Reverse Mortgage Information

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.

The Commonwealth of Massachusetts Division of Banks has approved 3 lenders to offer the new HECM Saver reverse mortgage product in the state. Approved lenders who have submitted full documentation and have received approval to offer the product to senior homeowners are Genworth Financial, Generation Mortgage and a third lender with very few outlets in MA.

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 will believe anything that’s in print.  The same applies to anything published on the internet. Unfortunately, much information published on the internet is simply wrong.  Take the subject of trusts as they apply to reverse mortgages .

HECMs & Revocable/Irrevocable Trusts

Self-proclaimed experts confidently report in news articles and on the internet that if your home is held “in a trust”, you are automatically prevented from completing a Home Equity Conversion Mortgage (HECM). Others laboriously explain the legal difference between revocable & irrevocable trusts… concluding with the falsehood that HUD will permit a reverse mortgage if home ownership is held by a revocable trust… but reject the HECM if ownership is in the form of an irrevocable trust.

Such a conclusion is simply not correct. And it illustrates why you absolutely need to work with a competent, experienced reverse mortgage specialist. Only an individual with direct reverse mortgage experience over a long period of time can guide you through this maze. Newcomers to the business simply do not have the broad exposure or weight of long experience to adequately assist you.

So what’s the correct answer? Well…. it depends.

Many revocable trusts are acceptable to HUD. But your loan officer and the lender will need to carefully review your trust document to make certain that it contains acceptable language… or that the trust can be amended to include that necessary language.  Also, the borrowers themselves need to be the beneficiaries of the trust. Trustees (as well as borrowers) will need to sign several of the reverse mortgage documents at closing; namely the loan agreement, the mortgage and the promissory note. Finally, you will need to locate the original trust document so that it may be recorded.  An experienced reverse mortgage specialist will understand each of these issues and help you to overcome possible hurdles. An inexperienced loan officer will fail to anticipate possible issues and might even cause your loan to blow up at the closing table.

Can I Do a Reverse Mortgage With an Irrevocable Trust?

Even some very experienced reverse mortgage professionals are quick to point out that irrevocable trusts are absolutely not acceptable to HUD.  Guess what… they’re wrong!  I just completed a Home Equity Conversion Mortgage for a client within the last month wherein the property was held by an irrevocable trust.  Experience (as always) is the key… and as a broker with nine (9) years reverse mortgage experience and multiple lender connections… I was able to find a lender for my borrowers that was willing to do the loan. It took some extra effort, it wasn’t easy but we got it completed without delay.

I continue to urge you to learn everything you can about your loan officer.  (See Choosing a Reverse Mortgage Loan Officer – Part I – III).  Always ask direct questions about his/her experience, licensing, training, actual number of reverse loans completed, character of the organization he/she represents.  Be wary of vague or incomplete answers.  Too many borrowers focus exclusively upon the fees and select the loan officer that promises to charge a few dollars less.  If that’s your focus, I promise that you will get what you pay for… and probably much less!

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.

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. (Also – see previous terms in Reverse Mortgage Glossary – Part I)

Maximum Claim Amount

The FHA appraised value of the home or the maximum lending limit ($625,500 currently), whichever is less.  Example #1: your home appraises for $750,000 and the maximum lending limit is $625,500.  Maximum claim amount equals $625,500.  Example #2: Your homer appraises for $315,000 and maximum lending limit is $625,500. Maximum claim amount equals $315,000.  It is important to note that the FHA lending limit may be changed by FHA at any time.  $625,500 is only a temporary number raised from $417,000.

TALC

The TALC (Total Annual Loan Cost) is a required disclosure document  that should be presented to you by your loan officer before or during the loan application process.  This document contains a simple table to illustrate the estimated cost of your reverse mortgage expressed as an annual rate.  The table shows estimated costs for four loan terms: 2 years, half of youngest borrower’s life expectancy, actual life expectancy of that borrower, and 1.4 times that life expectancy.  The table also shows calculations based upon several property appreciation rates.  The rates in this table are based upon the total charges associated your loan. Typically, they include principal, interest, closing costs, annuity costs, mortgage insurance premiums, and servicing. The easiest method for comparing loans offered by different lenders is to compare the TALCs.  The lender offering the lowest total annual loan cost is the least expensive program.

Good Faith Estimate

The GFE is another important disclosure that reports all the known fees and costs associated with your reverse mortgage. Lenders are required to provide this disclosure at time of application and fees listed may not vary significantly at loan closing unless there has been a valid change of circumstances.

Right of Rescission

To rescind (cancel) certain mortgage transactions. The right of rescission was created under federal law by the Truth in Lending Act to protect consumers from unscrupulous lenders, and to give borrowers a cooling off period (72 hours)  and the time to change their minds after loan closing documents are signed. The right of rescission exists only on home-equity loans, home-equity lines of credit and refinances of existing mortgages in which the refinancing is done with a lender other than the current mortgagee. Since the right of rescission also applies to reverse mortgages, lenders will not disburse funds until after the 3-day waiting period (holidays and Sundays excluded) has expired.

