Tag Archives: Good Faith Estimate

What do reverse mortgage originators do to earn their money?

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

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

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

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

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

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

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

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

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

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

 

Related Articles:

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

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

Surprise! Reverse Mortgage Closing Costs Actually Compare to Conventional Mortgage Costs

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Reverse Mortgage Closing Costs Compare to Conventional MortgageIt 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.  Keep in mind that there has to be a cost involved because everyone in the transaction needs to be paid for their services.  If the costs on a mortgage aren’t paid up-front then they’ll be paid over time with a higher interest.  Look at an estimated comparison based on a Minnesota home valued at $200,000:

Third Party Fees Reverse FHA Forward Forward FHA
Appraisal $500 $450 $500
Credit Report $25 $25* $25
Flood Certification $10 $10* $10
Courier Fee* $35 $35* $35
Escrow, Settlement, or Closing $275 $275 $275
Abstract or Title Search $110 $110 $110
Title Exam $110 $110 $110
Document Preparation $125 $125* $125
Title Insurance $475 $392 $392
Endorsements $50 $50* $50
Recording Fees $92 $46* $92
County/Mortgage Registration Tax $295 $384 $384
Plat Drawing $60 $60 $60
Name Search $35 $35 $35
Special Assessment Search $35 $35 $35
Counseling Fee $125 N/A N/A
TOTAL THIRD PARTY FEES $2,357 $2,142 $2,238

* These fees are included in the Qualified Mortgage (QM) Rule; included in as part of the “Closing Costs” under Lender Fees.

Now let’s compare the Lender Fees:

FHA’s Mortgage Insurance Premium (MIP) is paid directly to FHA.  The FHA reverse mortgage includes a .5% or a  2.5% initial mortgage insurance premium, determined by the funds being drawn in the first twelve months.  The advantages with FHA insuring the reverse mortgage include:

  • Guaranteeing the funds are available for you during the term of the loan.
  • Guaranteeing the reverse mortgage lender against default or shortfalls means the interest rates are lower compared to other mortgages for the benefits one receives with the reverse mortgage.
  • Providing a line of credit growth rate (available only with reverse mortgages).
  • As a reverse mortgage it is a non-recourse (no personal liability) loan; the FHA MIP will cover the difference to the lender rather than the borrowers or their heirs having to come up with the difference

The origination fee is what the originating lender receives to cover the loan officer’s compensation, overhead to run the business, i.e. staff salaries, administration costs, computers, electricity, office supplies, marketing expense, gas mileage, health insurance of employees, etc..  The origination fee also includes the processing and underwriting costs which are generally separate and charged to the borrower on forward loans.  HUD regulates the reverse mortgage origination fee to be 2% of the 1st $200,000; 1% thereafter with a cap of $6,000.  With a minimum of $2,500.

In some situations the lender will offer no or a reduced origination fee however the interest rate will be higher than if one pays the origination fee.

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.  One is essentially borrowing the interest and mortgage insurance premium each month because they are not making a payment.  And as one draws from their line of credit or through monthly payments the loan balance will increase making the loan amount higher.

An estimate based on a $200,000 home value (based on loan amount at 80% for the Forward loans):

LENDER FEES REVERSE FHA FORWARD FORWARD FHA
Origination/Points $4,000 $4,800* $1,600
MIP $1,000** $0*** $2,800
Administration Fees $0 $900* $900
SUBTOTAL LENDER FEES $5,000 $4,800 $5,300
Prepaid Interest**** N/A $375 $375
TOTAL LENDER FEES $5,000 $5,175 $5,675

*QM Rule closing costs cannot exceed 3% of the loan amount.  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.
** Based on .5% – taking 60% or less within the 1st 12 months.
*** Conventional loans may have a Private Mortgage Insurance fee.
**** Forward loans have up-front prepaid interest due for remaining days in the month of closing; this is an example amount.  Funds will also be needed up-front to set up escrow.

TOTAL LOAN FEES REVERSE FHA FORWARD FORWARD FHA
$7,357 $7,026 $7,913

NOTE THE DIFFERENCE IS BASICALLY THE FHA MORTGAGE PREMIUM!  Refer to above comments on the benefits of FHA insuring the reverse mortgage.

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 for reverse mortgages and forward mortgages must be disclosed on the Good Faith Estimate (GFE).

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.

Whereas with the reverse mortgage you pay the closing costs up-front 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.

