Comparing Reverse Mortgage Closing Costs To A Conventional Mortgage – You’ll Be Surprised They Are Not That Different

Posted on July 24, 2011 by Beth Paterson, CRMP

It seems like every article, report or someone you talk with states the reverse mortgage closing costs are high. Have you looked at closing costs on a conventional home mortgage?

As with a conventional home mortgage (called a “forward” by HUD), the closing costs for reverse mortgages may vary depending on the home value and the complexity of the loan. Let’s compare the costs side-by-side for a Home Equity Conversion Mortgage or HECM and a conventional/forward mortgage.

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 or servicing fees. Look at an estimated comparison based on a Minnesota home valued at $200,000:

Third Party Fees	Reverse FHA	Forward	Forward FHA
Appraisal	$450	$400	$450
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	$100	$100	$100
Title Exam	$100	$100	$100
Document Preparation	$100	$100	$100
Title Insurance	$475	$475	$475
Endorsements	–	$100	$100
Recording Fees	$92	$46	$92
County/Mortgage Registration Tax	$323	$480	$480
Plat Drawing	$60	$60	$60
Name Search	$30	$30	$30
Special Assessment Search	$30	$30	$30
Counseling Fee	$125	N/A	N/A
TOTAL THIRD PARTY FEES	$2,196.50	$2,262.50**	$2,328.50

* 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. With the FHA HECM Standard this is 2% of the home value and 2 1/4% for a forward. The FHA HECM Saver has a reduced MIP. 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 3% on the HECM Standard Adjustable Rate) compared to other mortgages.
Providing a line of credit growth rate (available only with reverse mortgages).
Ensuring 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 1^st $200,000; 1% thereafter with a cap of $6,000. With a minimum of $2,500.

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	$3.500
Underwriting/Processing	$0	$700	$700
SUBTOTAL LENDER FEES	$8,000	$2,700	$6,200

Backend fee**	$0	$2,000	$2,000
TOTAL LENDER FEES	$8,000	$4,700	$8,200

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% back-end 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
	$10,196.5	$6,952.50	$10,528.50

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

Because the majority of conventional loans being done now are FHA insured, the reverse mortgage is actually less expensive.

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

Keep in mind that there has to be a cost involved because everyone in the transaction needs to be paid for there services. If the costs on a mortgage aren’t paid up-front then they’ll be paid over time with a higher interest.

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 (if you even qualify), 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. The additional funds would be either through monthly payments, a line of credit if that is the type of loan you have chosen.

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.

Now that we’ve compared the costs side-by-side, are you surprised that they are comparable to a conventional loan?

Article updated May 2012

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-t4

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.

Minnesota 7-Day Cooling Off Period Law is Disservice to Seniors

Posted on July 17, 2011 by Beth Paterson, CRMP

It’s coming up on a year since the Minnesota law went into effect requiring a 7-day cooling off period in addition to the Federal 3-day recission period on all refinances. No matter how much I explain that the law was put into place by legislators with the intention of protecting them, since then every borrower has complained about waiting an extra 7 days. Borrowers have stated:

“I’m being treated like a child, not letting me decide that I’m ready to proceed.”
“Why do I have to wait extra time, I’ve already waited long enough.”
“How fast can we close? I’ve already made up my mind.”
“I took a year to decide, I don’t need more time.”
“This takes away my dignity.”

Or variations of the above but all with the same message.

Borrowers have the right to cancel their loan at any time during the processing which usually takes 30 to 45 days. They are in control of whether they want to proceed or not during the entire time. And after closing they have the Federal 3-day recission period during which time they can also choose to cancel their loan. The additional 7 days is an irritation rather than a protection!

Consequently the Minnesota law makers did nothing to protect seniors when they passed this unnecessary law in the 2010 Minnesota Legislation. If they really want to protect seniors they should look at other things that would be true protections, not putting in unnecessary regulations.

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/pxPEm-sR.

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.