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

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The SAFE Act requires Mortgage Loan Originators to pass a written qualification test. The SAFE Act Mortgage Loan Originator Test consists of two components— a National Component and a unique State Component.

On July 30, 2009 NMLS released the National Test Component and 11 Unique State Test Components. In October, 2009 it deployed another seven State Components and then six more State Components in December, 2009. On January 4, 2010 the New Jersey State Test Component was released, and on February 22nd, so were an additional five unique State Components. On April 12th, another set of five state components became available, and on June 14th, seven more were released. This brings the total of state components available to 42. More will eventually be added.

From June 2009 to June 2010, about 76,000 loan originators sat for the National Component test. 71% passed on the first attempt. About 82,000 loan originators have also taken a State Component test. 80% passed on the first attempt.

For those who fail either test, a re-take may be scheduled after 30 days. Up to 3 re-takes may be completed before the originator is disqualified for six months. Approximately 44% of these test re-takers eventually pass the National Component and 61% eventually pass the State Component.

NOTE: My score on the Massachusetts component was 92%, New Hampshire component 93% and National component 85%… all on the first try. Maine, the third state where I am licensed, has not yet deployed a State component test. UPDATE 03/2011 – Maine has joined the NMLS system and now requires testing. My score on the Maine component was 88%.

Find Details About Your Reverse Mortgage Loan Officer

To retrieve information related to any registered reverse mortgage loan officer, simply enter their unique Nationwide Mortgage Licensing System & Registry (NMLS) number here. Test scores are not available to you at this NMLS Consumer Access site but at least you will know if the loan officer you are working with is licensed or registered in your state. If not registered or licensed, consider seriously if you really want to do business with this person who has not been vetted by your state regulators. A reverse mortgage is a big financial decision and it is imperative that you deal only with a reliable individual. Don’t gamble your home with someone you know nothing about.

Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant – NMLS #19086
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In this and following posts we review the 4 reverse mortgage documents you need to examine closely as you research, select, and finally apply for your loan. This is only an overview and is not intended to be an exhaustive explanation of every line in every document.

Consider these as your pre-application documents. You should have received these documents from your loan officer prior to making your decision. They include (1.) the Reverse Mortgage Loan Comparison sheet, (2.) the Good Faith Estimate, (3.) The Amortization Schedule and, (4.) the Total Annual Loan Cost (TALC) calculation.  With these documents in hand you should be able to make an independent, informed decision.  You should also be able to accurately compare offers from a number of lenders if you have done your research properly.  If you do not fully understand the information contained in these documents, you need to find a reverse mortgage specialist willing to meet face-to-face in your home with you, your family and your financial advisor to explain every detail.

Reverse Mortgage Loan Comparison

We begin at the beginning; researching and accumulating information specific to your situation.  The single most important document to request from your loan officer is the Reverse Mortgage Loan Comparison sheet. To get an accurate estimate (at this point, it is only an estimate, not a guarantee) of how much you might qualify for, the loan officer will need to ask some questions about you and anyone else on the title to the property.  Then the data is loaded into a special calculator and the document is produced. Note that this information is much more detailed and accurate than online calculators designed to identify you as a reverse mortgage prospect.  If the information here has not been supplied by you, it is probably inaccurate.  Print out the sample Reverse Mortgage Loan Comparison and follow along as we go over some of the important items on this summary document. This document has almost everything you need to help you to make an informed decision.

Different lenders might have slightly different forms but the Reverse Mortgage Loan Comparison summary sheet should be arranged in 4 distinct columns. The extreme left column identifies each of the categories such as initial interest rate index, total principal limit, liens and disbursements, etc. found in each of at least 3 different specific HECM loans programs; the remaining columns.  (If you have been given a loan comparison sheet that only shows 1 or 2 options, find another loan officer.

The upper left corner shows borrower names (be certain all owners are listed), the principal residence property address and borrower ages (FHA rounds up to the nearest birthday within 6 months).  The youngest borrower is listed first and an assumed property value is indicated.  Note that this should not be the property assessed (tax) value.  It should be an informed, educated guess based upon recent sales of like homes in your neighborhood. Since this value is a critical factor in determining how much you qualify for, consult with your loan officer who should have the experience to help you to arrive at a reasonable estimate.  A seasoned reverse mortgage specialist will advise caution.  Better to be conservative here to avoid disappointment if the FHA appraisal comes in significantly lower.

If you later decide to work with more than one loan officer, be certain to use the same details, same numbers so you compare apple to apples.  Specifically note the date at the bottom left corner of the document.  Interest rates change every week (another critical factor in your calculation) so if you fail to make the comparisons from lender to lender in the same week – your comparison is probably flawed. You will be comparing apples to oranges.

