How Do We Determine If A Reverse Mortgage Is Not Right For Us?

Posted on February 19, 2011 by Beth Paterson, CRMP

“Do you have any info on how to tell if a reverse mortgage is not right for you?” is a question I recently received from Stan Cohen of www.MaturityMatters.net. He stated that one of the big issues he hears about is that seniors are afraid that a reverse mortgage may not be right for them. He also stated that he has heard seniors are afraid of outliving their money and being forced from their homes. Additionally he expressed the concerns of being hospital/nursing home bound for over a year and negating their contracts.

Following is my reply to help seniors and their families have a better understanding and overcome their fears of reverse mortgages.

There are a lot of misconceptions about reverse mortgages and I believe this puts the fear into the seniors and their families.

A reverse mortgage is a mortgage just like any mortgage but with special terms for seniors 62 and older. With a reverse mortgage there are no income or credit score qualifications and no monthly mortgage payments. Another difference from a conventional mortgage is the reverse mortgage loan is not due and payable until the home is no longer the primary residence of the borrower or on their 150th birthday.

One can go into the nursing home temporarily as long as the home remains their primary residence and they are returning to the home within a year.

Once a reverse mortgage is in place, even if they use all their funds from the reverse mortgage the borrowers can stay in their home. The advantage is they don’t have mortgage payments to make which takes away the risk of foreclosure from not making a monthly mortgage payment.

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

Some of my blog posts may help you clarify the facts:

“The Misconceptions of Reverse Mortgages Abound… What Do You Know?”

“Beware of Reverse Mortgage Misconceptions – The Fact is Reverse Mortgage Lenders Do NOT Own The Home!”

“Why Are You So Afraid of Reverse Mortgages?“

There isn’t a check list to say when one should or shouldn’t do a reverse mortgage or whether it’s right or not right for them. It’s very personal for everyone.

The first evaluation should be to determine if they qualify, i.e. they are old enough, the property qualifies, and they have enough equity to pay off any current mortgage(s).

Generally we say the reverse mortgage is not right for one who plans on moving in a short period of time. However I have seen where it has been a huge benefit to seniors and their families even when the home is sold in a short period of time after the closing. One needs to be educated on the pros and cons of the reverse mortgage for their situation and then decide if it will meet their needs.

One should work with a reverse mortgage originator who will take time to meet with the borrower and discuss their needs, goals, and situation and help them evaluate whether the reverse mortgage might benefit them or whether another option may better suit their situation. I’ve provided a checklist of questions to ask an originator in my blog article “Don’t Let Fear Keep You From A Reverse Mortgage… But Know What To Look For In A Lender.” On our Reverse Mortgages SIDAC website I have an updated version of this check list at http://rmsidac.com/WhattoConsiderWhenTalkingtoLenders.php.

Another article that may help is: “A Reverse Mortgage…Or? Other Options To Consider.”

I recommend you meet with a local originator rather than working with a lender from another state who just mails you an application package. You’ll receive more personalized service and information. We meet with our Minnesota seniors and usually spend two hours with them explaining the details of reverse mortgages and reviewing their situation along with the pros and cons. This is even before we do an application. The application is done in person, generally at their home, where we spend another hour and a half to two hours.

Do you go to a plumber if you are having health problems? No, you go to a doctor. And you don’t go to a generalist if you have cancer or heart disease, you go to the specialist. The same is true for a reverse mortgage, go to a reverse mortgage specialist/expert to get the facts and options for one’s situation then decide what will best fit your situation.

Hope this information helps you with your decision to explore a reverse mortgage to determine if it might be right for you.

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-p7

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 New Reverse Mortgage Option, The HECM Saver… Is It A Good Option for Seniors?

Posted on January 26, 2011 by Beth Paterson, CRMP

AS OF OCTOBER 1, 2013 THE HECM STANDARD AND HECM SAVER PRODUCTS ARE NO LONGER AVAILABLE.

In 1989 FHA insured the first HUD reverse mortgage known as the Home Equity Conversion Mortgage or HECM. Through the years it has pretty much been the same until October 2010 when HUD introduced the HECM Saver. Before determining if the HECM Saver is a good option one must first have an understanding of reverse mortgages.

A mortgage just like any other mortgage, the reverse mortgage offers special terms for seniors home owners 62 and older. Advantages for seniors are with the reverse mortgage there are no income or credit score requirements and no monthly payment requirements.

