One Bad Apple Spoils The Bushel of Reverse Mortgages

Reverse Mortgage ApplesEvery industry has their bad apples and reverse mortgages are no exception.  However the few and far between “bad apples” in the reverse mortgage industry are not representative of the industry or the product as politicians, media and some reporters are stating.  Headlines such as “Beware of Reverse Mortgages” is a disservice to seniors because it scares away the seniors who could benefit from a reverse mortgage.  So even the reporters and politicians are bad apples spoiling the bushel of reverse mortgages.

There is little evidence of subprime lending and fraud with reverse mortgages.  The National Consumer Law Center Report recently released which claims reverse mortgages are the next subprime mortgage is not based on statistical evidence.  As Peter Bell, President of the National Reverse Mortgage Lender’s Association has pointed out, the cases sited in this report are over 3 years old and some have been dismissed in the legal system.

Some of the instances mentioned in this report are not abuses by lenders but by those who took advantage of seniors who had the reverse mortgage.  My Blog article, “It is NOT Reverse Mortgage Fraud When…” outlines some claims of reverse mortgage fraud that aren’t really reverse mortgage fraud.

Let’s look at the bad apples of fraud in the reverse mortgage industry:

  1. One bad apple was where a scheme was set up to flip homes using a reverse mortgage.
  2. Another bad apple was an investor who sells the property using a quit claim deed then the buyer applies for a reverse mortgage using an inflated appraisal and a fake mortgage company.  The senior then refinances using a reverse mortgage paying off all debts including the fake mortgage providing the investor funds – some of these seniors were homeless prior to the scheme and didn’t understand the terms of the loan or the need to pay taxes and insurance on the property.  Protections have been implemented to stop these types of schemes.
  3. An originator who proceeded with the loan closing knowing the borrower had passed away was another bad apple.
  4. HUD has charged another bad apple for violating HUD’s regulations and is in the process of proceedings to have that company’s FHA license pulled and the people involved will be put on HUD’s sanction list and not be allowed to work in the industry. (This lender does both conventional and reverse mortgages – the violations were based on conventional loans, not reverse mortgages s0 this was not really reverse mortgage fraud but it likely could have been.)

Out of all the reverse mortgage lenders and reverse mortgages these are the only instances I found to be real fraud and this is not an issue with the product itself but with a person or persons.  If there are more, I couldn’t find them in my search of reverse mortgage fraud through the many sites and articles found at the FBI, Federal Trade Commission, HUD, National Reverse Mortgage Lender Association, and other industry reports.  Obviously with only these instances, reverse mortgage schemes and fraud are not increasing or set to be the next subprime focus.

Yes, there is always a risk of potential increase of scams and fraud as there is a risk of increase of scams with anything including increase of theft from a store, identity theft, medical or insurance practices or products, on and on.  And while everyone doing a reverse mortgage, a conventional mortgage or any financial transaction should know the facts and beware of scams, three or four instances does not mean the product should be avoided.  Would you stop shopping because it involves using cash or a bank card just because there is a risk of increase of theft or identity theft?  No, you just take precautions.  Do you stop driving your car because there is a risk of increase of car theft.  No, of course not, you just take precautions.

HUD has many protections in place making the reverse mortgage the safest loan available to seniors.  These protections include required third-party counseling, now with a new protocol (see my Blog article “New Protocol for Reverse Mortgage Counseling”), regulating fees, prohibiting cross-selling, implementing a wait period for home purchases (a result of a scam) as well as review of marketing practices and disclosure of fees.

Meg Burns, Director, FHA Single Family Program Development U.S. Department of Housing and Urban Development (HUD) has stated, “the program has the potential to benefit seniors with a wide variety of financial needs and, as such, should be thoughtfully considered by all seniors making financial planning decisions.”  She has stated that widespread abuse is unsubstantiated and shares the reverse mortgage industry’s concern about decisions based on lack of knowledge, as outlined in her statement, “I have grave concerns about the overzealous attention by legislators to the reverse-mortgage sector.  Federal regulators are going to pay attention, but they don’t know the product.  We have yet another party entering this world who wants to layer on additional consumer protection, but they don’t understand the product well enough-[and yet] we have auditors nipping at our heels.”

