Monthly Archives: June 2009

Reverse Mortgage Closing Costs – High or Mythical?

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You’ve probably heard or read that reverse mortgage closing costs are high.  That’s a matter of perspective.  Have you looked at closing costs on a conventional home mortgage?  We’re going to compare these here to dispel this myth.

As with a conventional home mortgage (known as a “forward”), the closing costs for reverse mortgages may vary depending on the home value and the complexity of the loan.

The third party and recording fees are standard for any loan.  However, with the reverse mortgage HUD regulates the fees and requires that only the actual cost may be charged to the borrower, they do not allow mark ups such as processing fees.  Look at an estimated comparison based on a Minnesota home valued at $200,000:

THIRD PARTY FEES REVERSE FHA FORWARD FORWARD FHA
Appraisal $375 $300 $375
Credit Report $20 $20 $20
Flood Certification $16.50 $16.50 $16.50
Courier Fee* $25 $55 $25
Escrow, Settlement or Closing $250 $250 $250
Abstract or Title Search $150 $150 $150
Title Exam $135 $135 $135
Document Preparation Fee $100 $100 $100
Title Insurance $585 $585 $585
Endorsements — $100 $100
Recording Fees $92 $46 $92
County/Mortgage Registration Tax $256 $275 $275
Plat Drawing $60 $60 $60
Name Search $30 $30 $30
Special Assessment Search $30 $30 $30
TOTAL THIRD PARTY FEES $2,124.50 $2,152.50** $2,243.50

* Courier Fee is for sending a payoff on a current mortgage to the mortgage holder.

** These fees do not include all mark ups/processing fees so these may be higher when mark ups/processing fees are included.

Now let’s compare the Lender Fees:

FHA’s Mortgage Insurance Premium (MIP) is paid directly to FHA.  This is 2% of the home value for the reverse and 1 ½% for a forward.  The advantages with FHA insuring the reverse mortgage include:

  • Guaranteeing the funds are available for you.
  • Guaranteeing the lender against default or shortfalls which means the interest rates are lower (currently under 4%) compared to other mortgages.
  • Providing a line of credit growth rate (available only with reverse mortgages).
  • Insuring as a reverse mortgage it is a non-recourse (no personal liability) loan.

The origination fee is what the originating lender receives to cover the loan officer’s salary, overhead to run the business, i.e. staff salaries, administration costs, computers, electricity, office supplies, marketing expense, gas mileage, health insurance of employees, etc..  The origination fee also includes the processing and underwriting costs which are generally separate and charged to the borrower on forward loans.  HUD regulates the reverse mortgage origination fee to be 2% of the 1st $200,000; 1% thereafter with a cap of $6,000.

The reverse mortgage fees are based on the full home value because over time borrowers can access more than the home value at the time of origination.

An estimate based on a $200,000 home value:

LENDER FEES REVERSE FHA FORWARD FORWARD FHA
Origination/Points $4,000 $2,000* $2,000*
MIP $4,000 $0 $3,000
Underwriting/Processing $0 $700 $700
SUBTOTAL LENDER FEES $8,000 $2,700 $5,700
Backend fee** $0 $2,000 $2,000
TOTAL LENDER FEES $8,000 $4,700 $7,700
Prepaid Interest*** N/A ++ ++

*Typical points on Forward loans are 0-4%; this example is based on $100,000 loan at 2% points
** Forward loans often have a 1% backend fee
*** Number of points are directly related to interest rate charged; the more points paid the lower the interest rate; the lower points paid, the higher interest rate

TOTAL LOAN FEES REVERSE FHA FORWARD FORWARD FHA
$10,124.50 $6,852.50 $9,943.50

Note:  THE DIFFERENCE IS BASICALLY THE FHA MORTGAGE PREMIUM! Refer to above comments on the benefits of FHA insuring the loan.

The fees associated with the reverse mortgage are fully financed as part of the loan with no out of pocket expenses.  (As of 2010 Appraisal Management Companies must be used to order and process the appraisal.  This fee is generally required to be paid for by borrower up front or “out of pocket.”)

When considering whether to do a forward mortgage or a reverse mortgage you must consider if you can even qualify for a forward mortgage; then if you can make the payments over time.  For example, what happens if “life happens,” could you continue making those payments or would you be facing foreclosure?

You also need to consider that if you do a forward mortgage now, you’ll be paying the closings costs on that loan and then when you need more funds in the future and you refinance you’ll be paying the closings costs again.  These together can equal or exceed the total of the closing costs on the reverse mortgage.