The Principal Limit or maximum loan amount is determined by the home value or FHA Lending Limit, the age of the youngest borrower (the older one is the more they can receive), the Expected Interest Rate, and the program chosen. The funds available can be received in a lump sum, monthly payments, or a line of credit. The monthly payments can be structured as one needs or for life as long as the home is the primary residence. Funds in the line of credit grow so more funds can be available in the future.

The borrowers keep the title to the home and are responsible for taxes, insurance, and maintaining the home. Unlike a conventional loan the interest accrues, increasing the balance with no payments due until the home is no longer the primary residence of the borrowers. In addition, the reverse mortgage is a non-recourse loan which means there is no personal liability to the borrowers or their estate for repayment if they or their estate are not retaining ownership. Remaining equity goes to the borrowers or their heirs.

One can have a trust, life estate, or receive Medical Assistance, Elderly Waiver or other public benefits. In the case of a couple even if one of the borrowers goes into the nursing home or passes away, the other one can stay in the home. Not considered income, Social Security and Medicare are not affected.

With no limitations on how the funds can be used, through the years hundreds of thousands of seniors have benefited from the reverse mortgage allowing them to stay in their home and have security, independence and control.

However the closing costs often scare people away. As with a conventional loan, there are traditional closing costs including an origination fee, appraisal, title fees, title insurance and recording fees. With the FHA HECM borrowers also pay a mortgage insurance premium (MIP). Because the fees are upfront, they are often perceived as high.

With the introduction of the Saver, which has all the same features of the original HECM, the upfront FHA Mortgage Insurance Premium is 0.01% compared to 2.00% which helps reduce the upfront closing costs. But it also reduces the Principal Limit available to borrowers.

The HECM Saver could be beneficial to those who don’t want to pay as much in the upfront closing costs but also don’t want to use as much equity from their home. It can be ideal if one plans on moving in a shorter period of time or has a higher home value and wants to preserve more of the equity.

Tim and Mary have a conventional mortgage and they would like to eliminate the mortgage payments. In addition they want to pull out as little of the equity as they can. The HECM Saver is ideal for their situation because there are enough proceeds to pay off their current mortgage and use less of their equity.

Judy considered the HECM Saver but has chosen to go with the HECM Standard adjustable rate because after paying off her current mortgage and some other debts, she will have more funds in a line of credit for future use.

One must always look at their situation to determine which program will work best for their circumstances. A consideration while reviewing the options between a HECM Saver and the HECM Standard (the original program), is whether in a few years one will have used all the proceeds from the HECM Saver and will need more funds. While one can refinance a reverse mortgage when refinancing a mortgage one pays the closing costs again (just as is done with a conventional mortgage) and the first mortgage must be paid off.

Consequently while saving on the upfront MIP with the HECM Saver, if more funds are needed at a future date, it could be more costly when refinancing by paying the closing costs a second time. And one may or may not even qualify to refinance their HECM Saver.

So is the HECM Saver a good option for those seeking a reverse mortgage? It certainly should be an option considered and could be a good option depending on one’s circumstances.

Related articles:

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

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

How Do Reverse Mortgages Compare to Conventional Mortgages?

Posted on September 26, 2010 by Beth Paterson, CRMP

A Reverse Mortgage is similar to a conventional mortgage because it is a lien against the property and the title remains in the name of the borrower. As with the conventional mortgage, the reverse mortgage borrower is responsible for maintaining the property and paying the property taxes and insurance and association dues if applicable.

The costs are also similar to the conventional loan including an appraisal, title insurance, settlement fees, origination fee, and recording fees. Additional costs with the HUD Home Equity Conversion Mortgage (HECM) reverse mortgage are the FHA Mortgage Insurance Premium (MIP) and a monthly service fee. Note that on a conventional loan the servicing fee is included in the interest rate, whereas it is a separate fee with the reverse mortgage. If one is doing a “forward” FHA loan, they too will have the FHA Mortgage Insurance Premium.

To determine the loan amount on a conventional loan, the lender looks at the home value, credit worthiness, income, assets, and other potential risks that may be associated with loan repayment. The reverse mortgage is different because there are no income or credit score qualifications. The age of the borrower(s), the home value, and the expected interest rate are used for determining the loan amount.