Instead of highlighting how many seniors have benefitted from the hundreds of thousands reverse mortgages that have been done and how originators have bent over backwards to help seniors save their home from foreclosure, eliminate mortgage payments, have cash to repair or modify their home or have funds for medical expenses or home health care, or funds for their retirement during the economic downturn the media and politicians focus on the rare instance of fraud.

Consider a few of the many comments we have received on how the reverse mortgage made a difference for seniors:Satisfied Reverse Mortgage Borrowers

  • “Thank you!  I now have my bills paid, money in the bank, and I can take a vacation this summer.”
  • “It helps me keep up with bills I cannot cover with my limited income.  It also allowed me to remodel my home to improve its value and be more comfortable.  I greatly appreciate it.”
  • “The Reverse Mortgage helps out a great deal and solves many problems.”
  • “It has relieved us of a great deal of stress and makes grocery shopping a lot easier too.”
  • “The only way we could comfortably stay in our home of 42 years”
  • “A reverse mortgage means I’ll have a place to live even in case of serious illness.”

Options should be considered however their homework has not been done when reporters, politicians, and even “senior advocacy” groups state:

  • “The reverse mortgage should be a last resort.”  A last resort to what?  As one of my borrowers stated, “When retired it is the last resort.”
  • “Get a home-equity line.”  First, most seniors don’t qualify for a conventional loan and if they could, they would have to make payments (often what they are trying to eliminate or avoid).  And even if they can afford the payments today, what happens when “life happens” and they juggle between making mortgage payments, paying their utilities or paying medical bills and putting food on the table.

Besides, the reverse mortgage IS a home equity loan.  It is a home equity loan with special terms for seniors including no income or credit score qualifications, no monthly payments and is a non-recourse loan insured by FHA with a lower interest than they can qualify for with a conventional “forward” loan.  The loan is not due and payable until the home is no longer the primary residence or on their 150th birthday.  It also offers more flexibility on how they can receive their funds including monthly payments, line of credit, lump sum or a combination of these.

  • “Sell and move.”  Most seniors want to stay in their home where they have raised their children, are familiar with the neighbors and neighborhood and have a lot of emotional ties.  Additionally moving and selling can cost more than a reverse mortgage.  Read my Blog, “I Want To Stay In My Home – Don’t Tell Me To Sell!” which compares the costs.

Another common misstatement and myth is “reverse mortgages have high fees.”  Actually the costs of the reverse mortgage are comparable to a conventional FHA loan.  When comparing costs side by side to a conventional loan the difference is the up-front FHA Mortgage Insurance Premium.  The benefits of FHA insuring the loan include guaranteed funds, a lower interest and the loan being non-recourse.  For a better understanding of costs and a comparison read “Reverse Mortgage Closing Costs – High or Mythical?

To make sure you aren’t working with a predatory lender, check references, check to ensure they are a HUD approved lender, know they specialize in reverse mortgages, have experience, knowledge, and are willing to meet with you to review the details, before the application, during the application and at closing.  You should review “Don’t Let Fear Keep You From A Reverse Mortgage But Know What To Look For In A Lender” to know the questions to ask when talking with an originator.

Our company is proud to receive comments such as “I am completely satisfied with all aspects of my reverse mortgage. From start to finish, it was handled very professionally. I never had a feeling that my questions and input were not of importance (thank you – I had many questions!!) Beth, you assured me that the procedure was on time and going smoothly, and that was a wonderful feeling! Thank you for being the kind of super advisor that makes you so special”

So don’t let the bad apple spoil the bushel of reverse mortgages for you.  Get the facts, know what to look for in a lender, and explore the option to see if it might benefit you as it has benefitted hundreds of thousands of senior homeowners.

To get the details and facts straight, the media should read a couple of my other Blog articles:  “The Media Needs Their Reverse Mortgage Facts!”  “But Wait, There’s More… Reverse Mortgage Facts the Media Needs To Know” and “When You Don’t Know What You Don’t Know About Reverse Mortgages.