What Gives You A Sense of Independence? A Reverse Mortgage May Provide You These Freedoms!

Posted on July 2, 2011 by Beth Paterson, CRMP

What gives you a sense of independence? When I think of independence I think of having freedom of choices and not relying on others. We all want our independence including seniors. How can seniors maintain that independence, have freedom of choices and not rely on others, the government or their children? A reverse mortgage provides independence for home owners 62 and older.

Having one’s own funds for home repairs, going out to lunch with friends, traveling, visiting family across the country, purchasing a new car, paying medical bills or for medications; paying for help with housework, meal preparation, yard work or transportation, whatever is desired can give that feeling of independence. Being able to pay off a mortgage to improve cash flow to to save one’s home from foreclosure gives one relief and freedoms.

While some assistance may be needed for seniors to remain in their home, not relying on children or the government for help and being able to choose a home care agency of their choice will give them the sense of independence. Using the equity in one’s one with a reverse mortgage can provide seniors the funds for their independence.

“Now I have my dignity back and my independence” was what Edna exclaimed after her reverse mortgage was closed.

Another Minnesota reverse mortgage borrower, Bea, said, “With a reverse mortgage you begin to have independence anew and you begin to feel more secure. Being free from monetary anxiety, you have better control over spending your equity.” The reverse mortgage allowed Bea to pay off a mortgage, then to travel to family weddings and reunions. Several years after she initially did her reverse mortgage more recently Bea is using her reverse mortgage funds to pay for home care that is needed to keep her independent and at home.

Ted, age 91 and Anna age 87, Minnesota homeowners, were proud and didn’t want to discuss their financial situation. However, their son-in-law finally talked to them about doing a reverse mortgage. When I met them and we started the reverse mortgage process, the children and I were told they were doing the reverse mortgage so they could put new linoleum on their kitchen floor. Once the loan was closed I was informed by their children that they had indeed put in the new linoleum along with new windows and they bought some new furniture. The kids were going to Ted and Anna’s and were told, “Don’t pull in the drive way, we just had it blacktopped.” When Ted and Anna went out to eat with their kids, they could pay for their kid’s meals too making them feel good that they could treat their children to a meal.

Then one day Anna and her daughter were sitting at the kitchen table and Anna shared that before their reverse mortgage they used to go 3 days at the end of month without food or even milk because they would run out of money from their Social Security. As they were sitting there and looking at the paper, Anna exclaimed, “Look, Depends are on sale, I can now stock up.”

While Ted and Anna were too proud to let their children know their financial situation initially and they didn’t want to depend on them to assist with their living expenses, once they signed the reverse mortgage documents they kept their independence and had funds for their needs and desires. This also improved their dignity.

A reverse mortgage insured by FHA, an agency within HUD, is known as a Home Equity Conversion Mortgage or HECM. As one of the most protected financial options available for seniors, it allows them to use the equity in their home without looking at income or credit scores to qualify. With no monthly mortgage payments, cash flow can be improved by receiving money in monthly payments, a line of credit, lump sum or a combination of these.

The title remains in the borrower’s name and the loan is not due until the home is no longer the primary residence, when they die, sell or move or on their 150th birthday. Repaid from the sale of the property, as a non-recourse loan if the loan balance is higher than what the home can be sold the borrower or their heirs are not responsible for the difference. If the home is sold for more than the amount due then the borrower or their heirs keep the difference.

As you bring out the red, white and blue, hang your flags and gather with family to celebrate the independence of this great country of ours, ask what independence means to your loved ones. What is needed to help them remain independent and in their home, not relying on the government or on you, their children. Then explore a reverse mortgage, get the facts about them, and see if it might be an option for their situation to maintain their independence. Happy Independence Day!

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 Are Expensive… Compared To What?

Posted on June 28, 2011 by Beth Paterson, CRMP

Everywhere you turn you hear or see in print that reverse mortgages are expensive. I wonder what they are comparing them to to come up with this statement.