With the conventional mortgage one receives a lump sum and has to make monthly payments. With the reverse mortgage one receive cash without making monthly or immediate repayment. Funds can be received in a lump sum, monthly payments, line of credit, or a combination of these.

A loan term or when the loan is to be paid in full is usually set at 15 or 30 years with a conventional mortgage. A reverse mortgage is to be paid in full when the loan is no longer the primary residence of the borrower(s) or on the 150th birthday of the youngest borrower.

As with a conventional mortgage, when the loan is due and payable, the house does not become the property of the lender. The borrower or estate handles the repayment of the loan. When the home is sold with either mortgage the loan is paid off and the remaining equity is the borrower’s or their heirs.

The reverse mortgage is a non-recourse loan which means the loan is paid back based on the fair market value (generally from the sale of the home) with no personal liability to the borrower or the estate .

For seniors 62 and older, the reverse mortgage is generally more advantageous than a conventional loan.

This material my 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-ot

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.

Who Should You Believe About Reverse Mortgages?

Posted on July 31, 2010 by Beth Paterson, CRMP

With the media publishing articles about reverse mortgages by so called reporters and comments by professionals (financial, CPA, attorney), legislators, and the general public, everyone has an opinion about reverse mortgages. The many articles that have surfaced about reverse mortgages including in MSNBC, Time Magazine, Parade Magazine, Consumer Reports, and the National Consumer Law Center Report all provide information trying to give the impression the reporters have done their research.

Unfortunately these so called reporters have NOT done their research and their articles are NOT based on facts of reverse mortgages. They don’t have documentation supporting their statements. If they had done their research and had the documentation to support their statements the articles would read much differently. Consequently the articles misrepresent reverse mortgages and are painting negative images based on the so called reporters’ biased opinions which spread the misconceptions and misunderstandings of reverse mortgages.

Even the articles that outline the facts have comments that reflect ignorance of reverse mortgages. And the sad point is that people are believing these sources who don’t have the facts or take the time to get the facts.

Think about it. Would you go to a plumber for health issues? Of course not! You go to a doctor. And don’t you go to a specialist for the area of your concern, i.e. a heart specialist for heart disease? So why go to the media, professionals, legislators or others instead of going to a reverse mortgage specialist for the facts on reverse mortgages?

Let me share 15 facts about reveres mortgages that are often misunderstood:

A reverse mortgage is a mortgage just like any home equity loan where one uses the equity of the home but it has special terms for seniors 62 and older.
The lender or bank does NOT own the home – YOU OWN THE HOME, you keep the title and are responsible for property taxes and insurance, association dues (if applicable), maintaining the property and abiding by the terms of the loan.
There are no income or credit score requirements to qualify for the FHA Home Equity Conversion Mortgage (HECM). (Some proprietary jumbo reverse mortgages may have credit qualifications.)
No monthly mortgage payments are required.
There is no limitation on how the funds can be used.
Offers more options – Funds can be received in monthly payments structured for life or 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, not considered income.
Medicaid (Medical Assistance (MA) in Minnesota) and other government benefits can still be received with the reverse mortgage.
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. The due date on the mortgage is the youngest borrower’s 150th birthday.
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 lender or bank does NOT keep the difference!
The loan is non-recourse which means there is no personal liability to the borrower or their heirs if they are not retaining ownership. So borrowers or their heirs don’t have to come up with the difference if the loan balance is higher than what the home is be sold for as long as they are not retaining ownership. Borrowers are not leaving a debt to their children.
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.)
Fees are regulated and only HUD allowed fees are permitted with no mark-ups or junk fees. 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. You can see a comparison of the costs in my article, “Reverse Mortgage Costs – High or Mythical?” and “Do You Understand The Reverse Mortgage Closing Costs?”
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. The advantages 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 adjustable rate; 5.56% on the fixed) 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 HECM borrowers are highly protected. See my Blog article “You Need To know Reverse Mortgage Borrowers Are Highly Protected!”

These facts are all supported in the documents signed at application and at closing including the Important Terms and the Loan Agreement. With the reverse mortgage the sample closing documents are required to be provided to borrowers at the time of application so they have the opportunity to review, have their family and/or attorney review the documents before signing. If they read them they will have the facts as outlined above.

