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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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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Following is a rebuttal to all that bad press about the reverse mortgage industry. It’s time to fight back! Here is some documented good news:

1 – Since 1989, more than 500,000 Home Equity Conversion Mortgages (the most popular reverse mortgage and accounting for 90% of industry volume) administered by the U.S. Department of Housing and Urban Development (HUD) have been completed. There are 499,994 “good” reverse mortgage loan stories out there but the media are solely focused on the same, tired old 6 cases. Those cases are the exception, not the rule.

2 – AARP and industry sponsored surveys have reported consistent satisfaction rates among reverse mortgage senior borrowers ranging from 93% to 97% over the last few years. No other loan product is so well received. The news stories never mention this critical fact.

3 – Comments made by the Comptroller of the Currency John C. Dugan in June (that started the recent avalanche of bad press) are out of context and Dugan is misquoted in all of the above cited publications. The publications conveniently fail to include his positive comment that “reverse mortgages can provide real benefits”.

4- Congressman Barney Frank (D-MA and Chairman of the Financial Services Committee) is a strong supporter and proponent of the government insured Home Equity Conversion Mortgage (HECM) program administered by HUD and offers rebuttal to those who claim that reverse mortgages could become the next subprime fiasco. His summary, given in specific reference to the Dugan quote, is that this (the next subprime mess) is a completely ridiculous assertion. There is no possible comparison to reverse mortgages, according to Representative Frank.

5 – For several years, HUD has worked to tighten regulation of the HECM program in order to prevent repeat of abuses featured in the above referenced publications. For example, while the bad publicity warns of unscrupulous reverse mortgage lenders cross-selling annuities or other insurance products to seniors, this activity has long since been prohibited and substantial federal penalties have been applied in cases where the practice continued.

6 – At the request of the National Reverse Mortgage Lenders Association (the reverse mortgage industry trade group) both HUD and state banking regulators nationwide have been repeatedly asked to report any and all known cases of HECM abuse. According to NRMLA, no cases have been reported to date. But those same few cases from prior years seem to be publicized repeatedly by the press. Bad news, it seems, sells papers and generates grant money.

7 – The SAFE Mortgage Licensing Act of 2008 is another federal government effort to insure that all mortgage loan originators are registered with the Nationwide Mortgage Licensing System (NMLS). Also, mortgage originators who do not represent a depository institution such as a bank, credit union, or savings bank (about 85% of loan originators do not), must complete 20 hours of pre-licensing education and pass a tough national license exam. Individual states (MA and NH included) also require a state specific exam administered separately from the national exam. Fingerprinting, credit check and criminal background check are also required. The NMLS registry will be opened up to consumers in 2010 so that complaints may be recorded, tracked and individual qualifications may be verified. This will be a major asset to borrowers, enabling them to know more about the loan officer they select.

8 – HECM borrowers must complete a counseling session with an independent FHA certified counselor before a reverse mortgage application may be registered with FHA. Non-borrowing spouses (not on deed) are required to attend and adult children are encouraged. Participants are now required to pass a test administered verbally by the counselor to insure that each has a clear understanding of the loan product. Non-borrowing spouses and even adult children living in the home are required to acknowledge in writing that the reverse mortgage carries consequences that could impact them.

There is nothing inherently wrong with a reverse mortgage. As is the case in any industry, it is the people you deal with that make the difference. Second, there are an increasing number of 62+ year old homeowners using reverse mortgages who are certainly not destitute. Some, in fact, might be considered affluent. For many seniors who wish to remain in their home, the reverse mortgage is a useful financial tool if fully understood and used properly.

Reverse Mortgage Advice

Work closely with a professional who has specific reverse mortgage training, long experience in the reverse mortgage industry, personal integrity and a strong reputation in that field. Ask your accountant, your real estate attorney, financial planner, elder law specialist or other financial professional to bring in a reverse mortgage specialist for a face-to-face meeting to educate you, your spouse and family as well as your advisor. Only then can you intelligently and independently decide if a reverse mortgage meets your specific needs. Don’t risk your home based on bad advice or misinformation perpetuated by the media.