(More – next post)

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

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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.

Big Dog

A national lender that has a specialized reverse mortgage division. These are direct lenders (processing and actually lending in their own name under FHA authority).  Included are Wells Fargo (largest in terms of unit volume), Bank of America, Financial Freedom (post IndyMac bankruptcy), MetLife Home Loans and a very small number of others.   These institutions usually have both retail and wholesale operations.  Customers walk into the local branch (retail) of any of these organizations and are routed to an internal specialist.  Other borrowers (wholesale) are brought to them by brokers, agents and correspondents – who might be your local mortgage broker or regional bank or local credit union.

Boutique Broker

A phrase we made up to help illustrate the significant value a broker provides to you while you are considering a reverse mortgage transaction.  Most (not all) offer close personal attention and are available 24/7.  Ever try calling your local bank on Sunday morning with a troubling question or concern?  Each of my clients has my cell phone number and instructions to call me anytime… anytime.  Even years after the loan closes I am still in touch with most of my customers.

Call Center

A call center is a physical place where customer and other telephone calls are handled by an organization, usually with some amount of computer automation. Typically, a call center has the ability to handle a considerable volume of calls at the same time, to screen calls and forward them to someone qualified to handle them, and to log calls. Call centers are used by mail-order catalog organizations, telemarketing companies, computer product help desks, and any large organization that uses the telephone to sell or service products and services.

Direct Lender

Very few institutions qualify as reverse mortgage direct lenders.  Nationwide, there may only be a handful.  Almost all “lenders” except the big dogs are agents, correspondents or brokers allied with the handful of direct lenders.

NMLS

Nationwide Mortgage Licensing System. NMLS website

Preferred Lender

There is no such thing as a “preferred” lender as far as HUD/FHA is concerned. It’s really important to understand that this terminology is merely somebody’s opinion – probably because the lender paid a fee to be listed in a directory and/or online source. Lenders are either FHA approved (have met the requirements) or they are not.  NRMLA (National Reverse Mortgage Lenders Association), the reverse mortgage industry’s trade group, publishes a list of “preferred” lenders but this is nothing more than a membership roster. If you pay your annual dues, you get listed.  If you research the AARP web site you don’t get much help, either. They simply refer you to the HUd.gov list or NRMLA’s list of paid members.

Principal Limit

The Principal Limit is the gross amount of money the lender is willing to lend to the borrower… based upon a formula using the following criteria: the lower of the FHA appraised value of the home or the Maximum Claim Amount (currently $625,500), the age of the youngest borrower, and the expected interest rate based upon 10-year LIBOR (London Interbank Offered Rate).

SAFE Act of 2008

On July 30, 2008 President Bush signed into law the Secure and Fair Enforcement (S.A.F.E.) Mortgage Licensing Act of 2008 as part of the Housing and Economic Recovery Act. This provision sets forth procedures, requirements, education, testing, and standards including mandatory registration and state licensing of mortgage loan originators through the creation of a Nationwide Mortgage Licensing System and Registry (NMLSR). The goals NMLSR hopes to accomplish are: 1- Helping ensure that loan originators be required to “act in the best interests of the consumer”, 2- Giving consumers easy access to a loan originator’s employment history, and any disciplinary/enforcement actions taken, 3- Uniform education and licensing requirements, and 4- Accountability and tracking of loan originators

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

Sometimes we assume everyone else knows what we mean when we use abbreviations or, in this case, an acronym. HECM (heck-um) simply means Home Equity Conversion Mortgage, the most popular reverse mortgage used by over 400,000 senior homeowners.

This loan product is insured by FHA (Federal Housing Administration) – a department under HUD (U. S. Department of Housing and Urban Development).  According to AARP (American Association of Retired Persons) 93% of seniors report satisfaction with this popular loan product available only to homeowners 62 years of age and older.  We don’t know of any other financial product that enjoys such a high level of acceptance…   None!

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

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There is controversy brewing over the statement that a Home Equity Conversion Mortgage is truly a non-recourse loan. Specifically, it has been reported that many lenders tell borrowers that they “can never owe more than the loan balance or the market value of the home, whichever is less.”  This has always been true… except now HUD has decided to revise the interpretation where the borrower’s heirs might wish to keep the home.  As with most things, you need to rely upon information from an experienced professional reverse mortgage specialist who is up-to-date on how this is presently interpreted by HUD.

Heirs Pay Full Balance

According to a Mortgagee Letter issued by HUD in December, 2008 (ML-08-38) the new arm’s-length rule interprets this feature to mean that if a relative wants to purchase the family home they must pay the full balance owed on the loan – which could be substantially higher than the market value of the property. Many in the mortgage industry are trying to reverse this interpretation but it could take some time. Meanwhile, be forewarned. For more details see Atare’s Report www.thinkreverse.com/?p=91#respond

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

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