One would think it is a simple answer to the question, “Who Should You Believe About Reverse Mortgages?” However seeing the many articles along with the comments it appears people believe the wrong source. So are you going to believe the media and non reverse mortgage professionals about reverse mortgages? I encourage you to get the facts from a reverse mortgage specialist just as you get your health facts from the health care specialist. Then decide if it is right for your situation.

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-n4

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.

My Reverse Mortgage Funds Are Used… Now What?

Posted on July 11, 2010 by Beth Paterson, CRMP

A question on a recent post was “What happens when a borrower uses all the funds or out lives the money? This happened to a woman and then she had to pay rent she didn’t have.”

The first part of the question is common and shows the continued need to clarify the many misconceptions and lack of understanding of reverse mortgages. The second part of the question demonstrates confusion on whether the loan this woman had is a reverse mortgage and/or the misuse of the term “rent.”

A reverse mortgage is a loan, like any other conventional loan or home equity loan, using the equity in one’s home but has special terms for seniors 62 and older. The amount of the loan is determined by the age of the borrower, the home value or FHA lending limit, the Expected Interest Rate, and program chosen. Facts to consider:

Borrowers own the home, no one else does.
Borrowers can stay in their home as long it’s their primary residence. The due date on the reverse mortgage is the borrower’s 150th birthday. In the case of a couple, as long as one of the borrowers remains in the home as their primary residence, the loan can stay in place.
Borrowers don’t have to make monthly mortgage payments.
Borrowers won’t lose their home for the lack of making mortgage payments.
Loan proceeds are not subject to income tax, are government insured and guaranteed to be there for you.
Borrowers or their estate get to keep any remaining equity after the loan is paid off.
As a non-recourse loan there is no personal liability to borrowers or their estate when repaying the loan and borrowers or their estate are not retaining ownership.
There are no income or credit qualifications and generally no out of pocket costs other than the appraisal.

With a “true” reverse mortgage, the most common being insured by FHA’s Housing and Urban Development (HUD), the Home Equity Conversion Mortgage, or HECM, the borrowers can remain in their home as long as the home is their primary residence. Even if one has used all the funds available from the reverse mortgage, the borrowers can stay in the home without having monthly mortgage payments or rent payments. The loan is guaranteed by FHA.

Borrowers have options on receiving their funds which include monthly payments, line of credit, lump sum or a combination of these. When paying off current mortgages, a requirement of the loan, in some situations the reverse mortgage proceeds may be used up front in essence using all the funds right away. This means they can still have the loan without mortgage payments yet improving their cash flow because they don’t have to make mortgage payments.

The borrower’s responsibilities include paying property taxes, keeping home owner’s/hazard insurance on the property as well as maintaining the property. If a borrower does not pay their taxes and insurance the loan becomes due and payable.

In the question above, to assist borrowers, and not call the loan due, if there are no funds left from the reverse mortgage, the lender may have paid the taxes and insurance and then required the borrower make payments to cover the taxes and insurance. This is NOT rent but a repayment because in essence the lender is loaning more money beyond the terms of the reverse mortgage loan.

Previously lenders may have paid on the borrowers’ behalf the taxes and insurance such as this but that is about to change, see my blog article regarding this, “Reverse Mortgage Borrowers’ Responsibilities… Or Consequences.”

If rent is being required on the “reverse mortgage” as suggested in the question, I’m guessing it is not a reverse mortgage insured by HUD or a proprietary (private) reverse mortgage offered by the FHA lenders which are modeled after the HECM.

It may have been a loan set up by a bank or another lender or through a private person/family member calling it a reverse mortgage but not having the same terms as a true reverse mortgage insured by HUD or by a proprietary program modeled after the HECM that doesn’t require payments and is non-recourse.

Note that the HECM and these proprietary reverse mortgages offer more protections than any other type of financing including require counseling by third-party HUD approved counselors.

Or it may have been someone who purchased the home and set up terms to have the woman stay in the home with a lease back and when funds from the sale ran out she had to pay rent.

I’ve also received the question about someone taking out a “reverse mortgage” and having to make interest payments. Again this would not be a HECM or proprietary program offered by FHA HUD approved lenders who’s programs don’t require payments and are non-recourse.

If one is having to pay rent or make any other form of mortgage payment it is not a true reverse mortgage. I suggested to the questioner to review the loan documents to determine what are the actual terms of that loan.