Consider the benefits of the reverse mortgage which include:

  • No monthly mortgage payments, therefore increase your cash flow.
  • With no monthly mortgage payments required the risk of default due to not being able to make monthly mortgage payments is reduced.  (Borrowers are still required to pay property taxes, keep hazard insurance on and maintain the property and pay home owners association dues if applicable.)
  • A line of credit option which has a growth rate making more funds available to you in the future, no other mortgage offers this.  Or you can use the funds to receive monthly payments either as tenure (life of the loan) or an amount set by you.
  • Non-recourse, no personal liability to you or your heirs.

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

Comparison of fees first published 2009; Updated 2014; updated 12/3/2014
© 2009-2014 Beth Paterson, Beth’s Reverse Mortgage Blog,  651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-Z3

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.

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

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Compare Closing Costs for Refinancing Your Home - A Reverse or Conventional MortgageIt 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 1st $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

© 2011-2012 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-t4

Related articles:

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

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

Reverse Mortgages Are Expensive… Compared To What?

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Reverse Mortgages Expensive - Compared to what?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 150th 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 1st $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?

© 2011 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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


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.

Do You Understand The Reverse Mortgage Closing Costs?

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Signing Reverse Mortgage ApplicationAs with a conventional mortgage, there are costs associated with a reverse mortgage.  While perceived as high, once understood you’ll see the reverse mortgage costs are comparable to a conventional loan.  Most people don’t understand the fees, what they cover or why they have to be paid with a conventional loan either, they just accept them as part of doing a loan.

One difference is that with the HUD insured reverse mortgage, the Home Equity Conversion Mortgage (HECM), HUD regulates the fees and does not allow marked up or “junk fees,” borrowers only pay the actual costs.

To get clear, let’s understand what the Minnesota fees are and what they cover.

Fee Explanation Cost/Charge
Origination Fee Covers the lender’s time and costs associated with originating the loan including: loan officer’s and staff’s salary, administrative costs, business overhead (computers, office space, utilities, health insurance, office supplies, marketing, processing, underwriting, etc.)  (Note processing and underwriting fees are generally additional fees on conventional loans but have to be included in the origination fee on FHA reverse mortgages loans.) HUD sets guidelines for the origination fee: Maximum of 2% of the first $200,000 of the home value or lending limit, 1% on the balance thereafter with a cap of $6,000 or a minimum of $2,500.
FHA Mortgage Insurance Premium A required charge from FHA because they are insuring the loan.  Keeps the interest rate lower, allows more to be borrowed, guarantee funds are available, and covers risk so borrower or heirs are not personally liable. 2% of the property value or mortgage lending limit, whichever is less.
Appraisal Fee for FHA licensed appraiser to determine the market value of the property.  Includes a management fee for an independent company to order the appraisal. $450 – $500
Repair Administration Fee All loans with repairs are charged an administration fee for overseeing that the repairs are completed, ordering inspection, processing payments, etc. 1.5% of the repair bid
Credit Report Fee This is to check if there are any liens or judgements against the property or person that would need to be paid or other contradictory information. $18 – $20
Flood Certification Fee For verifying whether flood insurance is required or not. $15 – $20
Courier Fee To send pay offs to a current lender if there are any. Approximately $30 each
Counseling by Third-party HUD approved counselor A fee may be charged to the borrower for counseling services as long as it does not create a hardship.  The counselors must make a determination about the borrowers ability to pay which may include factors such as income and debt obligations – HUD recommends a written procedure for this.  Counselors must inform borrowers of the fee structure in advance of services and cannot be turned away, nor the counseling certificate be withheld based on failure to pay.  The Counseling fee may become part of the costs at closing. Up to $125 allowed by HUD
Document Preparation Fee Charge for preparing the loan documents for closing.  A specialized company prepares the loan package. $100-$125
Escrow, Settlement or Closing Fee Charged by the title company for handling the title work and closing of the loan.- – – – – – – – – – – – – – – – – – – – – – – – – – – – – -Sometimes there is an additional signing/notary fee or an additional fee for going to a borrower’s home. Generally $250 – $350- – – – – – – – – – – – – – – $125-$200 signing/ notary fee
Abstract or Title Search This charge is for searching the county records. $150-$185
Title Examination This is for the examiner to review the title and put the commitment together. $135-$150
Title Insurance Title company’s insurance on the property guaranteeing clear ownership and protect lender if there is a defect in the title.  Different than owner’s title insurance policy. Based on property value.
Recording Fees Fees for recording documents with the county such as mortgage, deeds, county taxes, bankruptcy, name change due to divorce or loss of spouse $46 each + a $5 conservation fee
County Tax Mortgage Registration Tax required in Minnesota and collected by the county. Based on Principal Limit
Survey/Plat Drawing; Name & Assessment Search Fee for obtaining and reviewing the plat drawing; Fee for searching names and assessments on title $60; $30; $30 = $120 combined (higher for some counties)
Fees Paid by Lender to Broker such as Yield Spread Premium; Service Release Premium; Lender Paid Broker Compensation Brokers/originating lenders are paid in two ways, one by you (the origination fee) the other by the lenders.  Lenders pay brokers/originating lenders compensation for submitting loans to their company.  This compensation also covers the broker’s/originating lender’s time and costs associated with their running their business.It does need to be disclosed on the Good Faith Estimate.  Note that federally chartered banks do not have to disclose this information to borrowers even though the same compensation is paid. This is NOT A BORROWER EXPENSE!To disclose this to you, on the GFE it will be shown as a fee then credited back so it is not actually charged to you.

