Believe It Or Not, Reverse Mortgages Are NOT A Scam!

Comments under factual articles in the media, “warnings” to those interested in exploring a reverse mortgage, and even research says people are afraid of reverse mortgages because they think they are a scam.

Attention, Reverse Mortgages are NOT ScamMost people have, or had, a conventional mortgage using them to purchase their home or have refinanced their original purchase mortgage…these aren’t considered a scam.  So why are reverse mortgages considered a scam?

A reverse mortgage is a loan to a homeowner using the home as collateral or security where the lender puts a lien against the property, just like conventional mortgage, but with special terms for those 62 and older.

The Home Equity Conversion Mortgage or HECM, the most common reverse mortgage, is insured by FHA for the purpose of providing a valuable financing alternative for senior homeowners to help them remain in their home and have access to funds by withdrawing a portion of their home equity.

Whether a conventional mortgage or a reverse mortgage, borrowers are responsible on how they use the funds from their loan.  If not used wisely, with a conventional mortgage the borrower is said to be irresponsible; with a reverse mortgage it is said the lender took advantage of the borrower and it’s a scam.  Why?  It is the borrower who is making the choices.

Let’s compare the two.

Reverse Mortgage Conventional Mortgage
Loan Collateral It is a loan using the home as collateral. It is a loan using the home as collateral.
Title/Ownership The title stays in the borrower’s name, they remain the homeowner. The title stays in the borrower’s name, they remain the homeowner.
Interest Rate

 

Income or credit scores don’t affect the interest rate.

 

Interest rate can be impacted by one’s income and credit score.  Limited income and poor credit means a higher interest rate.
Qualifying

 

 

 

 

 

 

 

One homeowner needs to be 62 or over.  Income and credit history are used to for qualifying; to determine if borrowers meet HUD’s Financial Assessment requirements. If one has a history of late payments on debt and a low residual income, a Life Expectancy Set Aside may be necessary.  Under some circumstances they may not qualify.  These requirements are lower and less strict than a traditional loan. Income and credit history and scores are used to for qualifying; low income and/or a poor credit may mean one doesn’t qualify for the conventional mortgage.

 

 

 

 

 

Closing Costs

 

 

 

 

 

 

 

 

Closing costs generally include origination fee, appraisal, title and recording fees.  Closing costs could be offset by lender or broker credits but will likely have a higher interest rate.

FHA Mortgage Insurance Premiums are charged.

 

 

Closing costs are comparable to reverse mortgages…side-by-side comparisons have been done.

Closing costs generally include origination fee, appraisal, title and recording fees.  Closing costs could be offset by lender or broker credits but will likely have a higher interest rate.

If doing a “Forward” FHA Mortgage Insurance Premiums are charged.  On conventional mortgage one may be required to pay for Mortgage Insurance.

Closing costs are comparable to reverse mortgages…side-by-side comparisons have been done.

Loan Amount Borrowed

 

 

 

 

 

 

 

 

 

Initial amount borrowed is based on the age of the youngest homeowner, appraised value or FHA Lending Limit, expected interest rate and program chosen.

Over time the amount borrowed increases with the interest amount charged, FHA Mortgage Insurance Premium and draws being added to the loan balance.  At some point the amount borrowed could be more than the value of the home at the time the loan was initiated.

If payments are made (they are optional), then they could decrease the loan balance.

Amount borrowed is based on appraised value of home, credit score, income, debts, and program chosen.

 

 

 

 

 

 

 

 

Receipt of Funds

 

 

 

 

Can receive funds as a line of credit, monthly payments to the borrower, lump sum or a combination of these.

Line of credit increases monthly so more funds become available over time. The available line of credit can never be withdrawn by the lender if borrower is abiding by the terms of the loan.

Conventional mortgage funds are drawn as a lump sum.

 

Home Equity Line of Credit (HELOC) creates a line of credit for a specific term and specific amount. The line of credit does not increase and the lender can withdraw the loan at any time.

Use of Funds

 

 

Borrowers benefit by having access to funds for whatever they need or want.  It can be used for more immediate needs or as a financial planning tool or even to purchase a home. Borrowers purchase a home or refinance to have funds for what they need or want.

 

Monthly Mortgage Payments

 

The advantage is monthly mortgage payments are not required make which takes away the risk of foreclosure from not making a monthly mortgage payment. With a conventional mortgage or HELOC one has to make monthly mortgage payments.  If the mortgage payments aren’t made, usually within 3 to 4 months, the foreclosure process will begin.
Payment Requirements

 

 

 

 

 

While monthly mortgage payments are not required, they can be made; it’s a choice of the borrower as to when, how much, how often, or not at all. Making payments reduces the loan balance.

With the adjustable rate, the funds are applied to the line of credit and can be re-borrowed without refinancing.

Payments are required to be made.

 

 

 

One has to refinance to access more funds.

 

Interest

 

 

 

 

 

Interest is accrued over the life of the loan.  This increases the loan balance over the term of the loan.

 

If one chooses to make payments the loan balance will be decreased by the amount of payment(s) made.

Interest is paid each month along with the principal generally reducing the loan balance over the term of the loan.

If one has a balloon payment the full payment would be required at the end of the loan term…generally 10 to 15 years.