This leads to the conclusion that one should work with a lender who specialized in the HUD Home Equity Conversion Mortgage, is familiar with and takes the time to explain the terms of the loan, as well as follows HUD’s requirements including the requirement of the HUD approved counseling. A list of things to consider when talking with lenders can be found by clicking here. Borrowers should not sign documents without understanding the terms of the loan and consequences if the terms are not abided by.

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-mD

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 Equal Independence For Seniors

Posted on July 2, 2010 by Beth Paterson, CRMP

As we look to celebrating the independence of our county let’s also look at how our seniors can celebrate their own independence. Defined as “sufficient income for comfortable self-support; a competence” at dictionary.com, independence is important to seniors.

When we talk with our clients we hear they want to be able to enjoy their retirement and maintain their lifestyle which includes having their independence. So how can they do this if they are living off their Social Security and if they have retirement investments but they have dropped in value?

Even though as one ages some help may be needed, they can still maintain their independence. A reverse mortgage can help provide this independence. After Edna did her reverse mortgage she said, “Now I have my dignity back and my independence.”

Some instances where the reverse mortgage can help one remain independent include having 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 they desire.

Or if one needs more help to remain in their home they would have the funds to pay for the assistance from a home care agency to do so. While some additional assistance may be needed seniors can still have a sense of independence if they have the funds to get the additional help and choose the agency they wish.

Seniors have sometimes used their credit cards to fund their lifestyle or pay their bills, others have used a conventional home equity mortgage or a line of credit. And others look for additional cash by applying for a conventional home equity mortgage but don’t qualify.

The reverse mortgage can benefit here too. Interest rates on credit cards are high. Having the reverse mortgage can reduce their dependence on their credit cards. They usually don’t qualify for a conventional mortgage with today’s lending requirements especially since their only income is Social Security. Even if they do qualify or currently have a home equity mortgage or line of credit, they have to make payments which can be difficult on a fixed income or when “life happens.”

Another Minnesota reverse mortgage borrower 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.”

A reverse mortgage is a mortgage with special terms for senior home owners 62 and older to allow them to remain in their home. The loan amount is determined by the appraised home value (or FHA lending limit), the age of the borrower, and an Expected Interest Rate. Let’s review the facts of reverse mortgages:

The title stays in the borrower’s name same as with any mortgage. The borrower owns the home, no one else does.
Income and credit scores are not required for the HUD insured Home Equity Conversion Mortgage or HECM, the most common reverse mortgage.
The borrower may be able to stay in their home as long as it’s their primary residence or until their 150^th birthday.
Lower interest rates than other loans – historically the reverse mortgage interest rates have been lower than conventional loans, lines of credit and credit cards.
A borrower won’t lose their home because they can’t make a mortgage payment – they don’t have to make monthly payments. They are however, as with any loan, responsible for taxes, insurance and maintaining the property and abiding by the terms of the loan agreement.
The reverse mortgage funds are generally considered tax-free (although if proceeds are used for certain purposes taxes may apply – consult with a tax advisor).
The proceeds are not considered income so Social Security and Medicare are not impacted and one may still be able to receive Medicaid.
The HECM is government insured and guaranteed to be available for borrowers.
Allows access to more funds without paying additional closing costs – there is a growth rate with the line of credit and monthly payment options with the adjustable interest rate program.
There are no out of pocket costs other than the cost of the appraisal.
There are no prepayment penalties.
Borrowers or their heirs get to keep any remaining equity after the loan is paid off.
The loan is non-recourse which means there is no personal liability to the borrower or their estate as long as they are retaining ownership.

Paying off a mortgage on her home, Judy stated, “I truly believe in reverse mortgages, especially for someone like me with a limited income. I received enough from the reverse mortgage to pay off some other bills and still had a little to put into a “line of credit” account. Some of the bills I am paying are credit card debts which have a very high interest rate. It’s a good feeling to be able to do that. It makes bill paying each month less stressful.” Now this is senior independence.

Have a wonderful time celebrating the independence we have in this wonderful country of ours. And keep in mind that a reverse mortgage equals independence for seniors.