A conventional mortgage where one has to qualify for the loan based on income, credit, assets and ability to make the payment? Where the interest rate is based on one’s income, credit, and assets? Where one has to make monthly payments? Where the loan has to be repaid in full either from the sale of the property or from assets? Selling and moving? Where there are fees for a realtor, closing fees, moving costs and rent? Do they really think these options are less expensive?

Have you compared the reverse mortgage to a conventional mortgage? Let’s take a look:

Terms	Conventional Mortgage	Reverse Mortgage
Retain Title/Own Home	Yes	Yes
Use Home For Collateral	Yes	Yes
Lien Placed Against Property	Yes	Yes
Income Requirements	Yes*	No
Credit Score Requirements	Yes*	No
Monthly Payment Requirements	Yes*	No
Repayment Term	15 years, 30 years, etc*	When home is no longer primary residence or 150^th birthday of borrower
Closing Costs	Origination fee, third party fees, possibly FHA Mortgage Insurance	Origination fee, third party fees, FHA Mortgage Insurance Premium**
Amount To Be Repaid	Loan Balance	Loan Balance
Non-recourse, there is no personal liability to the borrower(s) or their estate	Not an option – full loan balance is due and would be paid from the estate if not from the sale from the home	Yes, the estate would NOT have to come up with the difference if the loan balance is higher than what the home can be sold for (fair market valued)

*Terms and interest rate is determined by income, assets, credit score, ability to make payments and points.

** When costs are compared side-by-side the difference is the FHA Mortgage Insurance Premium. And the FHA MIP provides many benefits to senior homeowners who do a reverse mortgage.

Compared to Selling and Moving? Let’s take a look.

Terms	Selling & Moving/Rent In Senior Housing	Reverse Mortgage
Retain Title/Own Home	No	Yes
Credit Score Requirements	Yes (rental properties look at credit and income to determine if you’ll be able to pay the rent or need to rely on government programs)	No
Monthly Payments Requirements	Yes, Rent. Rent in Assisted Living will range from $2,500 to $8,000/month depending on services. Additional services, i.e. home care, will be additional.	No
Realtor/Originator Fee	4% to7% Realtor Fee. On a $200,000 home = $8,000 to $14,000.	Origination Fee is 2% on the 1^st $200,000; 1% thereafter max of $6,000. On a $200,000 home = $4,000.
Third Party Fees/Other Fees	Yes	Yes; FHA Mortgage Insurance Premium
Non-recourse, there are is no personal liability to the borrower(s) or their estate	Not applicable	Yes, the estate would NOT have to come up with the difference if the loan balance is higher than what the home can be sold for (at fair market value)

Where else can one access funds with these benefits for the cost of the FHA Mortgage Insurance Premium? To say the reverse mortgage costs are high compared to a conventional mortgage or to selling and moving is like comparing apples to oranges.

So I still ask, reverse mortgages are expensive? Compared to what?

This material my 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-sm

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.

We Are Not Chicken Littles – The Sky Is Not Falling In the Reverse Mortgage World!

Posted on June 22, 2011 by Beth Paterson, CRMP

With Bank of America and Wells Fargo exiting the reverse mortgage industry along with the picture the media paints, I’m reminded of the story of Chicken Little thinking the sky is falling, looking at the doom and gloom. Or jumping to the conclusion that because they have left the industry the reverse mortgage option is going away.

However, the sky is not falling in the reverse mortgage world! Reverse mortgages are still available and a viable option for senior home owners.

There are still lenders lending, some new ones even entering the industry. FHA is still insuring the Home Equity Conversion Mortgage (HECM), covering the risks for the lenders when the home values drop. Investors are still investing in reverse mortgages. Servicers are still servicing reverse mortgages.

HUD still guarantees the funds are available for borrowers. Monthly payments are still not required. The loans are still non-recourse which means no personal liability to the borrower or the estate if the loan balance is higher than what the home can be sold for at the time the loan is due and payable; the FHA Mortgage Insurance Premium covers the difference. Reverse mortgage borrowers still have protections including the required counseling by a third-party HUD trained and approved counselor. The HECM Standard, HECM Saver and HECM Home Purchase programs are all still available.