Borrower’s Responsibilities

 

 

 

 

 

Borrowers are responsible for keeping insurance on the property, paying property taxes and maintaining the home.  As long as they abide by the terms of the loan they are not forced from their home.

If they don’t abide by the terms of the loan, they risk a foreclosure.

Borrowers are responsible for keeping insurance on the property, paying property taxes and maintaining the home.  As long as they abide by the terms of the loan they are not forced from their home.

If they don’t abide by the terms of the loan, they risk a foreclosure.

Loan Term/Due Date

 

 

 

 

It is a loan and does need to be repaid at the end of the loan term.  The reverse mortgage loan is not due and payable until the home is no longer the primary residence of the borrower.  (Or if they don’t abide by the terms of the loan.)  The due date on the mortgage is the 150th birthday of the youngest borrower. It is a loan and does need to be repaid over the life of the loan.  A conventional mortgage loan term has a due date generally in 15 or 30 years from the closing date.  A HELOC’s loan term has a due date generally in 10 to 15 years from the closing date.

 

Equity Difference When Sold

 

When the loan is being repaid, if the home is sold for more than the loan balance, the borrower or their heirs receive the difference. When the loan is being repaid, if the home is sold for more than the loan balance, the borrower or their heirs receive the difference.
Non-Recourse

 

 

All reverse mortgages are non-recourse which means there is no personal liability to the borrower or their heirs.  The loan is paid back only from the property. Conventional loans can be non-recourse, it’s determined by the lender.  Without the non-recourse factor the lender can be repaid from other assets of the borrower.
FHA Mortgage Insurance Premium  Covers When Loan Due

 

 

If the loan balance is higher than what the home can be sold for when the loan is due, the FHA Mortgage Insurance covers the difference to the lender; the borrower or their heirs or tax dollars don’t cover this difference.
Staying in home when all funds used

 

 

 

Once a reverse mortgage is in place, even if one draws all the funds available from the reverse mortgage, the borrowers can stay in their home as long as they abide by the terms of the loan, i.e. pay property taxes and insurance, HOA dues if applicable, and maintain the home. Borrowers stay in their homes even when all funds are drawn as long as they abide by the terms of the loan.

 

 

 

Protections

 

 

 

 

 

 

 

 

Requires counseling by a HUD approved 3rd party counselor as a protection to help borrowers understand the details of the reverse mortgage.  The processing cannot start until the counseling has occurred.

HUD regulates what lenders and third-parties may charge stating they must be customary and reasonable costs necessary to close the mortgage.  Mark-ups are not allowed.

Disclosures and sample closing documents must be provided to borrowers at application.

No counseling required.

 

 

 

Mark-ups on such items as processing and underwriting fees and courier fees can be charged.

 

 

 

Lender/Bank and Investor Benefit

 

 

Lender makes money by the interest charged on the loan.

Would you loan money without receiving a benefit or compensation?

Lender makes money by the interest charged on the loan.

Would you loan money without receiving a benefit or compensation?

Use a reverse mortgage to stay in homeAs you can see, reverse mortgages compare to conventional mortgages and they are NOT a scam.  As with any financial product, or any purchase for that matter, one should get the facts and understand the terms of what they are purchasing.

The loan officer one is working with should be explaining the features and terms of the reverse mortgage.  Yes, unfortunately there are bad apples in every industry but that doesn’t mean the product is bad.  The reverse mortgage industry has implemented protections to prevent borrowers from scam.

Don’t jump to conclusions! Understanding them, one might find the reverse mortgage is a viable option for their situation.

For further details on the reverse mortgage contact us if you are in Minnesota.  As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible.  For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

© 2016 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1ph

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Senior Homeowners’ Foreclosures Should NOT Be Blamed On Reverse Mortgages

HomeownershipWe are seeing articles in the media about seniors with reverse mortgages who are losing their homes to foreclosure.  Is this unfortunate?  Yes!  But let’s look at the reason rather than blaming the product, the reverse mortgage.

All homeowners regardless of age are responsible for paying their property taxes and keeping insurance on their home or risk losing it to foreclosure or not having funds to rebuild after damage to the home from a storm.  This is true whether one has a reverse mortgage, a traditional loan, a Home Equity Line of Credit (HELOC), or no mortgage.  Blaming the reverse mortgage for one’s lack of taking responsibility of general homeownership duties is misplaced by the media and the homeowners.

Several years ago I talked with a woman who was behind on her property taxes and the county was foreclosing on her.  She could have qualified for a reverse mortgage, paid the back taxes, improved her cash flow with funds in a line of credit (or for others paying off a current mortgage and eliminating the monthly mortgage payment) and have funds to pay future property taxes and keep insurance on her home.  Instead she listened to her brother who said reverse mortgages are bad, even though he had no basis for the statement and wouldn’t get the facts before making a decision.  By listening to her brother and not doing the reverse mortgage, the county foreclosed on her property.  She lost $280,000 in equity because she didn’t do the reverse mortgage and pay off the back taxes.

Stories about the county foreclosing on properties because one has not paid back taxes do not make the news…why?