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

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

Reverse Mortgage Borrowers’ Responsibilities… or Consequences

Posted on June 27, 2010 by Beth Paterson, CRMP

When loan documents are signed at closing, borrowers agree to the terms of the loan, whether a conventional loan for purchase; a conventional home equity mortgage; or a Home Equity Conversion Mortgage (HECM), the reverse mortgage insured by HUD; or a proprietary (private) reverse mortgage. As with any home loan, with the reverse mortgage borrowers are using the equity in their home and the title of the home remains in the borrower’s name, no the bank doesn’t own the home, nor do they want the home.

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

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

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

Keeping hazard insurance on the property helps protect the homeowner and lender if there is any damage to the property. Being the lenders are invested in the property by lending money based on the home equity, they require the insurance so their investment is protected if there is damage. For example if a tree falls on the home and damages the roof, the hazard insurance will cover the replacement of the roof and bring the home back to the condition required for lender’s investment.

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

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

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

Changing or transferring titles will mean the loan becomes due and payable. For example if one decides to add a person to the title of the property, implement a Life Estate, or sell the property this changes who the lender’s have invested their interests. If the property is going to be put in a trust it will not mean the loan will be come due and payable however the lender will need to review the trust to ensure that it meets the requirements of their investors and in the case of the HUD insured HECM, the trust must meet HUD’s guidelines.

The area that has caused the biggest problem is when borrowers don’t pay their the property taxes and hazard insurance. Even though there are a large number of borrowers who have fall into this area, to date there have been very few reverse mortgages foreclosed because of the default of payment for taxes and insurance. HUD has been very forgiving and not pressuring the servicing companies to foreclose, however this is about to change.

Due to FHA’s budget, the arm of Housing and Urban Development (HUD) who insures the majority of reverse mortgages, is looking to find a solution to their budget shortfalls and make the program profitable. Fannie Mae who has a large portfolio of the HUD reverse mortgages is also encouraging the HECM servicers to address the issue of delinquent taxes and insurance to protect their company from losses.

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

Being reverse mortgage borrowers are not making payments collecting funds for the escrow account is not an option. What the servicing companies have done if there is a line of credit is use these funds to pay the taxes. If a reveres mortgage borrower is receiving monthly payments, they will be restructured so that the taxes and insurance can be paid. Unfortunately if all the funds have been used and taxes and insurance have not been paid the loan is in default.

HUD is working toward establishing guidance for the reverse mortgage servicing companies to address the tax and insurance delinquencies. But if the borrowers do not have the capacity to pay the taxes and insurances they owe, the servicer will be forced to foreclose on the property per HUD’s requirements. (Note that reverse mortgage servicing companies are required to abide by HUD’s requirements.)

Having reverse mortgage terms and responsibilities explained

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

Related articles on Reverse Mortgages in Minnestoa:

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.

At The Eleventh Hour… Reverse Mortgage Used To Save MN Senior’s Home

Posted on June 20, 2010 by Beth Paterson, CRMP

The call came it at 5:00 p.m. on a Wednesday afternoon, “We’re in foreclosure, the redemption period ends in three weeks. We need a reverse mortgage.” Ken and Mary, in their 60’s, were in a tight spot and about to lose their home if we couldn’t get the reverse mortgage application taken, processed, closed and funded within the three weeks to the date of the late afternoon phone call. There were no exceptions to getting an extension of the redemption period.

Being from a smaller town, they hadn’t heard about reverse mortgages previously until they were visiting relatives in another state and heard them advertised. When back in Minnesota they looked up reverse mortgages and found their way to us. After an initial two-hour conversation explaining the details and terms of the HUD insured Home Equity Conversion Mortgage (or HECM) they decided to proceed knowing their only option to save their home was the reverse mortgage… they had already checked out other options with no success.

The first thing needed was their HUD required reverse mortgage counseling. Fortunately they were able to receive the counseling the next day. Once we received the counseling certificate with their signatures, on Friday, the following day, the application was taken and then the processing began. FHA Case number was assigned, title work ordered, appraisal order placed, credit report and flood certification obtained.

Then the surprises arrived. First was a lien from Veterans Affairs that would need to be paid. The credit report showed a judgment from a credit card debt that was also required to be paid. Then the appraised value came in less than expected. And the appraiser stated the roof needed repair along with another small repair. This meant that the Ken and Mary would need to get contractor bids for the required repairs.

These factors meant a difference in the amount of reverse mortgage funds that would be available. When the calculations were run, in order to pay off the mortgage in foreclosure, the VA lien, the judgment, and set aside funds for the repairs, Ken and Mary needed to bring money to the closing or lose their home.