Seniors still own their home. The majority of people want to remain in their home. Staying in one’s home can be less costly than moving and renting in senior housing. The reverse mortgage remains a viable option to help seniors remain in their home.

Reverse mortgage interest rates are still low. The funds can still be received in monthly payments, line of credit, a lump sum or a combination of these. The line of credit still has a growth rate. The monthly payments to the borrowers can still be received as tenure/for life or structured as one needs. Reverse mortgage funds are still generally considered tax free. Social Security and Medicare are still not affected by a reverse mortgage. Medicaid (Medical Assistance in Minnesota) can still be received with a reverse mortgage.

The funds can still be used for: Paying off current mortgages and helping one out of foreclosure. Paying for home repairs and home modifications, medical expenses, home care and long term care. Paying taxes and protecting other assets. Fulfilling dreams or whatever one needs or wants.

In the world of Reverse Mortgages SIDAC, we are NOT Chicken Littles, the sky is NOT falling. We ARE STILL offering reverse mortgages through lenders who are committed to helping seniors stay in their home and have security, independence, dignity and control.

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.

You Originate reverse mortgages…What Do You Do to Deserve all that money?

Posted on June 15, 2011 by Beth Paterson, CRMP

Often 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.

As we were going through the application and process, Joan, a recent client, said, “I sure hope you are being paid well for all this time and effort you put into my loan.” I hear these comments from most all of my clients.

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 though 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.

Take the phone call from one interested in a reverse mortgage. Generally spend 30 to 60 minutes providing initial information and getting information to run calculations to determine eligibility.
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.
Enter information into computer program, run calculations, prepare informational folder – approximately 45 to 60 minutes.
Drive 60+ minutes round trip to the prospect’s home for an initial educational meeting.
Discuss their situation and educate them on the reverse mortgage 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.
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 talk with family members or have an additional 1 to 2 hours face-to-face with prospect and their family.
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).
Call prospect to gather information needed for application as well as which option they are choosing – 15 to 20 minutes.
Enter complete information into computer program – 20 to 30 minutes.
Prepare the full application package for signatures and a separate borrower set – 60 minutes.
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 however I believe that the face-to-face meeting provides better explanations of each of the forms one is signing.)
Spend 1 to 2 hours to review information on application and get signatures.
If counseling wasn’t completed prior to the application, work with borrower to receive counseling and 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. Originators now need to make contact with the chosen counselor, prior to the counseling session, and provide certain financial information to the counselor (calculations, etc) – 15 minutes.
2. Make phone calls to have the signed counseling certificate faxed – 60 minutes. Or will drive to pick up certification – another 60+ minutes round trip plus 10 to 15 minutes with borrower.
Review file and prepare for submitting for processing – 15 to 30 minutes.
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 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.
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.
16. When appraisal is received, enter new value, if repairs are required, etc. in software program for calculations – Originator: 10 minutes.
17. Update processing software program with changes – Processor: 10 minutes.
18. Call borrower to advise borrower of appraised value, required repairs if any, and any calculation changes – Originator: 15 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: 10 to 15 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 adj rate).
20. Mail re-disclosure to borrower – Originator: 10 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 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 condition. Conditions are required so that HUD will insure the loan and the investors will provide the funding.
25. Have borrower sign loan 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: 15 minutes.
30. Receive closing documents, review that the numbers match those in our program – Processor: 10 minutes.
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.
33. Follow up on funding conditions, i.e. missed signatures or documents, if there are any (we rarely have any) – Processor: 10 to 30 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.
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. 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, marketing expenses, overhead for the business such as computers, office supplies, copiers, health insurance for employees, etc. Originating a loan is not charged by the hour. However if we calculated time versus pay, with some borrowers, because of various problems that come up or they need some extra hand holding, if we were to be paid by the hour there have been times when I would make less than $10 an hour.