Reverse mortgage maintains lifestyleThe reverse mortgage can, and has, helped those 62 and older have the funds to pay their property taxes and insurance along with other homeowner responsibilities.  More times than not we hear the stories on how the reverse mortgage has made a difference in the lives of seniors.  How it has given them funds to cover their needs, maintain or improve their lifestyle, plan for their future long-term care needs or purchase a new home so they can downsize, move closer to their children or buy their dream home.  See below links to articles on these uses.

The reverse mortgage lenders have reached out and worked with many borrowers who were delinquent in their property taxes and insurance to find a solution to help them get caught up on their late payments.  Some used reverse mortgage proceeds, others worked out a payment plan.  Because they have worked out a plan, these reverse mortgage borrowers are not facing the foreclosures.  Only those who did not respond to lenders’ and/or work out a repayment plan are facing the foreclosures.

As of April 2015 a Financial Assessment is required to determine reverse mortgage borrowers’ ability and willingness to pay property taxes and insurance into the future.  This consumer protection for borrowers helps make reverse mortgages more sustainable for seniors who want to remain in their homes.  This assessment does take into consideration the occasional life circumstance where one may have been late on a payment.

Be educated about reverse mortgagesBorrowers should take time to be educated and understand the reverse mortgage, as they should with any mortgage or financial product.  With the reverse mortgage they are required to obtain 3rd party counseling where the counselor explains the product.  The loan officer they are working with should also be explaining the features and terms of the reverse mortgage.  Borrowers then get to decide whether they choose to proceed.  It’s their decision and they should not blame a product they chose for their circumstances that likely benefited them over time.

© 2016 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1lv

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency

TV Show Discusses Facts & Uses of Reverse Mortgages

Dr. David Johnson discusses Reverse MortgagesAs host of the show Savvy Senior Sources…Talking With Experts, I and my co-host, Deb Nygaard, talk with Dr. David Johnson, Associate Professor of Finance, to help people understand reverse mortgages and some of the benefits, encouraging people to get the facts from a reverse mortgage specialist before making any decisions.

“To not understand or to be misled and think it’s a bad thing is so sad because so many people could benefit from it.” says Dr. Johnson.

Tune in to watch at:  https://youtu.be/GN84e4YRF6Q

© 2015 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1dq

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Savvy Senior Sources…Talking With Experts TV Show Released

I’m excited to announce the release the new TV show, Savvy Senior Sources…Talking With Experts that I host and produce.  The series of TV shows talk with experts for guiding your way through resources A to V in areas that seniors, their families, caregivers, and trusted advisors will find helpful for planning, aging in place with the ability to stay in their homes and remain independent or where to turn if and when going through the transition. The shows give viewers the opportunity to “meet” the trusted providers of senior services before making a phone call to them.

Brought to you from Savvy Senior Sources, LLC, Reverse Mortgages SIDAC and GWG Life, LLC are proud sponsors of the shows.

Please tune in and subscribe to the YouTube Channel Savvy Senior Sources to be notified when the new shows are broadcast. https://www.youtube.com/channel/UCmgVGVbfY6-RcHkeBc7WmPQ/feed

Enjoy the shows!

© 2015 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Reverse Mortgage Borrowers Have Responsibilities Or They’ll Pay the Consequences

Signing Reverse Mortgage ApplicationWhen loan documents are signed at closing, borrowers agree to the terms of the loan, whether a conventional loan for refinance or purchase; a home equity line of credit (HELOC); or a Home Equity Conversion Mortgage (HECM), the reverse mortgage insured by HUD; or a proprietary (private) reverse mortgage.  As with any home loan, with the reverse mortgage borrowers are using the equity in their home and the title of the home remains in the borrower’s name; the lender is using the home for collateral.  With any mortgage, conventional or reverse, the bank does not own the home, nor do they want t.

The reverse mortgage has helped seniors 62 and older remain in their home with their security, independence, dignity and control but not without responsibilities to adhere to the terms of the loan.  The main responsibilities are to not violate terms of the loan, generally these include:

  • Paying property taxes
  • Keeping hazard insurance on the property
  • Maintaining the property
  • Paying association dues if applicable
  • Not changing/transferring the title

Paying property taxes means keeping up with the county property taxes, paying them on time.  If one doesn’t pay property taxes, with or without a loan, the county could start tax forfeiture or foreclosure.

Keeping hazard insurance on the property helps protect the homeowner, with or without a mortgage.  If one doesn’t have insurance on their property and a storm comes along and damages the home they wouldn’t have funds to repair or rebuild the home.  With a mortgage (reverse or traditional) on the home, lenders require hazard insurance be kept on the property to protect the homeowner and lender if there is any damage to the property.  Being the lenders are invested in the property by lending money based on the home equity, they require the insurance so their investment is protected if there is damage.  For example if a tree falls on the home and damages the roof, the hazard insurance will cover the replacement of the roof and bring the home back to the condition required for lender’s investment.

Maintaining the property is required to protect the lender’s investment in the property and includes keeping the home in good condition including not letting the property become run down.  Keeping the roof in good repair, insuring the siding and trim do not have chipped or bare wood but are protected against the elements.  Ensuring against safety issues such as automatic garage doors will rise if something is under them, railings are in place and stable on stairs and decks rotten boards are replaced.  Interior maintenance is also important, for example having heating, electricity, plumbing, water in working order as well as safety issues such as railings on stairs.

