purchase another financial product in conjunction with their reverse mortgage.  We agree that you should avoid reverse mortgage originators who team with persons selling annuities, life and long term care insurance and/or other so-called investments.  But the key word here is “team”.  These financial products are not bad in and of themselves.  In fact, there are some situations where an experienced reverse mortgage originator might strongly urge a borrower to purchase one of these products.  I work with many professionals who are expert in these products and I learn from them every day.  Those whom I trust are honest and sincere and, on occasion,  work with my clients on a referral basis (only – no compensation is ever exchanged) to meet their needs.  But, of course, I would not ever require them to purchase anything.

Example

I recently completed a HECM loan for a couple aged 59 and 62.  They were referred to me by their attorney who had completed guiding them through a complex bankruptcy.  They had a sizeable conventional mortgage that continued to impact monthly cash flow.  The only way they could do the reverse mortgage was for the younger partner to come off the deed.  But I carefully outlined the dangers of doing this to both homeowners.  In the event of the death of the older homeowner, the reverse mortgage would become due and payable and if the younger partner wanted to remain in the home, she would need to payoff the reverse mortgage balance due.

Insurance Hedge

Given HUD’s new interpretation of the non-recourse feature and arm’s length transactions for heirs or relatives… we knew that it was possible that the survivor would need a large amount of cash to buy the house back should the husband pass away unexpectedly.  They simply didn’t have the money.  So, we recommended term life insurance for the older partner in an amount about equal to what it would take to pay off the loan 9 years from now.  9 years was about 1/2 the life expectancy of the husband as shown on the TALC… and the Amortization Schedule projected the balance due at that point in time.  Term insurance premiums, even at age 62, are reasonable and the product is a great hedge for the surviving younger spouse.  Upon the demise of her husband, she would have the cash needed to remain in the home… if she chooses to do so.  If he survives beyond the 9 years, it may well be possible to rewrite or refinance the HECM assuming property values return to better levels in the future.

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

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