Reverse Mortgage Information

Muriel is 91 years old and in failing health. Her three children live nearby and they have tried to help her remain in her home but the cost of 24 hr in-home care has become a significant financial burden. Seems like an opportune time to do a reverse mortgage on mom’s home… and use the cash to pay the expenses. But there’s an unforeseen problem. Regrettably, the family selected an inexperienced loan officer to handle mom’s application for the Home Equity Conversion Mortgage (HECM) program.  Here’s how the scene unfolded… and how the loan unraveled.

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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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

Sandra and Martin Walsh represent a new breed of homeowner facing a dilemma that is increasingly common. After 45 years of marriage they agreed amicably to divorce.

Their $400,000 family home, however, presented a major problem that they struggled to resolve. Martin wanted to retain the home and continue to live there… but he simply did not have the financial resources to buy out his ex-partner. Of course, Sandra’s name was still on the deed and she remained responsible for the mortgage balance. She wanted relief from that financial burden plus fair payment for her share of equity in the home.The only sensible solution seemed to be to sell the home, pay off the mortgage and split the leftover cash.

Their personal financial planner counseled against that option, however.

Fortunately for Mr. & Mrs. Walsh, their planner was knowledgeable and well informed about a popular, unique loan program available to senior homeowners who are 62 years old and own their own home. This situation proved to be an excellent opportunity to make use of a federally insured HECM loan program from HUD often referred to as a reverse mortgage…or a Home Equity Conversion Mortgage.

Here’s how it worked out. The financial planner called in a reverse mortgage specialist to consult and help the Walsh’s understand the pros/cons of the variety of HECM programs. After a thorough analysis of the facts of their situation it was determined that they were qualified and the HECM loan program would provide enough funds to pay off the remaining mortgage in full; cancelling Sandra’s future liability. They also qualified for an additional amount equal to about 50% of the remaining equity in the home… and that was turned over to Sandra at loan closing in exchange for removing her name from the deed.

It was a win/win situation. Martin remained in the home that he loved and Sandra received her fair share of the equity in the home and did not need to worry about any future liability since the mortgage was paid in full.

Not all situations work out this well, of course. But it’s important to understand that the HECM program is no longer strictly for little old ladies trying to exist on $600 per month social security. Savvy financial planners and elder law attorneys have recognized that the program is useful for their clients in numerous ways. It has become an important financial tool for many senior homeowners trying to solve a financial problem.

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.

This is not a post about how terrible things might happen if you do a reverse mortgage.  If that’s your thinking about the popular Home Equity Conversion Mortgage (HECM) product, see the typical news media 15-second analysis recently screened on CNN (see CNN Wrong on Reverse Mortgages…Again).

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.

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

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

Reverse Mortgage Account Number Changed

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

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

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

Help From Your Reverse Mortgage Loan Officer

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

Correcting Reverse Mortgage Bank Error

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

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

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

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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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