If one is in a condo or town home and association dues are required, loans require that the association dues are kept current.  If they are not kept current then the association has the right to force the homeowner from the property.

What are the consequences if the requirements of the reverse mortgage loan terms are not abided by? If terms of the loan agreement are not followed, the lenders have the right to call the loan due and payable or foreclose.

Changing or transferring titles may mean the loan becomes due and payable.  For example if one decides to add a person to the title of the property (depending on who the person is), implement a Life Estate, or sell the property this may change who the lender’s have invested their interests.  If the property is going to be put in a trust it will not mean the loan will be come due and payable however the lender will need to review the trust to ensure that it meets the requirements of their investors and in the case of the HUD insured HECM, the trust must meet HUD’s guidelines.  Check with your lender before making any changes to the title to make sure it won’t impact your loan.

The area that has caused the biggest problem is when borrowers don’t pay their the property taxes and hazard insurance.  Therefore, FHA, the arm of Housing and Urban Development (HUD) who insures the majority of reverse mortgages, will soon require a Financial Assessment to stabilize the HECM and determine borrowers’ ability and willingness (based on payment & debt history) to pay property taxes and insurance.

With conventional mortgages, if taxes and insurance are not paid, the lenders will start an escrow account, requiring more money from borrowers in their monthly payments for the escrow account.  The lenders then make the tax and insurance payments on behalf of the borrower from their escrow accounts.

With the implementation of the Financial Assessment depending on borrower’s income, assets and debt history, for some a partial or full set aside will be created to pay the homeowners property taxes and insurance into the future.  Others won’t have to have a set aside created if there is a positive history of payments of taxes, debts, hazard insurance and income and disposable assets document their ability to pay taxes and insurance in the future.  Credit scores will still not be utilized to determine qualifying nor impact the interest rate.  (The Financial Assessment is a requirement as of April 2015.)

After the HECM is in place if borrowers do not have the capacity to pay the taxes and insurances they owe, the servicer will be forced to foreclose on the property per HUD’s requirements.  (Note that reverse mortgage lenders and servicing companies are required to abide by HUD’s requirements.)

Having reverse mortgage terms and responsibilities explained

Having reverse mortgage terms and responsibilities explained

While the originators, counselors and loan documents spell out these requirements, borrowers must take their responsibilities seriously.  It is also their responsibility to be sure to look at their budget and have a plan to be able to pay their property taxes, hazard insurance as well as maintaining the property.  Then they can remain in their home and enjoy the many benefits of the reverse mortgage.

Originally posted in 2010, updated 2015.

© 2010-2015 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1b5

Related articles on Reverse Mortgages in Minnesota:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

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Our Experiences with Getting Our Reverse Mortgage

Happy With Reverse MortgageActual reverse mortgage borrowers have good things to say about their reverse mortgage experiences.  Let me share what some of our Minnesota reverse mortgage borrowers have said.

Dave shared, “Having had an accident that eliminated my of my teeth, total dental implants was required.  Without a reverse mortgage I could not have raised the money to have the implants done.  It was a great relief to be able to smile again and eat sweet corn again.”

To increase his cash flow Bernie did a reverse mortgage and had this to say, “After talking with 2 other reverse mortgage representatives, receiving apologies for non-functioning DVDs, and talking to an attorney, I chose Reverse Mortgages SIDAC.  It is so helpful to deal with local persons.  Both Beth and Steve followed up with everything.  They were very helpful in personal visits and phone calls.  Beth has also been helpful with other senior issues.”

Larry and Karen* did the reverse mortgage to stabilize their finances.  They found Reverse Mortgages SIDAC to be friendly, courteous and respectful of them.  Additionally they shared they found that all pertinent information was discussed regarding reverse mortgage options and costs and the details were explained so they understood them.  They also felt that they were informed of what to expect during the processing and kept informed of the status through the process.  In addition they said they received explanations of the forms that were signed at closing.  Overall they shared their experience was positive.

Mike shared, “Without the help and knowledge of Beth Paterson who first told me about the reverse mortgage to buy I would never have been able to get our beautiful new townhome, which my wife needs because of her mobility to navigate a lot of stairs.  I owe Beth a big debt of gratitude.  She is the best!  She is knowledgeable and she cares and worked tirelessly for us.”

Wayne recommends us stating, “Reverse Mortgages SIDAC is very customer focused and will settle for no less than what the applicant request’s objectives are.  They knew the “system” very well and lead the borrower though it step by step.  Above all, Reverse Mortgages SIDAC is respectful and honest.”

Helping them out of foreclosure, Gary and Cathy* said, “Thanks so much! Beth and Steve you guys are the best!”

Satisfied Reverse Mortgage BorrowerYvonne wrote, “My experience with Beth and Steve was very enjoyable.  I was always able to reach one of them.  I paid off my mortgage, so eliminated the monthly mortgage payment!  It has made a big difference in my quality of life to have that additional income every month.”

To supplement her income, Marilyn did the reverse mortgage, sharing, “I didn’t really want to have to do this reverse mortgage because I’m too proud.  But thank goodness it was there for me.  Steve was so very helpful as was Beth.  At closing all documents were in order perfectly.  I’m very glad I reached out to this company.  Everything went so well.”