As we go through the application and process, my borrowers, as Joan did, 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.

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-rv

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.

A Reverse Mortgage Should Be A Last Resort… To What?

Posted on June 7, 2011 by Beth Paterson, CRMP

So called senior advocates often state a reverse mortgage should be a last resort. My question is to what?

A Home Equity Loan? To qualify for a home equity loan or a traditional loan a lender looks at a borrowers’ credit, income, assets, and ability to make payments. Most seniors don’t qualify for a home equity loan.

Even if a senior does qualify now, if “life happens” and they have to juggle making a mortgage payment or having funds for other expenses, their stress level increases. And if they don’t make their mortgage payments they could be facing foreclosure.

I receive calls on a regular basis from seniors who did a home equity loan or traditional loan just a few years ago and now they can’t afford the payments. When I run the calculations more times than not I find there are not enough proceeds from the reverse mortgage to pay off their current mortgage, a requirement of the reverse mortgage, mainly due to lower home values. But could also be due to the reverse mortgage qualifying factors:

the amount one qualifies for with a reverse mortgage is determined by the age of the youngest borrower (the older one is the more one will receive)
the home value (determined by a FHA appraisal)
the Expected Interest Rate of the program chosen (the higher the interest rate above the 5% FHA floor, the less funds are available)

A combination of these factors could mean there are not enough funds to pay off a current mortgage at a later date. For example, even though one is older in three or four years, the interest rate could be higher and the home value lower meaning less funds available.

The reverse mortgage as a “last resort” to a home equity loan or traditional mortgage is not generally a wise decision – one could have larger issues in the future.

A last resort to selling and moving? The time it takes to sell the lower home values, the real estate costs and moving costs can be prohibitive for selling and moving to be a better option to a reverse mortgage. In addition most seniors want to stay in their home. See comparisons of costs in my article, “I Want To Stay in My Home – Don’t Tell Me To Sell!” and “Be Educated About Your Options Of Care And Financing The Care.”

A Loan from a family member or friend? Or help from a family member? Is there someone who can and is willing to help financially? What happens if “life happens” to them, i.e they lose their job or have health problems? This could negatively impact finances for everyone, cause stress for everyone and impact relationships. Again, generally not a better option to a reverse mortgage.

Skimping on necessities? “Getting by” without a reverse mortgage? Doing without to preserve equity for what may be future needs or to leave an inheritance for heirs? Living from Social Security check to Social Security check just to get by and maybe doing without some of the things in life that give us dignity such as having lunch with friends, getting one’s hair done, or having cable TV… is this really a good option over a reverse mortgage? Why should one be warned off a reverse mortgage rather than living life comfortably? Or as Ed, a reverse mortgage borrower stated, “the reverse mortgage gives us some elbow room.”

Not having debt but waiting, saving the equity? Why attempt to preserve equity from one’s home for the future or as an inheritance for heirs? For what? Why shouldn’t one enjoy the extra luxuries in life such as buying a car, taking a dream vacation having funds to attend a family reunion or wedding? A reverse mortgage could help one remain independent, protect other assets, have security knowing one has funds for what one needs or wants as well as have control and choices of one’s lifestyle.

As a senior advocate myself, I help seniors review all their options and educate them on the reverse mortgage so they can make an informed decision and the choice of what best fits their needs.

A true senior advocate will stop stating a reverse mortgage should be a last resort and see that in the big picture the reverse mortgage is generally the best solution sooner than later. At least it should be reviewed as a valid option for seniors. And then let the senior make their own personal decision.

My question remains, a reverse mortgage should be a last resort to what? Mary and Larry, who did a reverse mortgage, stated, “A last resort? When one is retired it is the last resort. Our reverse mortgage has been wonderful to meet our needs and maintain our lifestyle.”

Are You Confused on Whether to Use A Reverse Mortgage Broker, Bank Or Lender?

