5 Reverse Mortgage Warning Signs
Posted by Robert H Irving on June 17th, 2011
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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Throughout this blog we may use terms you might not be familiar with. Following are some definitions. Some are unique to posts in the blog and some are unique to reverse mortgage lending. We will expand as time and circumstance permit. Check this post frequently for updates.
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