As the RESPA (Real Estate Settlement and Procedures Act) changes effective January 1, 2010 a Good Faith Estimate (GFE) can ONLY be provided with an actual application.  It is no longer allowed for the informational or quote package to include a GFE.

  • Information (in addition to the name, birthday, property information, current loan details,) that will trigger the application include the Social Security Number, Monthly Income, assets, debts, any other pertinent information.  This information should NOT be provided until lender is chosen and ready to proceed with an application.  Once lenders have this information they may start processing the loan.

Note that the fees, other than the Appraisal and possibly the counseling fee, are wrapped into the loan so there are no other out of pocket costs.

Being clear and having an understanding of the reverse mortgage costs helps you make better decisions and takes the fear away from the reverse mortgage.

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

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

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.

Does Elimination of the Origination Fee Really Benefit Seniors and The Reverse Mortgage Industry?

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Reverse Mortgage Broker has Business ExpensesJust like any business, mortgage brokers have expenses to run their business.  For reverse mortgage brokers, we have to cover the loan officer’s and staff salaries, administrative costs, business overhead including computers, office space, utilities, taxes, health insurance, marketing expenses, processing, underwriting, etc.  (Note that processing and underwriting fees are generally additional fees on conventional loans but have to be included in the origination fee on FHA reverse mortgage loans.)

HUD regulates the fees that can be charged on the reverse mortgage including the origination fee. The guidelines are 2% on the first $200,000, 1% on the balance thereafter with a maximum of $6,000 and a minimum of $2,500.

For many years the origination fee was the only way reverse mortgage brokers received funds to cover their business expenses.  In the last few years lenders started offering reverse mortgage brokers a Yield Spread Premium (YSP) or broker compensation, the fee lenders pay brokers/originating lenders for submitting loans to their company.  Forward or conventional brokers have historically received the YSP.

On the Good Faith Estimate (GFE) all the fees need to be disclosed including the origination fee and the YSP.  However mortgage brokers are not on the same page as the FDIC banks because the FDIC banks do not have to disclose the YSP on the GFE even though they are receiving the same compensation.

When borrowers are comparing fees between a mortgage broker and the FDIC banks, it looks like the FDIC banks are offering a better deal even though the compensation is the same.  This confuses borrowers.

The mortgage brokers offer more personal service than the large FDIC banks.  The large bank lenders often mail the application package and all the details are not even discussed with the senior borrowers.  After the loan is closed seniors often have questions but when they have done their loan with the large banks, they can’t get the answers they need or want.  We as reverse mortgage brokers often receive calls from borrowers who did their reverse mortgage with the large bank asking for explanations stating that they can’t reach their original loan officer and the bank’s customer service won’t/can’t answer their questions.

Mortgage brokers have the option of working with many lenders which means they have more options to offer our senior clients rather than just offering the bank’s options.  Knowledge, experience, and customer service have a high value – it’s not always just about price.  Don’t you consider quality and service when you are purchasing any product?

Recently lenders have been offering an option of ‘no origination fee’ on the HECM fixed rate reverse mortgage program.  This sounds good on the surface but let’s look at the real implications.

Origination fees are the norm on forward loans.  Borrowers are used to having to pay an origination fee to lenders.  I have found that when the purpose of the origination fee and what it covers is explained to borrowers, they accept that we need to be paid for our services. In fact, at the application or at the closing they often want to ensure that I am being paid and don’t question the amount of the origination fee.  It is a matter of communication so borrowers understand the fees and what they cover.