Whereas with the reverse mortgage you pay the closing costs upfront and then without paying closing costs again you have access to more funds through your life as long as you are living in the home as your primary residence.

In the big picture the cost of the reverse mortgage is less than a forward mortgage over time because the interest rate is lower on the reverse mortgage.  Therefore typically it doesn’t take too long for a forward mortgage to make up and then exceed what difference there is in closing costs of the reverse mortgage.

© 2009 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-2N

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.

I want to stay in my home – Don’t tell me to sell!

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Often thought to be less expensive than a reverse mortgage, selling and moving is encouraged when one needs funds in retirement.  My question is, if you sell where are you going to live?  How long would those funds last?  While selling should be considered, you need to look at the all details before thinking that it is less expensive, easier and would give you more equity from your home.  Let’s look at the options.

Yes, if you sell you will have up front access to more of your equity than with a reverse mortgage.  Whereas you can’t access 100% of the equity at the time you are originating a loan.

Closing costs for selling include 6% for the agent as well as other closing costs.  On a $200,000 home sale the closing costs would be $13,400 to $14,400 depending on what the buyer would pay towards closing costs.  Not to mention the costs and hassle of the move.

Closing costs with the reverse mortgage include the same fees as any mortgage: origination fee, appraisal, title fees, title insurance, credit and flood searches and recording fees.  Because the reverse mortgage is insured by FHA there is also the FHA mortgage insurance premium (MIP).  Keep in mind if one is doing a forward FHA mortgage they too pay the MIP.  In Minnesota on a $200,000 home value closing costs would be approximately $10,400.  (More on reverse mortgage fees next week.)

So the costs for selling aren’t any cheaper than the reverse mortgage – in fact it would cost more to sell and move than the costs of the reverse mortgage.

When selling and moving into a rental property you need to consider how long the additional funds from the sale will pay the rent.  For example, if you own a home valued at $200,000 and you have a current mortgage for $100,000 that would be paid off leaving $86,600 in equity (after estimated $13,400 in closing costs).  If your rent is $1,500/month, that would be 58 months or just over 4 ½ years of rent NOT including utilities, or other living expenses.

If you don’t have a current mortgage, then $186,600 would be left after closing costs giving 10 years of rent payments at $1,500 per month. (Senior housing rents would more than likely be $3,000+/month shortening the length of time your funds would last for rent.)  Then when you don’t have more money for rent, where are you going to live?  Public Housing?

Let’s take a closer look at selling compared to a reverse mortgage:

  • As with a sale, the reverse mortgage would also pay off the current mortgage ($100,000 in this example).
  • When selling you receive all the funds in a lump sum.  With the reverse mortgage funds can be received in a lump sum, line of credit, monthly payments, or a combination of these.  Funds in a line of credit grow so more funds become available over time.  A growth factor is also built in if you choose to receive monthly payments.  Over time with the reverse mortgage you could be accessing more than the home value was at the time of origination versus just receiving the value when you sell.
    • Note:  Depending on qualifying factors (age, home value, & expected interest rate) with the reverse mortgage additional funds may be available after paying off a current mortgage.  Even if no additional funds are available after paying off a mortgage, cash flow would be improved with the reverse mortgage because there are no mortgage payments or rent payments.
    • Unless you are investing the funds from a sale and getting significant returns on your investment, the reverse mortgage provides more funds over time and offers more options.  Investments that are considered risky may not be a good option for seniors.
  • With the reverse mortgage you will have a roof over your head without a mortgage payment or rent payment and you can stay in your home until the 150th birthday of the youngest borrower – yes, that is until you are 150 years old − as long as the home is your primary residence, you pay your taxes, insurance, maintain the property, and don’t break the terms of the loan (same for any loan agreement).
    • If you consider the costs of property taxes, insurance and maintaining the property, cash flow is still more favorable with the reverse mortgage.  Total your annual property taxes and insurance then divide by 12 months.  Could you rent something for this amount?  For example, if your property taxes are $2,000/a year and your annual insurance premium is $800 for a total of $2,800 or $233.33 a month, add $100 a month for maintenance totaling $333.33 a month – where can you rent something for this amount?
  • In addition, the reverse mortgage is non-recourse which means there is no personal liability to you if the loan balance is higher than the fair market value at the time the loan is due.

Now let’s consider if you are selling and purchasing and moving to a new home.  With the sale you will be paying the closing costs in addition you may also pay some of the closing costs on the purchase.  Unless your current home has a lot more equity than the new home, you will need to obtain a new mortgage for the difference.  Would this really benefit you?