HUD does not allow extra funds to be borrowed, funds need to be from the borrower’s own resources or a gift. This caused an additional obstacle: they had to come up with the extra money.

Determined to save their home from the foreclosure Ken and Mary worked and addressed all the issues that they faced. Fortunately they received the gift of funds, provided the necessary gift letter and documentation. The contractor’s bids were submitted to us and title work and payoff statements received.

Not an easy task with all the obstacles that popped up along with two weekends and a holiday falling during this time frame. However with lots of phone calls, explanations, guidance, and scrambling to pull everything together, the file was processed and submitted to underwriting, just 12 days after the application, 14 days after the initial phone call.

Two days later the file was underwritten, conditions received, addressed and then cleared. This was on the last day for the file to be closed in order to allow the 3-day rescission period before funding on the last day of the redemption period. The closing department rushed to get the closing package assembled and sent to the title company in time for the Friday afternoon closing.

The following Wednesday, just 3 weeks after that 5:00 p.m. phone call and on the last day for Ken and Mary to redeem their home from foreclosure, the reverse mortgage was funded. The title company representative drove to the county sheriff’s office to personally deliver the payment. Whew, just in time.

With sighs of relief, Ken and Mary are able to stay in the home that they had built and lived in since 1972.

It took a team of many who cared enough to rush things through to save this home from foreclosure. Besides our originator and processor, this included the counselor, the title company, the appraisal management company and appraiser, the lender’s processors, underwriter, closing and funding departments. How rewarding this is for all of us!

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 Minnesota Reverse Mortgage Borrower Speaks Out On The Benefits With Her Reverse Mortgage

Posted on June 12, 2010 by Beth Paterson, CRMP

“I’m a happy consumer of reverse mortgages. I feel that it’s had an unjustly bad name in the past, at least I’ve heard under currents of ‘oh, you wouldn’t like that.’ Well let’s get at this logically. I’ve had a good experience with it and I like Beth’s approach. So I wanted to share my experience and what had changed in my life.

“Life was happy and good with a family and a career. I was all happy and good with the insurance that goes with a nice job. When retirement time came I had a fair pension and that with Social Security were going to see me through things.

“But that didn’t match my goals. I wanted to travel more when I was retired and visit my now expanded family and I was getting charges of $400 – $500 for tickets 2-3 times a year plus indebtedness for rewiring in the house, I wanted to remodel things and was running across some fascinating new hobbies. So I wanted to have new hobbies and travel. And do what was the healthiest thing I could think of on earth which was having a very right good time now and let the future take care of itself if I took care.

“So that led me to talk to some friends when I was running low on funds. Several people referred to the fact that Beth Paterson was quoted on reverse mortgages. To be quoted was quite a credential. I had a meeting with Beth. I was 73 at the time. I was undecided at the time so I waited. Time changed and I still had a lot of ambition and 75 came along and I wanted some improvements in my home and I was confidently that I could likely spend 10 or more years happily in my home if I had home health care. That is a big deal to know when you are 70 something to know that if you fall and need some months of assistance.

“When I talked with Beth the 2nd time it all came together. I was very happy with the amount of care she spent with me. My family was able to call her and get answers to our questions and they were pretty astute questions. Beth took the time to answer every one of them. I had shopped around and I stayed with Beth.

“My life changed from uncertainty on how I was going to pay my electrical bills, and whether I could even stay in this community or whether I needed to move to assisted living which meant moving. That wasn’t the preferred path. I was sure I could stay in my home. I was sure I could get the reverse mortgage loan. And now I was able to get a nice low rate.

“I immediately found that I could get relief from my old small mortgage. [The reverse mortgage needs to be in first lien position which means any current mortgages or liens need to be paid off. This eliminates mortgage payments because there are no payments required on the reverse mortgage. Borrowers are responsible for property taxes and hazard insurance.] The relief was so great that I could now stop worrying about how I could pay this within my income. So I left my Line Of Credit alone – didn’t use it – just the relief for paying off the old mortgage and the old debts and some ability to understand my budget and handle it better.

“Now I have my dignity back and my independence. And my children are heaving sighs of relief because they aren’t worried about me any more – I’ve answered some of their questions: where I do I want to be cared for as I age. They aren’t going to be blind-sided.