The ‘no origination fee’ is only available on the HECM fixed rate not on the adjustable rate program.  With the reverse mortgage, the adjustable rate may often be the best option for a senior.  To understand the differences between these options read “Which Is Best… A Fixed Rate or Adjustable Rate Reverse Mortgage?”  So borrowers, if shown a comparison of fees between the fixed rate and the adjustable rate may choose the fixed rate ‘no origination fee’ even though the option may not be the best decision for their circumstances.  Or they will question why they have to pay the origination fee on the HECM adjustable rate but not the HECM fixed rate.  Or will seniors think that loan officers are hiding something because of the differences.  In any case they are likely to be more confused.

The fixed rate reverse mortgage offers a much higher YSP than the adjustable rate.  I have heard of some reverse mortgage loan officers pushing borrowers into the fixed rate so they can receive a higher commission/YSP.  The ‘no origination fee’ option may have the same affect, loan officers pushing the fixed rate over the adjustable rate even though the adjustable rate may be the best option for a senior’s situation.

Generally the YSP is lower when the full HUD allowable origination fee is charged.  Although at this time the secondary market is favorable so lenders can pay a higher YSP to the brokers meaning brokers will be compensated even if they offer no origination fees.  However, this is only temporary and as we have seen in the past, this can change rather quickly.  This could mean that if an origination fee was not initially quoted on the GFE, brokers are at risk of not being compensated through an origination or through the YSP.  Where does this leave the reverse mortgage industry and/or the seniors?

Besides the ‘origination fee’ or ‘no origination fee’ being confusing to borrowers this could impact the service seniors receive. Additionally, borrowers will come to expect the ‘no origination fee’ option even when the market changes and doesn’t allow for the higher YSP/’no origination fee’ option.

There is talk of outlawing the YSP and actually this has already been done in some states.  With no origination fee when the YSP goes away it could leave the brokers broke and out of business, only leaving the FDIC banks to control and/or offer the loans.  Is this really the best for the reverse mortgage industry and/or the seniors?

Reverse Mortgage Percent RateI believe the industry will be better served if the closing cost structure is left the same and the favorable secondary market is passed along to borrowers with a lower interest rate.  While I understand the borrower won’t receive the benefit up front, in the long term they will receive savings through a lower interest rate.  This is will keep things simpler, less complicated and less confusing.

Are we in the reverse mortgage industry devaluing our worth with borrowers not paying an origination fee? I believe in general people recognize that they have to pay for products and services.  The quote, “There’s no free lunch” comes to mind and I don’t think borrowers expect a free lunch to get a reverse mortgage.  As I stated earlier, I have found once the details and reason of the origination fee has been explained borrowers accept it.  We don’t need to devalue the services we provide by not having borrowers pay the origination fee.

Seniors and their families can already be confused by the details of the reverse mortgage especially when the program has not been explained to them in detail.  In the future the confusion will increase.  When borrowers who did a reverse mortgage with no origination fee tell their friends that they didn’t pay an origination fee, the new reverse borrower who will have to pay the origination fee due to market circumstances and/or the outlawing of the YSP, will likely not understand why they have to pay the origination fee.

Reverse mortgage borrowers are required to receive independent counseling.  The counselors are to explain the details of the loan and the HUD allowable fees.  Counselors are not to steer to lenders.  However if the counselors don’t understand the secondary market (and my experience with the counselors says they don’t understand this aspect of the loans) in their explanation of fees they could be adding to the confusion of the seniors as well as they will be steering borrowers to lenders who don’t charge the origination fee.

While in the short run the ‘no origination’ fee may look like it’s good for the industry, all of the changes that are happening are adding to the fear of reverse mortgages and the stalemate of the industry.   The ‘no origination fee’ is just one more change contributing to this. When seniors are too afraid to do the reverse mortgage that could benefit them, it is not good for seniors and not good for the reverse mortgage industry.

And as we have seen in the past with the one-percent margin, what looks good today can turn out to be a disaster tomorrow both to the reverse mortgage industry and to the seniors themselves.

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

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

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.

You Need To Know Reverse Mortgage Borrowers Are Highly Protected!