Bonnie did the reverse mortgage to “secure my retirement” allowing her to retire.  Of her experience she said, “Beth and Steve were wonderful!  Caring, efficient, thoughtful. All are words that describe them and their service – I had contacted a nationally advertised company but did not feel at all comfortable with them.  I went with Reverse Mortgages SIDAC because they are local and knowledgeable about Minnesota and my needs here.”

“Having Beth and Steve to guide me through every step of the process was the blessing that made a reverse mortgage possible.  We were able to complete the process in time to obtain the maximum possible funds under the old system, making my dream of remodeling possible,” Matthew stated.

These are just a few of the experiences reverse mortgage borrowers have had.  Keep them in mind as you hear about reverse mortgages and are considering one.  Work with a reverse mortgage originator who is local, specializes and has experience in reverse mortgages, is ethical adhering to the NRMLA pledge and takes their time to give you the details so you understand the reverse mortgage and will have a positive experience and find the benefits.  If you’re in Minnesota, give us a call.

*Some names changed to protect privacy.

© 2015 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-1bu

What do reverse mortgage originators do to earn their money?

Calculating reverse mortgage originator's timeOften stated, the reverse mortgage is expensive and the fee the originator makes is part of the reason. Originating reverse mortgages is not as easy as one, two, three but a very time consuming process whether one is a retail officer (works directly for the lender) or a broker (one who works with various lenders).  Note that brokers are often more involved in the process, not just taking an application and moving on to the next application.

My clients often make comments at the closing that they understand and appreciate all the work I did to get to the closing table.  To help you understand the work and time we, as reverse mortgage expert originators, put into originating and processing a reverse mortgage let me walk you through an outline and approximate time involved.  Note: While you may not read the outline word for word (yes, it’s long), you’ll at least have a good idea of the time involved for originating each reverse mortgage.  Make sure you go to the last five paragraphs for the conclusion.