Posted on May 7, 2011 by Beth Paterson, CRMP

I’m sure you have heard the terms “Mortgage Broker,” “Bank” and “Lender,” but do you know the difference? Do you know for which your loan officer or originator works? Do you know how to check on their background? I’m writing this article to clear up the confusion so you learn the difference and the advantages of working with a Reverse Mortgage Broker.

A mortgage broker is a company in the mortgage business who works with various lenders but does not loan the money. Sometimes referred to as an originating lender.

A Bank or Federal Insured Depositary Institution will often have mortgage loan officers who are employed by the bank and offer only the banks mortgage products, giving borrowers limited choices. A bank may choose to be FHA approved and offer the HUD insured reverse mortgage, the Home Equity Conversion Mortgage, often called a HECM.

A lender is a company who lends money, but is not necessarily a bank. They too often employ loan officers who only offer their mortgage products (called their retail department) which has limited choices for borrowers. Lenders may also choose to be FHA licensed and offer the HECM.

Banks and lenders may have a wholesale department where their reverse mortgage products are offered through approved mortgage brokers. Not all mortgage brokers can offer reverse mortgages. To offer reverse mortgages the loan officer’s company must be approved by an FHA approved lender. Lenders will only approve mortgage brokers who meet certain criteria.

Let’s look at why working with a reverse mortgage broker instead of a bank or lender’s retail loan officer has it’s advantages.

Mortgage brokers often work with more than one lender which allows the borrowers to have more options available to be in their best interest and work with the lender/servicing company with the best customer service.
As of January 1, 2011 all mortgage brokers (reverse or traditional) are required to be licensed both at the Federal and State levels. This is managed through the National Mortgage Licensing System or NMLS.

To meet the Federal Licensing requirements we needed to take 20 hours of education, pass a test (a very challenging one, I might add), pass Federal background checks, have our credit reports checked and be finger printed.

Each state has their own licensing requirements. Minnesota required 20 hours of education and 8 hours continuing education each year.

Lending practices and standards, ethics, and Real Estate Settlement Procedures Act (RESPA) regulations were covered in the education and on the test.

The test focused on conventional lending products so those of us who only offer reverse mortgages had additional challenges to pass the tests.

FDIC Bank and NCUA Credit Union originators do not have the licensing requirements so they have not received the education, passed the tests or gone through the same background checks. At some point the bank and credit union originators will be required to be registered . This will still not be the same as meeting the licensing requirements.

Mortgage Brokers who provide you any information about your loan including various loan options and interest rates must be licensed.

Mortgage Brokers are required to have their company and individual NMLS numbers on all marketing materials. In Minnesota the company NMLS number is identified as “MO” or Mortgage Originator. The individual is identified with their “MLO” or Mortgage Loan Originator number. If you don’t see these numbers on business cards and marketing materials including brochures, flyers, blogs, email signatures, presentations, etc. they are either not licensed or out of compliance.

You can check out your originator on the NMLS website at http://www.nmlsconsumeraccess.org/ This will provide you with a lot of valuable information on who you are working with to originate your loan including:

If they are licensed (if not listed or don’t have a license number, they are not licensed to originate loans)

If they are authorized to conduct business. And which company they are authorized to represent.

If they are licensed in your state. (You want to make sure the person you are talking with and that signs your application is licensed in your state. Don’t work with a person over the phone that is not licensed in your state. I have heard stories where borrowers talk with one person on the phone but another one signs the application because the call center person is not licensed in the state. This is against the law.)

The company where they currently work. (Does it match the information they have given you?)

Where they worked in the past.

Their company and branch license information.

Banks and lender’s retail departments often have a phone/call center representative. Conversations and applications are often done over the phone and through the mail verses reverse mortgage brokers who often take time to meet with borrowers face-to-face in their own homes. This means one may receive more personal service from a reverse mortgage broker.
Large bank institutions often have their eye on the bottom line by departmentalizing activities which forces loan officers to focus on just taking applications and not understanding all aspects of the reverse mortgage including the processing and servicing. My blog post, “They’ll Say Anything To Get An Application” points out a couple of these situations.