Selling and moving may benefit you if you are downsizing to a townhome or condo.  And if you do need a new mortgage for the difference of your sale price and the purchase price of the new home, a reverse mortgage home purchase program may be an option.  We’ll discuss this in a future article – if you want this info sooner contact us if you are in Minnesota or a reverse mortgage lender in your state.

If your home is larger than you can manage and has a lot of equity where you could purchase a new one without the need of a mortgage, then moving might be a good option for you to access funds.

The reverse mortgage is less expensive and, in most cases, makes more sense than selling and moving.  Now when you hear “consider selling over doing the reverse mortgage,” you can respond, “I don’t want to sell and move, the reverse mortgage is less expensive and gives me more options.”

© 2009 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-2f

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.

Don’t Let Fear Keep You From A Reverse Mortgage But Know What To Look For In An Originator

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MN Reverse Mortgage Borrowers Working With Experienced OriginatorThere seems to be a fear that lenders who caused the downfall of the mortgage industry are entering the reverse mortgage industry and will be the next subprime product.  Legislators here in Minnesota and elsewhere and even the US Banking Regulator, John Dugan, has made statements to this account.  However, in reality those originators are few and far between in the reverse mortgage side of things.

Originating the reverse mortgage takes patience, kindness, a “social worker” attitude and a teacher aptitude versus a sales approach.  The subprime lenders don’t fit this profile.  They are looking for a quick and fast process to make money and move on to the next “deal.”

Because of this fear seniors and their families are afraid to consider a reverse mortgage that could really benefit them during their retirement years.  Addressing this issue, Atlanta’s NBC affiliate featured Joe Morris, President of Generation Mortgage, a leader in the reverse mortgage industry and a lender whom we at Reverse Mortgages SIDAC, are partners.  You can view the interview by clicking here:  http://www.11alive.com/news/local/story.aspx?storyid=131277.

While seniors and their families shouldn’t be afraid of the reverse mortgages and lenders shouldn’t have the high fear factor of the induction of subprime lenders into the reverse mortgage arena, there are some lenders that shouldn’t be originating reverse mortgages.  You can help protect against this.  To help ensure that you are working with an originator (also referred to as Loan Officer/Reverse Mortgage Specialist, Reverse Mortgage Advisor or Reverse Mortgage Consultant) who is experienced, knowledgeable and meets the industry’s standards, consider the following when talking with reverse mortgage lenders.  Yes, the list is long but knowing the answers to this list of questions will help protect you.