  1. Take the phone call from one interested in a reverse mortgage.  Generally spend 30 to 60 minutes gathering information about the situation, why they are inquiring about the reverse mortgage, providing initial information, discussion options available, and getting information to run calculations to determine eligibility.
  2. We generally spend time on researching property values. This can be critical to determining the feasibility of completing a reverse mortgage if there is a significant mortgage balance outstanding and important even without debt payoff concerns just to give the homeowner the most accurate estimate of loan proceeds possible – 20 to 60 minutes.
  3. Enter information into computer program, run calculations, prepare informational folder – approximately 60 to 90 minutes.
  4. Drive 60+ minutes round trip to the prospect’s home for an initial educational meeting.
  5. Discuss their situation and educate them on the reverse mortgage, the various program options, i.e. adjustable rate vs fixed rate, monthly vs annual adjustable rate programs, cap on draw in 1st 12 months,  and possible other options – 1 to 3 hours.
    1. Leave a list of reverse mortgage counselors for the required FHA HUD insured Home Equity Conversion Mortgage (HECM) counseling.
  6. Generally there are numerous phone calls to answer additional questions.  These calls can be 15 minutes to an hour or more each call.
    1. Sometimes we talk with family members or have an additional 1 to 2 hours face-to-face with prospect and their family.
    2. If one is doing the HECM for Purchase, using the reverse mortgage to purchase a new home, we also meet with the real estate agent, building contractor, etc. – additional 1 to 2 hours with each along with numerous calls in between.
  7. Receive phone call that the prospect is ready to proceed with the loan.  Schedule application time and date – 10 to 30 minutes (longer if they have additional questions).
  8. Call prospect to gather information needed for application as well as which option they are choosing – 15 to 20 minutes.
  9. Enter complete information into computer program – 30 to 60 minutes.
  10. Prepare the full application package for signatures and a separate borrower set – 60+ minutes.
  11. Drive 60+ minutes round trip for the application.  Drive time can be 5 to 10 hours round trip if the client is outside the metro area.  (Some lenders will mail the application or use a notary however I believe that the face-to-face meeting provides better explanations of each of the forms one is signing.  Note that notaries, unless a licensed or registered mortgage originator, cannot answer any questions, they are there only to verify your identity and make sure you sign the application forms in the appropriate spots.)
  12. Spend 1 to 2 hours, sometimes longer to review information on application and get signatures.MN Reverse Mortgage Borrowers Signing Application
  13. If counseling wasn’t completed prior to the application, work with borrower to receive counseling certification with signatures of both the counselor and the borrower(s) which is needed prior to starting the processing of the loan – 15 to 30 minutes.
    1. Make phone calls to have the signed counseling certificate faxed – 15 minutes.  Or will drive to pick up certification – another 60+ minutes round trip plus 10 to 15 minutes with borrower.
    2. May need to contact counselor for corrections on address or correct names or Power of Attorneys – 15 to 30 minutes.
  14. Review file, making sure everything is collected and prepare for submitting for processing – 30+ minutes.
  15.  Start processing.  We are a reverse mortgage broker (one who works with more than one lender) and we process the loans in our office, we don’t send them off somewhere to another office or state to be processed.  While the processor is different than the originator, the originator of a broker is often involved in the facilitating the processing by working with the processor and the borrower through to the closing and funding, not just taking an application.
    1. Enter information into processing software program (one we have developed on our own) – Processor: 30 to 45 minutes.
    2. Request FHA Case Number – Processor: 10 minutes.
    3. Order Title Report – Processor: 10 minutes.
    4. Order appraisal from Appraisal Management Company – Processor: 10 to 15 minutes.
    5. Order Insurance Binder – Processor: 10 minutes.
    6. Pull Flood Certificate – Processor: 10 minutes.
    7. Pull Credit Report – Processor: 10 minutes.
    8. Pull other required documentation – Processor: 10 minutes each when necessary.
    9. Review Title Report when received – Processor and Originator: 15 to 30 minutes.
    10. Review appraisal when received – Processor and Originator: 30 minutes.
    11. Review Insurance Binder – Processor: 10 minutes.
    12. Review Flood Certificate – Processor: 10 minutes.
    13. Review Credit Report – Processor: 10 minutes.
    14. Request any changes if necessary – Processor: 10 minutes for each change that is necessary.Reverse Mortgage Borrower talking with MN Reverse Mortgage Loan Officer
    15. Phone calls with borrower for clarifications on any information that is on title, credit report, etc.   For example if a mortgage is on title that we didn’t know about, showing taxes weren’t paid, a judgment is on title or the credit report – Originator: 15 to 30 minutes each call; sometimes 3, 4 or more calls.
    16. When appraisal is received, enter new value, if repairs are required, etc. in software program for calculations – Originator: 15 to 30 minutes.
    17. Update processing software program with changes – Processor: 10 to 15 minutes.
    18. Call borrower to advise borrower of appraised value, required repairs if any, and any calculation changes – Originator: 15 to 30 minutes.
      1. Or up to several hours based on the appraised value, repairs, or other factors, the borrower decides a program change would be in their best interest (i.e., a change from fixed rate to adjustable rate), or contractor bids or additional inspections are needed for repairs.
    19. Prepare re-disclosure for borrower – Originator: 15 to 30 minutes.
      1. Or up to several hours or more if, based on the appraised value or other factors, the borrower decides a program change would be in their best interest (i.e., a change from fixed rate to adjustable rate).
    20. Mail re-disclosure to borrower – Originator: 10 to15 minutes.
    21. Review all documentation to make sure everything needed is in the file for underwriting – Processor: 20 to 30 minutes.
      1. Multiple follow up calls to the borrower may be necessary to remind them and/or advise them on missing, corrected or additional documents that are necessary (i.e., SS card shows maiden name, etc) – Originator: 10 to 20 minutes each call.
    22. Scan and submit file to underwriting – Processor: 15 minutes.
    23. Request final fees from title agent – Processor: 10 to minutes.
    24. Address any underwriting conditions by contacting title company, appraisal management company, borrower, or making other necessary changes – Processor: 30 minutes to several hours depending on the conditions.  Conditions are required so that HUD will insure the loan and the investors will provide the funding.
    25. Have borrower sign letterof commitment – required in MN to be signed and dated by borrower and can’t close for 7 days – Originator: 60+ minutes round trip to get borrower’s signature plus 10 to 15 minutes with borrower.  Can be done via fax or scanned and emailed if borrower has this capability.  If they live outside the metro area and don’t have capability to fax or scan and email the commitment will be done through the mail delaying the time for the closing (not what the borrowers want at this point).
    26. Gather, review and Submit changes/conditions to underwriter – Processor: 10 to 15 minutes.
    27. Discuss with borrower how they want their reverse mortgage funds and their availability for closing – Originator: 15 to 30 minutes.
    28. Schedule closing according to availability of title agent/signer (and possibly a notary), borrower and loan officer and lender’s closing department’s timing requirements, and possibly with family members and/or Power of Attorney (POA) – Processor and Originator: 30 to 40 minutes  each of the phone calls.
    29. Prepare closing document request to send to lender – Processor: 2+ hours.
    30. Receive closing documents, review that the numbers match those in our program; make sure title company’s and lenders numbers match- going back and forth between those involved – Processor: 2+ hours.
    31. Attend closing.  We believe in attending the closing with our borrowers to assist in explaining the closing documents.  We generally close at borrower’s home for their convenience or would drive to the title company’s office – Originator: 60+ minutes round trip drive time.   Drive time can be 5 to 10 hours round trip if the client is outside the metro area.
    32. Closing with borrower – 1 to 1 ½ hours.MN Reverse Mortgage Borrower Signing Closing Documents
    33. Follow up on funding conditions, i.e. missed signatures or documents,  if there are any (we rarely have any) – Processor: 30 to 60 minutes.
      1. If necessary, we may make another trip to the borrower’s home to get a signature on a document in order to keep on schedule for funding) – Originator: 60+ minutes round trip drive time.  If outside of the metro area we will assist borrower via phone and having sent over-night the necessary documentation – 60+ minutes.
    34. Keep borrower advised of funding status, i.e. when funds were wired to their bank and payments made for paying mortgages, taxes, etc. – Originator: 10 to 15 minutes per phone call, generally 2 calls.
    35. Once funded, send thank you letter – Originator and Processor: 15 minutes to prepare and mail.
  16. Answer questions from borrowers during the life the loan – generally 15 to 30 minutes each call.  We often talk with our borrowers once or twice a year.