I am proud to be a mortgage broker, MO #173899, to have passed my licensing requirements, MLO #342859, offer options that can be best for my borrowers as well as personal service. I have pride in having 100% customer satisfaction documented with our customer survey.

Seventeen Facts About Reverse Mortgages You May Not Know.

Posted on April 30, 2011 by Beth Paterson, CRMP

With the many misunderstandings about reverse mortgages I want to share seventeen facts to help clear up the misconceptions.

A reverse mortgage is a mortgage just like any loan against the home where the borrower is using the equity of their home to meet their needs and desires now, but with special terms for seniors 62 and older.
The lender or bank does NOT own the home – YOU OWN THE HOME, you keep the title! The lender or bank does NOT take your home when you die.
Income and credit scores do not determine the interest rate. Interest rate is determined by the margin and the program chosen.
No monthly mortgage payments are required. Borrowers are responsible for paying property taxes, hazard insurance, maintaining the property, paying HOA dues if applicable.
The home does not have to be free and clear or have a lot of equity. Although enough equity is needed to pay off current liens and/or mortgages.
There is no limitation on how the funds can be used. Some common uses include paying off a current mortgage, paying for home repairs or modifications, planning for retirement and long term care, home health care or adult day services, medical expenses, every day living expenses and even to purchase a home. Whatever one needs or wants.
More options are available than with a conventional or home equity mortgage – Funds can be received in monthly payments structured as needed, line of credit (with a growth rate), lump sum, or a combination of these.
Social Security and Medicare are not affected because it is a loan, and not considered income.
Medicaid (Medical Assistance [MA] in Minnesota) can still be received with the reverse mortgage. (Your originator should know this and be able to assist you if or when you are going on Medicaid.)
Borrowers can stay in the home as long as it is their primary residence, or in the case of a couple, as long as one borrower is still in the home as their primary residence, and they are abiding by the terms of the loan. The due date on the mortgage is the youngest borrower’s 150th birthday. Eligible non-borrowing spouses may be eligible for a Deferral Period.
At the time of sale if the home is sold for more than the loan balance, the borrower(s) or their heirs receive the difference. The bank does NOT keep the difference!
The loan is non-recourse which means there is no personal liability to the borrower or their heirs. This means borrowers or their heirs don’t have to come up with the difference if the loan balance is higher than what the home is sold (at fair market value). Borrowers are not leaving a debt to their children.
Just like any mortgage, borrowers are responsible for property taxes and insurance, association dues (if applicable), maintaining the property and abiding by the terms of the loan.
As borrowers use the funds/equity and are not making monthly payments the loan balance increases meaning because they used the money now, there will be less available when the loan is being repaid. (With a conventional mortgage one is using the equity but making monthly payments which repays the interest and a portion of the principal each month.) With the reverse mortgage, one has the flexibility to choose to make payments to reduce the loan balance, funds then become available to re-borrower in the future.
Closing costs are comparable to a conventional mortgage – even though many times they are considered expensive or high they compare to conventional loans, in fact the difference comes down to the FHA Mortgage Insurance Premium. Fees are regulated and only HUD allowed fees are permitted with no mark-ups or junk fees. You can see a comparison of the costs in my article, “Surprise! Reverse Mortgage Closing Costs Actually Compare to Conventional Mortgage Costs” Note, there are no out of pocket costs except for the appraisal, possibly engineering inspections and counseling. The costs typically become part of the loan balance.
FHA offers and insures through HUD the majority of reverse mortgages known as the Home Equity Conversion Mortgage or HECM, making it the most highly regulated mortgage available.
HUD insuring the reverse mortgage provides advantages including:

Guaranteeing the funds are available for you.

Guaranteeing the lender against default or shortfalls

Keeping the interest rates lower, the interest rates have historically been lower compared to other mortgages.