© 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:

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.

New Protocol for Reverse Mortgage Counseling

Receiving Reverse Mortgage CounselingSince its inception when HUD started insuring reverse mortgages 20 years ago, anyone considering a reverse mortgage must receive counseling from a 3rd party HUD approved counselor.  Now effective this October a new protocol has been put into affect.  To remain on HUD’s Counseling Roster, counselors must have passed the National HECM (Home Equity Conversion Mortgage) Counseling Exam.  Only counselors who are employees of HUD-approved housing counseling agencies can take the exam and then be eligible to counsel potential reverse mortgage borrowers.  Additionally they must have completed at least one HECM related training course within the past two years and meet some background check requirements.

With the intention to keep lenders from influencing counselors, lenders are required to provide potential borrowers with a list of 10 counselors, 5 are to be local and the additional 5 are the national counseling agencies.  Also according to HUD’s requirements lenders are prohibited to provide only one or two counselors and/or steering to a particular counselor.

The purpose of the third party counseling is to make sure potential borrowers are familiar with the terms of the loan, the costs, and advise them of other potential options.  The advantages can be if the potential borrowers have not talked with a lender or a lender has not provided the details they are getting the basics of the reverse mortgage.  If they have talked with a lender and the lender has done a good job explaining the reverse mortgage, the counselor will reiterate what the lender has explained.  Counseling sessions should generally take about an hour and HUD allows counselors to charge up to $125 commensurate with the time of the counseling session.

Through the years we, the ethical lenders,  have been amazed how counselors have not followed HUD’s requirements, steered to particular lenders, told borrowers they shouldn’t do the reverse mortgage, how they should take their reverse mortgage funds, charged the full allowable amount of $125 for only 15 minutes of counseling time, and a number of other violations of HUD’s regulations.

Receiving Reverse Mortgage DetailsWhen we from Prestige Mortgage, LLC, Reverse Mortgages SIDAC, meet with our prospective borrowers we usually take an hour to two hours going through the details and the calculations, reviewing their situation and discussing options for their situation.  After the counseling session when we ask our borrowers how the counseling session went, we consistently hear, “They covered just what you did.”  This means our borrowers have received enough education to have a good understanding of the loan.

Besides the new protocol to be a counselor, there will be a new protocol for the counseling session.  Prior to the counseling session HUD is requiring that prospective borrowers receive calculation pages comparing programs, the amortization schedules, the Total Annual Loan Cost (TALC)  and a booklet titled, “Use Your Home to Stay at Home” published by the National Council on Aging.

From what we understand counselors will be doing a financial analysis.  Additionally counselors will be asking 10 questions in which borrowers will need to answer at least 5 correctly in order for them to receive the counseling certificate.  If they can’t answer the questions correctly then they will not receive the certificate and will need to wait a minimum of 7 days and then go through another “limited” counseling session to review the topics they didn’t understand.  And if counselors feel the prospective borrowers don’t comprehend the basic reverse mortgage details, they can withhold the counseling certificate.

The intention is to help borrowers assess their situation and whether the reverse mortgage is right for their financial situation.  While on the surface this sounds like a good idea, the concern is whether the counselor will be passing along their opinion and not letting the borrower really make their own decisions and withholding the counseling certificate if they choose based on their opinion.  This has happened in the past with counselors telling borrowers they should cut back on getting their hair done, not using the proceeds for a trip, shutting off their cable TV, etc..  I believe the discussion should be held however, the final decision should still be the borrowers.  And we have to consider what provides seniors their security, independence, dignity, control and choices of their life.  Visit my Blog articles: “Who Are We To Judge How Reverse Mortgage Funds Should be Used?”  and “Is Your Opinion of Reverse Mortgages Denying Seniors?

I’m proud that we take so much time educating our borrowers and discussing their situation and options so they can make their decision based on the facts of the reverse mortgage.  Also that they have the information and knowledge to be able to answer the questions they will be asked during the counseling session.