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

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Several weeks ago Consumer Reports hit the stands with an inflamatory and irresponsible piece about reverse mortgages.  Many of these stories were generated from comments made by the Comptroller of the Currency, self-serving hearings held by Sen Claire McCaskill (D- MO) and have been fueled more recently by a National Consumer Law Center study published in October. (I’m suspicious of “studies” when I note that some report contributors listed under “Acknowledgements” have made a public career out of bad-mouthing reverse mortgages.)

Yet AARP reports that 93% of seniors who completed a reverse mortgage are reasonably happy. This proves that only bad news sells newspapers and magazines.  Good news is a waste of time for these organizations.  Where are the stories about the hundreds and hundreds of thousands of seniors who have been helped by reverse mortgages?

We encourage you to read these articles and studies. But be forewarned. This doom and gloom is old news.  Sure, there have been seniors who have been victims of dishonest lenders and brokers.  But there have also been borrowers who have learned to game the system… claiming they didn’t know this or that.  These cases are the exception, not the rule!  New regulations from HUD are already in place and make the scenarios of several years ago described in these articles and reports very unlikely if not impossible today.

Decide for yourself!  Read the “bad news”.  If you’re a reasonably intelligent person who has made it to senior status and has retained ownership of a home, raised a family, and tried to prepare financially for retirement… you know how to pick the right professional(s) to help you determine if a reverse mortgage is good or bad for you.  Don’t let yourself be bullied by pushy “salesmen”. And certainly don’t let yourself be bullied by fear-mongering reporters or pseudo-experts with an agenda from the “think tanks”.  And a final piece of advice for Consumer Reports – stick to toasters and washing machines!

Consumer Reports article here

Parade Magazine article here

National Consumer Law Center study here

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

The September 2009 issue of Consumer Reports jumps on the bandwagon with more irresponsible reporting on reverse mortgages.  This is sickening.  I have now lost all respect for this publication which long ago had a reputation for decency and fairness.  Now, some staffer picked up the sensationalism generated by Senator Claire McCaskill D-MO and her committee “looking into reverse mortgage scams on seniors.”   We are told, once again, that more regulation is needed.  More laws, more papers, more disclosures = more confusion!

A story is told in the article about a senior who did a reverse mortgage to pay medical expenses for his ailing wife – a very worthy use of the funds.  Now, he finds he suddenly owes $200,000 on a home valued at about $130,000.  Worse, he is about to be evicted from the home because he can’t pay off the $200,000.   The implication, of course, is that he has been swindled and his home is about to be taken away from him.   Ahh, another senior scammed by a lowly lender!

Unfortuately, the Consumer Reports article is short on detail.  This must be the new style of reporting.  How much did the couple originally borrow?  How long ago did they borrow it ?  Why is the homeowner being evicted from his home ?  Was this a HECM reverse mortgage – insured by FHA?  Or is it some other type of private loan?

Perpetuating the Myth

Next, a TV station somewhere picks up the story and declares that Consumer Reports has deemed that reverse mortgages are a bad idea for seniors. Seniors everywhere are being preyed upon by unscrupulous lenders.  Reverse mortgages should never be used – unless you are completely destitute.  Soon we will see a host of regional and local newspapers reporting on this same story.

Shame On Them All !

Consumer Reports, the TV station and Senator McCaskill ought to be ashamed!   These stories scare away seniors who can benefit from an excellent program. They are completely irresponsible, at best.  At worst, they are despicable and serve only to sensationalize a subject that precious few reporters actually understand.  If $800 million is budgeted for FHA insurance to provide for POSSIBLE future losses (as is reported by McCaskill and repeated by Consumer Reports) … this information should be balanced by the explanation that reverse mortgage popularity has virtually exploded in the last few years.  Of course there might be some losses.   (It is, after all, an INSURANCE program by definition.  Without FHA insurance no bank would ever lend the money under the HECM program.)   But in takes a huge stretch of the imagination to tag this as “the next sub-prime meltdown”.   No self-respecting, reasonably intelligent, fair minded individual could believe that.

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

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