Providing a line of credit growth rate (available only with reverse mortgages).

Ensuring as a reverse mortgage it is a non-recourse (no personal liability) loan.

Requiring counseling by a third party HUD trained and approved counselor.

The HECMs are highly protected. See my Blog article “You Need To know Reverse Mortgage Borrowers Are Highly Protected.”

Before dismissing a reverse mortgage as an option, know the facts and talk with a reverse mortgage expert to see if one is right for your situation. Originators do not charge to meet with you and educate you on reverse mortgages. No product or service is right for everyone but with the facts you can make an informed decision.

Originally posted in 2011, updated in 2015.

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 Give Reasons For Hope

Posted on April 22, 2011 by Beth Paterson, CRMP

As I was reflecting on the hope that this season brings I got to thinking about the reasons the reverse mortgage gives hope to seniors. Here are some of the reasons for hope with a reverse mortgage. Yes, the list is long but seniors have a long list of wants and needs for hope. With a reverse mortgage one will be able to:

Stay in one’s home where they may have raised their family, are familiar with the neighborhood and their neighbors and where they usually want to remain.
Pay off a current mortgage to eliminate the monthly mortgage payments.
Save one’s home when faced with foreclosure or tax forfeiture.
Have improved cash flow with no monthly mortgage payments.
Have funds for making home improvements or home modifications.
Retire and not feeling like you have to work just to have money to pay the bills.
Have cash flow to be able to pay taxes.
Have funds to pay for home health care.
Have funds for some assistance with home care or companion services.
Have funds for adult day services.
Have funds for medical expenses and prescriptions.
Afford going to the dentist.
Afford new eye glasses.
Have funds for the needed hearing aid.
Have funds to cover long term care expenses.
Cover everyday living expenses.
Not rely on credit cards.
Not rely on children.
Have funds for the little extras in life, like:
- getting one’s hair done,
- having cable TV,
- buying groceries,
- going to lunch with friends,
- treating their children to dinner,
- going to community plays or the theater or a concert,
- taking the grandchildren to the zoo or a movie,
- Depends (I had a client say with their reverse mortgage they could now afford to by Depends),
- being able to do hobbies.

Purchase a more dependable car
Afford transportation if one can no longer drive.
Afford the travel for the family wedding or reunion.
Take the vacation they have dreamed of all their life.
Protect some of their other retirement funds or investments where there might be taxes or penalties on withdrawals.
Purchase a new home to downsize and/or move closer to family
Have funds for emergencies.
Reduce financial stress.
Have funds to full fill needs and goals.
To live with security, independence, dignity and control.

I have helped seniors where a reverse mortgage has fulfilled all of these reasons and more, providing hope for their future (visit the links below for some stories). A reverse mortgage has given hope to thousands of Minnesota seniors so they can remain in their home with security, independence, dignity and control even during trying times. If you know a senior who is looking for hope for one of the above reasons, a reverse mortgage may be their answer.

To determine if a reverse mortgage is right for one’s situation, talk with an experienced licensed reverse mortgage expert to get the facts. Learn some of the facts at our website: www.RMSIDAC.com. “What to Consider When Talking With Reverse Mortgage Lenders” will help you determine questions to ask when choosing your originator.

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/pxPEm-pQ

Related articles of stories on how seniors have used the reverse mortgage and how it’s made a difference in their lives:

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.

Minnesota Reverse Mortgages SIDAC

Minnesota Reverse Mortgage Information, Facts and News from the Experts Excelling in Service

Yearly Archives: 2011

Minnesota 7-Day Cooling Off Period Law is Disservice to Seniors

You Originate reverse mortgages…What Do You Do to Deserve all that money?

A Reverse Mortgage Should Be A Last Resort… To What?

Are You Confused on Whether to Use A Reverse Mortgage Broker, Bank Or Lender?

Seventeen Facts About Reverse Mortgages You May Not Know.

Reverse Mortgages Give Reasons For Hope