What is described above is an ideal no-problem/issues loan. The majority of our loans can have multiple issues that increase our time investment significantly including POA, Conservatorships, Trusts, non-borrowing and non-occupying individuals on the title, private liens and a long list of property issues including manufactured homes, condos, rural properties, repairs, etc. These can result in additional huge time requirements on the originator’s and processor’s part.

We also continually market for new clients meeting with referral sources and reverse mortgage prospects (some of whom decide to wait or not do the reverse mortgage), as well as other marketing efforts.

A good loan originator will take time to meet with the prospects, educate them, their families and advisors about the various reverse mortgage programs and options.  They will also be familiar with the processing and assist with the processing as well as be available to answer questions even after the loan is closed.  Originators, processors, underwriters, lenders, title companies and their settlement agents, and all involved in the loan process need to be compensated for their time, experience, and expertise.

The originator does NOT receive the full fee collected.  The fee received by the reverse mortgage broker covers the originator’s salary, the processor’s salary, overhead for the business such as computers, office supplies, copiers, health insurance for employees, taxes, licensing, marketing expenses, etc.  Originating a loan is not charged by the hour but this gives an idea of the hours involved for the originating and processing reverse mortgages.

As we go through the application and process, my borrowers, recognize the time we put into helping them with their reverse mortgage and don’t question the fee we are paid. I hope this outline helps you also understand that it is a time consuming process and the reason the fees are what they are. And when broken down “all that money” is not really all that much compared to the time involved.

© 2015 Beth Paterson, Beth’s Reverse Mortgage Blog,651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-1a2

 

Related Articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Reverse Mortgage Features and Terms Summary

Reviewing Reverse Mortgage DocumentsThere are many loan documents with the reverse mortgage (all mortgages actually) and it’s hard to remember all the details through the life of the loan.  To help you have a better understanding initially as well as be a reference in the future, this article summarizes the reverse mortgage features and terms.

  • A reverse mortgage is a mortgage or lien against your property allowing you to use the equity in your home.
  • Monthly mortgage payments are not required however you are responsible for property taxes and hazard insurance.
  • Through FHA, the Home Equity Conversion Mortgage (HECM) is a government insured program and regulated by HUD.
  • As a loan against your property, the funds are not considered income so Social Security and Medicare are not affected; and generally SSI and other public benefits are not affected; Medicaid can also be received under certain situations – consult with legal services for your situation.
  • Generally the funds received are considered tax free – consult your tax advisor regarding your situation.

Who Owns Your Home  

  • You retain title and remain a vested owner of your property.
  • You retain all rights and responsibilities of home ownership, including property maintenance, tax and insurance payments, etc.

Borrower Protection

  • Should the lender default, FHA will assume the responsibilities of the lender and guarantees funds are available to borrowers according to terms of the loan.
  • As FHA loan, interest rates are lower than they otherwise would be on a reverse mortgage.
  • Non-recourse: Borrower/Homeowner or the estate will never be obligated for more than the fair market value of the property.

Adjustable Interest Rate – HECMs

    • If you have selected an adjustable rate product, your interest rate may change over the life of the loan.
    • There is a lifetime cap on the rate; for the monthly adjustable rate it is 5 or10 points (depending on the lender) and for the annual rate it is 5 points over the initial rate at the time of closing.
    • The interest rate may adjust annually (maximum of 2 points with each annual change) or monthly. The current and future rates will be provided on your monthly statement.
    • The rate is based on the LIBOR index.

Interest is charged against your loan balance only. Unused line of credit and/or unused term/tenure payments will not accrue interest.

Fixed Interest – HECMs    

  • If you have selected a fixed rate product, your interest rate is fixed and will not change over the life of the loan.

Ongoing Costs

  • Interest accrues only on amounts borrowed.
  • Monthly charge for FHA Mortgage Insurance Premium (MIP) – 1.25 per year on loan balance (added to loan balance).
  • All costs, charges, and accrued interest are added to loan balance.
  • Essentially you are borrowing these funds each month because you are not paying them monthly; this is why the loan balance increases over time.

Line of Credit (if applicable)    

  • Available credit of unused portion of line of credit grows over time at the current applied interest rate plus 1.25.  This is not interest, but a growth rate.
  • Interest is not charged on unused portion of line of credit.
  • Line of credit funds advances must be requested in writing from the lender/servicer.  Lender has 5 business days to process your request.

Term/Tenure Payments (if applicable)

  • If you have selected monthly Term or Tenure Payments, these monthly advances will be paid to you on the first business day of each month beginning the month after loan closing.
  • Interest is not charged on un-advanced monthly term/tenure funds.

Prepayment

  • Although monthly or periodic mortgage payments are not required, you may make full or partial payments at any time.
  • Please contact the lender/servicer for payment address and information.
  • Partial payments reduce the loan balance due.
  • Partial payments on adjustable rate HECM’s will create or increase the line of credit and these payments can be borrowed in the future.
  • Payments on fixed rate HECM’s are permanent payments.
  • Payment in full will terminate the loan and eliminate any available term/tenure payments and/or line of credit.