  • How much experience does the Reverse Mortgage Originator have with reverse mortgages (not just conventional mortgages as they are quite different)?
    • Work with experienced reverse mortgage lenders who specialize in reverse mortgages.  Ask how many years they have been originating and if/what training they have received.
  • How many reverse mortgage loans has the Reverse Mortgage Originator done?
    • Experienced loan officers have originated hundreds of loans.  Ask how many they have originated, not just their company or lender, but them personally.
  • Do the mortgage company and Reverse Mortgage Originator have the required federal and state licensing?
    • Mortgage Brokers/Originators have completed federal and state education, testing and licensing requirements. FDIC Banks and Credit Unions are registered but have not completed the education, testing and licensing requirements.
    • Ask your originator to provide documentation that they are licensed and/or look them up at http://mortgage.nationwidelicensingsystem.org under “Consumer Access” – if they are not listed they are not licensed to originate loans.
      • In Minnesota all individual mortgage loan officers (performing marketing, educating, originating functions) have to be licensed.
  • Who is the mortgage company’s lender sponsor?
    • Originating mortgage broker companies have to be sponsored by a Reverse Mortgage Lender who is FHA licensed.
  • Do they offer all reverse mortgage programs available for FHA’s HECM and when available, proprietary (private)?
    • Experienced originators should offer and be familiar with all the various programs available.
  • Do they assist you in determining which program is most suitable for your needs?
    • Experienced originators should discuss the various programs and help you to assess the program most suitable for your needs.
  • Do they just try to “sell” the program to you or do they help you determine if the program is appropriate for your situation?
    • An originator should not pressure you or sell you a particular program, they should discuss the various programs and have YOUR best interests at heart.
  • Will they meet with you face-to-face for an information session and the application?  Or do they just mail you the application package?
    • Because of the complexities of the program, originators should meet with you face-to-face to complete the application package.  These sessions normally take around 2 hours to review all the documentation and insure you understand what you are signing.  Don’t sign a package that is mailed to you – find an experienced local lender to work with you.
  • Do they disclose ALL information and identify ALL costs, explaining the program(s) and details and terms accurately and clearly so you understand them?
    • Originators should be willing to disclose and discuss all information regarding reverse mortgages in terms and a way so you understand them.  They should welcome your questions and be able to answer them to help ensure you have an understanding.
  • Do they know what costs are not allowed by FHA?
    • HUD regulates the fees and a mark-up of fees are not allowed – you should only be paying the actual cost of the service.  Your originator should know which fees are allowed by HUD and which aren’t.  They should fight for you if a title company is charging processing fees.  (Many charge processing fees without the lender or originator addressing it with their title company.)  The cost of the appraisal should be their actual charge – ask them what they charge, the settlement statement should reflect this actual amount.  (Proprietary products, when available, followed these same guidelines.)
  • Where are their loans processed?
    • Your loan should be processed in an office where they can provide a personal touch vs sending them across the country to a processing center.
  • How fast do they process their reverse mortgage loans?
    • Because the rates can change so quickly, processing (application to closing) should be able to be completed in 30 to 45 days under normal circumstances.  If additional documents are needed from you and you don’t provide them, the processing could take longer.
  • Who does the processing of the reverse mortgage loans?  Does the processor have experience processing reverse mortgages, not just conventional mortgages?  How much experience does the Reverse Mortgage Originator have with processing and solving the issues that arise during processing?
    • Because reverse mortgages are different than forward mortgages, the processor should have experience with reverse mortgages.  Loan Officers should also have an understanding of the processing and assist in solving any issues that arise during the processing – they should not just be focused on getting the sale and then moving on.
  • What type of customer service do they provide?  Do they have testimonials and/or references?
    • Experienced originators should pride themselves on their customer service and be able to provide testimonials and references – ask for them.
  • Will they (the Reverse Mortgage Originator) answer questions and continue to provide customer service once the loan is closed?
    • Originator’s customer service should include being available even after the loan is closed.  If they don’t have a lot of experience and/or they move from one lender to another you may not get your future questions answered.
  • Does the Reverse Mortgage Originator have the knowledge and experience on how the reverse mortgage and other Minnesota programs interact?  Programs such as Medical Assistance/Medicaid, Elder Waiver, home improvement loans from cities and counties.
    • Originators should be familiar with how the reverse mortgage interacts with other programs.  If they don’t find a different lender to originate your loan.  You may not need this now, but you may in the future.
  • Does the Reverse Mortgage Originator have the knowledge and experience with the requirements of the reverse mortgage if there is a power of attorney, guardian or conservator, a bankruptcy, Trust or Life Estate?
    • Originators should have knowledge of what the requirements are or you may start your loan but it may not make it through underwriting or be insured by HUD if your loan doesn’t meet their requirements.
  • Do they or the companies work with (mortgage company,  lender, underwriter, servicer, etc.) offer financial or insurance products in addition to the reverse mortgage?  Are they trying to cross-sell (selling more than one product) during the origination of your reverse mortgage?  Will you be contacted and offered other services such as financial or insurance products by them or the companies they work with after the loan is closed?
    • Cross-selling is not allowed.  Originators should only specialize in reverse mortgages and not sell or encourage you to purchase other products.  You are not required to purchase annuities, insurance or financial products with your reverse mortgage proceeds.
  • Are you treated with respect and dignity?
    • You, of course should be treated with respect and dignity.  If you feel you are not, find a different lender.
  • Do they protect your privacy and confidentiality and not distribute personal financial information to any third party without permission from you?
    • To protect against identity theft you want to be assured that your information is private and kept confidential.  Ask what their policies and procedures are.
  • Do they encourage you to discuss the loan transaction with family and/or trusted advisors?
    • Originators should encourage you and welcome talking with your family and/or trusted advisors about your decision to do the reverse mortgage.
  • When completing the application do they leave you copies of what you have signed and copies of the sample closing documents?
    • At the time of application or within three days, originators are required to leave you copies of what you signed including the calculations and Good Faith Estimate, two booklets, and samples of the closing documents.  If you do not receive these, request them, if you have problems receiving them, change to a different lender.
  • Do they provide a list of FHA counselors without steering you to a particular one?
    • HUD does not allow a lender to steer or be involved in your choosing or receiving counseling.

Be cautious that you do not complete an application or give the lender the counseling certificate until you have made your final decision of the lender you are choosing.  Once an originator or lender has the counseling certificate they can obtain a FHA number and lock you into using them when they might not be your choice of originator or lender.