“I was very pleased with what happened.”

Edna, who took out her Home Equity Conversion Mortgage (HECM) in 2008, shared this story during a presentation where she joined me recently at a Minnesota senior resource fair workshop.

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.

Using The Reverse Mortgage As A Tool To Strategically Manage One’s Assets

Posted on June 6, 2010 by Beth Paterson, CRMP

Dorothy closed on her Home Equity Conversion Mortgage (HECM) reverse mortgage in 2006. Now four years later during a presentation where she joined me at a Minnesota senior resource fair workshop , she shared how the reverse mortgage has been a tool to strategically manage her assets and the benefits she has received from her reverse mortgage. Here’s what she had to say.

“I have a single family residence and have lived there for many years and working and wasn’t looking too much to the future. I ‘knew’ Social Security was going to take care of me… my mother had gotten by on it and I figured I would too.

“I had worked part time as a travel escort and the travel bug had bitten me through the years. I retired at 65. While the career line I had allowed me to take extra vacation time to escort tours what it didn’t do was provide a pension. So I had no hospitalization or a pension when I retired. I didn’t face those facts right away. I had invested and purchased stocks over the years in modest amounts. I figured that would be my answer to any and everything. When I wanted to travel I just cashed in part of a stock and I took off and did some great fun things.

“However we know the stock market took a plunge a couple of times and what I had was back down to half or less than what I had built up. Also I was having to use this in addition to my Social Security income. Fortunately I was able to have paid off my mortgage by the time I retired so I didn’t have those payments. I thought it would be easy street.

“I had a house paid for and was able to get a line of credit from the bank. Anything I wanted to do I would I just borrow the money on the line of credit. After that climbed I would cash some stock in to pay the line of credit.

“Pretty soon I needed a car. I took out a loan on the car. Those payments got kind of high. Pretty soon I’m paying the line of credit and the car payment. And I was using up my stock portfolio. I was owing more to the bank than I had stock to pay off all this line of credit. The stock broker I was talking with said, you have your house paid for, the best thing I could do would be to get a reverse mortgage.

“Luckily I was able to meet up with Beth Paterson. We talked so I would understand the program. The man I had worked for was a very astute business man and had run a mortgage company. So I took the information to him and asked if there was anything that looked doubtful to him; is there anything that I don’t see or is this something I should do? He said, ‘It’s the best thing in the world for you. I can’t advise you to do anything better for you.’

“I have my reverse mortgage. I decided that as long as I was getting my Social Security and didn’t have to touch my stock, I wanted a reverse mortgage line of credit. I didn’t want a lump sum. My reverse mortgage line of credit would grow at nice increments – it was growing faster than my stock portfolio was growing. [The reverse mortgage line of credit grows at .5% more than the interest on the loan. For example if the interest on the loan is 2.5% the growth rate is 3% on funds left in the line of credit.]

“I also decided to take a minimal monthly payment. Now I’m going to get that payment until I’m 150. I’m going to be 83 this year and I’ve got my mind set that I’m going to live to 150 so that I can get that last dollar from HUD that I’m helping to pay into on this insurance program. [Note the due date listed on the reverse mortgage recorded at the county is the 150th birth date of the youngest borrower.]

“The reverse mortgage has given me a great feeling of security. Because if I want to take a trip I just send a fax in and request the amount of money I want. I don’t have to touch my stock. My line of credit is going up every month as long as there are funds there. It’s much better than CDs.

“I’ve done home repairs, this winter I had to replace my car and it turned out I couldn’t use my driveway so I’ve taken some funds to get my driveway repaired. My yard needed some attention that I had overlooked because I didn’t want to spend the money. So I’ve taken some funds for that too. I still have a nice sum in my line of credit and I haven’t had to use my stock.

“I watch the market go up and down and it’s not life and death like it had been before when I knew I just had that stock and when it was gone then what would I do.

“It’s worked wonders for me. I’ve been able to take trips with the money, repair my house, re-roof it, and do this and that. It’s given me ease of mind and it’s certainly helped my kids because at one point I think they thought they would have to help me financially and they weren’t looking forward to that. Now that worry is off their mind. So as long as I can, I will stay in my home, and that’s what I plan to do.”

This is one example of how a reverse mortgage has made a positive difference in the life of a senior and allowed her to strategically manage her assets during her retirement years.

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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