Due and Payable

  • No payment is required until/unless one of the following occurs:
    • Borrower(s) no longer occupy the home as a primary residence.
    • Borrower(s) no longer owns the home.
    • All borrowers have passed away.
    • Property taxes are not kept current.
    • Homeowner’s/Hazard insurance is not kept current.
    • Flood Insurance (if applicable) is not kept current.
    • HOA dues (if applicable) are not kept current.
    • Required repairs are not completed.
    • Property is not properly maintained.
    • Title vesting changes are made.

Upon Death of Borrower(s)

  • If there is a surviving borrower(s) continuing to occupy the home, the reverse mortgage continues without any changes.  If a sole borrower dies or there are no surviving borrowers or a non-borrowing spouse, the reverse mortgage becomes due and payable in full. (Non-borrowing spouses see HUD Mortgagee Letter 2015-15 and check with the servicer regarding their rights)
  • Heirs/estate should contact the lender/servicer within 30 days to provide notice of the death.
  • A reverse mortgage is not transferrable to the heirs or estate.
  • The loan may be repaid from sale of property.
  • If heirs wish to keep the home, they may satisfy the debt by paying the lesser of the mortgage balance or 95% of the FHA appraised value of the home at that time.
  • Most lenders are allowing up to six months for heirs to settle the estate and repay the reverse mortgage (but timely communication with the servicer is required).  Where justified, HUD, who regulates the HECM,  may approve extensions beyond this time up to a total of 12 months.

Your Responsibilities

  • Pay property taxes.
  • Maintain homeowners insurance on property.
  • Maintain flood insurance (if applicable) on property.
  • Pay HOA dues (if applicable).
  • Complete required repairs timely.
  • Maintain property.
  • Not make changes to title vesting.
  • Return the annual occupancy certificate to lender.
  • Provide proof your property taxes have been paid annually.
  • Provide proof your property insurance has been paid.

When To Notify Your Lender

  • If you change your insurance provider.
  • If you change your bank for direct deposits.
  • If you are putting the property into a Trust.
  • Any other changes to the property.
  • If there is a claim from your property insurance.
  • When a Power of Attorney (POA) is being implemented to make decisions on your behalf.

©2013-2015 Beth Paterson and Greenleaf Financial, LLC, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-Cr

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

FHA Lending Limit for Reverse Mortgages Extended

FHA Lending Limit of Reverse Mortgage $625,500We got word today that FHA is extending the Lending Limit of $625,500 for reverse mortgages through December 31, 2013.  This is good news for those who have a a higher home value!

To determine the loan amount on the FHA HECM (Home Equity Conversion Mortgage), the lending limit or home value, whichever is lower, is used.  For example, the value of one’s home may be $900,000 but FHA will use the Lending Limit of $625,500 to calculate the loan amount for a FHA HECM.  For reverse mortgages the age of the borrower and the Expected Interest Rate of the program chosen are also used to determine the Principal Limit or Maximum Loan Amount.

For more information see Mortgagee Letter 12-26.

©2012 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-Ck

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.

Have Senior Homeowners With Reverse Mortgages And Tax Defaults Really Gone Into Foreclosure and Lost Their Homes? You Are In For A Surprise!

Headlines give misinformation about HECM Reverse MortgagesWith all the media hype that seniors are losing their homes because they have a reverse mortgage and have tax defaults, the latest data shows the homework wasn’t done before reporting their stories.  Trying to paint a negative of reverse mortgages is widespread without the data to back it up.

The fact is rather than foreclose, reverse mortgage servicers made advancements on behalf of borrowers for their insurance and property taxes defaults.  And since January 2011 when FHA introduced loss mitigation tools the servicers have been working with the borrowers who were delinquent on their property taxes and insurance.  As a result, 20% of those in these situations have been repaid.  Another 60% of the defaulted borrowers have begun making repayments.

According to HUD’s Director of Single Family Program Development, Karin Hill, the default rate for the more recent Home Equity Conversion Mortgages (HECMs) is lower than the loans done previously with the worst performing being from 2007 and 2008 which account for just under 40% of all those in default.

The first four years after origination the probability of default increases then slowly declines over time noted Hill.  Younger borrowers (62 to 65) are the most likely to default however they are making more repayments than older borrowers.

While we haven’t received data on those who have not made repayments, servicers and HUD remain committed to assist senior homeowners to remain in their home.  It shouldn’t be assumed that reverse mortgage borrowers have gone into foreclosure.  It’s important to remember that even without a reverse mortgage in place, these homeowners who haven’t paid their property taxes face foreclosure or tax forfeiture through the county.  The reverse mortgage is not the reason senior homeowners go into foreclosure.

While the headlines report senior homeowners are losing their homes because of a reverse mortgage and tax defaults, the data shows otherwise; it’s just more myths about reverse mortgages.

Resource: The National Reverse Mortgages Lenders Association (NRMLA); data presented at the 2012 Annual Meeting & Expo by senior HECM managers.

©2012 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-C6

Related articles:

Blog posts’ information is current as of date post published, program is subject to change in in the future. Contact us for current information, 651-762-9648.

This site or the information provided is not from, or approved by, HUD, FHA, or any US Government or Agency.