Don’t be afraid of reverse mortgages or reverse mortgage lenders.  Reverse mortgages won’t be the next subprime product.  Be educated on reverse mortgages and work with an originator and lender who is experienced, knowledgeable, meets the industry’s requirements and fulfills the above list of expectations.

Updated 2011.

© 2009-2011 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-1G

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.

AARP Has It Wrong About Reverse Mortgages!

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AARP often says a reverse mortgage should be a last result.  And while supporting a legislation bill regarding reverse mortgages introduced in Minnesota they sent out a message for their membership to contact Governor Pawlenty to sign the bill stating, “senior homeowners deserve to be protected from financial fraud that may lead to loss of equity or even foreclosure.”  They are using scare tactics and giving false information!

A reverse mortgage is a mortgage that has special terms for those 62 and older to use their equity while they still own and live in the home.  Income and credit aren’t considered to qualify and monthly payments are not required during the term of the loan.  The loan is due when the home is no longer the primary residence of the borrower(s).  When the loan is being paid off, the borrower or the estate keep any difference between the loan balance and the sale price.  As a non-recourse loan, if the loan balance is higher than the sale price on the home, the lender is repaid the fair market value and the borrower doesn’t have to pay the difference. The loan documents spell out there is no personal liability to the borrower or their estate, unlike conventional mortgages that can get funds from the estate to cover the loan balance.

Let’s first talk about the statement “should be a last resort.”  A last resort to what?  You’re having a hard time paying bills; your retirement portfolio has been cut in half; you’re having to work longer or have to go back to work; there are some things you want to do but are short funds to fulfill those dreams or needs; home repairs are needed; and taxes are due; or your struggling to put food on the table.  Maybe you could use extra funds for emergencies or peace of mind.  You are lacking in security, independence, dignity and control during your retirement.

So when is the time to do a reverse mortgage?  You wait and don’t do a reverse mortgage because AARP and others have said “the reverse mortgage should be the last resort.”  Why are you struggling?  Why do you do this to yourself?  Why not have the peace of mind, security, independence, dignity and control that you deserve in retirement?

Doing the reverse mortgage now instead of later could be to your advantage.  Monthly payments can be received to supplement your retirement income.  Or cash flow can be improved if a current mortgage is being paid off because payments won’t need to be made.  And if you chose the line of credit option, more funds become available in the future with the growth rate.

If you do a “forward” loan (if you can even qualify now with the tighter qualifications) you have to pay closing costs and then you make payments.  What happens when “life happens” and now you can’t make payments – you can’t work, you’re trying to decide to pay medical bills or the mortgage payments.  You’re now in a crisis.

Then when you decide it’s time to tap that “last resort” you’ll be paying closing costs a second time.  And there is the possibility that now there won’t be enough funds from the reverse mortgage to pay off that loan.  Your financial problem has gotten even bigger.  And you may end up going into foreclosure.

So again I ask a last resort to what?  Doing the reverse mortgage sooner than later could relieve a lot of stress now and in the future.

Now let’s consider the message AARP sent regarding the Minnesota legislation.  Fortunately Governor Pawlenty vetoed the bill. Yes, senior homeowners (anyone for that matter) should be protected from fraud.  However this bill would not have protected seniors, it would have negatively impacted them and possibly eliminated the reverse mortgage option in Minnesota. (Read the details on this by visiting our website www.RMSIDAC.com and the What’s New page.)

With a reverse mortgage, like any mortgage, line of credit, or other loan using an asset as collateral, one is USING the equity, NOT LOSING it.  The difference with the reverse mortgage is one doesn’t have to make payments during the term of the loan but pays it off when they move, die, or sell.  And because it’s non-recourse there is added protection over the other types of loans.

I’m not sure how the reverse mortgage could lead to foreclosure.  With the reverse mortgage one doesn’t have to make payments so that risk of foreclosure is removed.  There are risks of losing the home even without the reverse mortgage: If you don’t pay taxes, the county can foreclose; if you don’t have insurance, and there is damage to the home you could be without your home.

The reverse mortgage actually often helps seniors keep their home FROM FORECLOSURE.  Because income and credit are not considered to qualify, the reverse mortgage can be done to pay off the current mortgage, eliminate mortgage payments and save the home from foreclosure.

If AARP really cares about seniors they will stop using scare tactics and giving false information.  They will get the facts by becoming educated and then help seniors by providing accurate information.

© 2009 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-9

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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