With the new protocol of the counselors, I believe (hope) the best counselors will remain and the counseling sessions will provide the education without the opinions of the counselors being shared.  I also hope that the counselors will be following the required protocol knowing that if they don’t HUD is likely to pull their ability to counsel.  Time will tell if the new protocol of the counselors and the counseling session will benefit borrowers or make it more cumbersome and/or discouraging for the borrowers.

The best I can do is continue to educate borrowers on the facts of reverse mortgages, discuss their situation and options and respect them to make the decision best for their own situation and have the information they need when they go through the counseling session.

© 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:

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 Mortgages Answer Prayers

Changed Man with his Reverse Mortgage“I now have peace of mind.”  “This really helps out a great deal and solves many problems.”  “My friend is a changed man.”  “You’re an angel.”  “You’re sent from heaven.”  “What a mission you do.”  These are words I have heard from people who have a reverse mortgage.

Seniors may have many years behind them, but they still have many valuable years ahead of them with some important living to do.  Yet they often find it difficult living on a fixed income.  Sylvia wrote me, “As a senior citizen, I had been having some concerns with my finances.  Being on a limited income made much needed household repairs and property tax payments very difficult to meet.  I was going to have to make a choice soon about whether to continue to live in my house, or move in to an apartment.  The costs of continuing to live in my home were getting beyond my means, but I wasn’t ready to leave the home that I had raised my children in.”   She decided to use the equity in her house to make life easier and meet the financial obligations that she had.

A reverse mortgage is a loan that enables homeowners age 62 and older to receive cash out of their home (in the form of a monthly check, line of credit or lump sum of cash), with no monthly payments and no repayment due until the homeowner permanently leaves the home.  As long as the homeowner is 62 or older and lives in their home with enough equity to pay off any current mortgages or liens, and the home meets HUD’s minimum property standards, they qualify for a reverse mortgage – there are no income or credit qualifications. Currently the only program is the FHA HECM (Home Equity Conversion Mortgage) which is insured by HUD.

People have lived in their homes for many years and have many memories there.  They’re familiar with their surroundings and want to stay in their home.  Moving into an apartment can be expensive and the money from their home sale will only pay rent for a certain number of years.  The reverse mortgage helps seniors stay in their home, remain independent, and maintain or improve their lifestyle, and have the financial means to fulfill their goals and dreams.  Ed, one reverse mortgage borrower, says, “The reverse mortgage is great.  It gives us some elbow room.”

Those who do a reverse mortgage use the cash they receive for reasons ranging from paying for everyday living expenses to supplementing their current income.  A reverse mortgage can eliminate current mortgage payments, provide cash to pay bills, fulfill dreams, meet goals, travel, or take on new hobbies.  Some people want to make home repairs or afford to go out to eat with friends more often.  Helping pay for grandchildren’s education, covering medical expenses, or paying long term care insurance premiums are other ways cash from a reverse mortgage is used.

Now with the interest rates so low, those who are relying on the interest from their CDs are suffering.  People who were counting on their investments for their retirement are also struggling with their finances.  More and more people turning to the reverse mortgage to supplement their income who thought they would be financially stable in their retirement years.

The cash received is considered tax-free and Social Security and Medicare benefits are not affected.  It is possible to receive public benefits (Medical Assistance, food stamps, or county home health care) and still do a reverse mortgage.  However, Social Security Administration, legal services, and/or tax consultant should be consulted for each particular situation.

Often children aren’t even aware that their parents are struggling to make ends meet at the end of the month.  After they had closed on the reverse mortgage, one couple I know confided to their daughter that they used to go three days at the end of the month without food or even milk.  Now they have the money to live comfortably and even take their children out to eat once in awhile.

Reverse Mortgage Answered her PrayersBernadette wrote me after closing on her reverse mortgage stating, “With joy and delight I have felt hope and even vision anew in knowing that this home belongs to me.  It comes with a challenge for me to realize that I am accountable in using these funds to achieve goals otherwise not possible.”

The reverse mortgage answers prayers for many by helping them maintain their lifestyle, have security, independence, dignity, and control while they are still living.  For me, it is a

ministry and rewarding to be able to assist seniors to stay in their home and have security, independence, dignity, and control.

© 2009-2015 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:

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.