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Reverse Mortgage Documents Have ProtecctionsLegislators, media, some senior advocate groups, and even the general public miss the point that reverse mortgage borrowers are already highly protected.  With more protections than with any other loan or financial decision seniors make they still feel more protections are needed.  Currently the only reverse mortgage is the Home Equity Conversion Mortgage (HECM) which is insured by HUD.  HUD has guidelines and requirements to protect seniors.  Even when there were proprietary (private) reverse mortgage products, they followed HUD’s guidelines.  While there are protections, seniors still have the right to make their own decisions, for better or worse.   Let’s discuss these protections.

  • Third-party counseling is required on all reverse mortgages.  Counseling is absolutely mandated with no exceptions and is provided by HUD trained and approved counselors.  During the counseling sessions the counselors are required to follow a protocol approved by HUD.  Evolving over time, HUD’s counseling guidelines and regulations now require distance between the counselors and lenders.  Lenders are required to provide borrowers with a list of 5 local and 5 national counselors without steering borrowers to any specific counselor.  Additionally, counselors are restricted from steering to lenders.
    • The counselor’s role is to educate about reverse mortgages, explain the allowable fees, and terms of the loan so potential borrowers have an understanding of the reverse mortgage.  They also provide other potential options.  They counselors are not to make a decision for the borrower on whether they should or should not do the reverse mortgage.
  • Cross-selling is prohibited.  Mortgagee Letter 2008-24 (HUD’s guidelines and requirements) states that a “HECM mortgage originator or any other party that participates in the origination of a FHA insured HECM mortgage shall not participate in, or be associated with, or employ any party that participates in or is associated with, any other financial or insurance activity.”  Additionally if a lender or bank has financial departments they must demonstrate to the Secretary of HUD that they have and maintain “firewalls and other safeguards designed to ensure that (i) individuals participating in the origination of a HECM mortgage have no involvement with, or incentive to provide the mortgagor with, any other financial or insurance product; and (ii) the mortgagor shall not be required, directly or indirectly, as a condition of obtaining a mortgage under this section, to purchase any other financial or insurance product.”
    • Lenders require mortgage brokers sign forms that they do not sell insurance and do not cross-sell.
    • All lenders application packages have disclosures stating that annuities and/or other financial products are not required to be purchased with reverse mortgage funds.
  • HUD regulates the fees.  HUD outlines what lenders and third-parties may charge stating they must be customary and reasonable costs necessary to close the mortgage.  Mark-ups are not allowed.  You may find HUD guidelines at their website (http://www.hud.gov/offices/hsg/sfh/ref/sfhp2-15.cfm) and in Mortgagee Letters 2008-34; 2006-07; 2006-04; 2004-18; 2000-10.
  • The Good Faith Estimate (GFE) must disclose all fees.  RESPA (Real Estate Settlement and Protections Act) requires all fees be disclosed at the time of application, restricts what fees can be changed and for the fees that can be changed borrowers must receive new disclosures.
  • The Total Annual Loan Costs (TALC) must be disclosed.  Providing a comparison of the percent of the costs to the amount received through the loan, this document discloses that the longer one keeps the loan the less expensive it is.
  • Sample Closing Documents must be provided at the time of application.  HUD requires that borrowers must receive the sample closing documents as well as a booklet regarding home equity loans.  This gives borrowers time to review the documents they will be signing at closing.  They may also have family, trusted friends or their attorney review the documents during the processing.
  • Disclosures must be provided to borrowers at application.  There are a variety of disclosures including:
    • Non-borrowing spouse disclosures outlining the risks if a spouse will not be on the loan.
    • Taxes and Insurances are the responsibility of the borrower(s).
    • Annuities and/or other insurance and financial products are not required with a reverse mortgage.
      • If annuities are being purchased the costs of the annuity are to be included on the TALC.
  • Three-day Right of Recession.  As with any refinance, there is a three-day right of recession giving the borrower(s) time to review and decide whether or not to proceed.
  • HUD insures and guarantees the funds.  As a HUD insured loan the funds are guaranteed to be available to the borrower as long as the borrower(s) abide by the terms of the loan.
  • Non-recourse loan.  Unlike any other loan, the reverse mortgage is a non-recourse loan which means there is no personal liability to the borrower or the estate as long as the borrower or their estate is not retaining ownership when the loan is due and payable.
  • There are guidelines for marketing practices.  HUD, The Federal Trade Commission and industry associations review and have cracked down on misleading advertisements.
  • State licensing and the SAFE Act.  Many states require mortgage brokers take test and receive licensing in order to originate loans including reverse mortgages.  (Note: FDIC insured banks are exempt from these requirements.)  The Housing and Economic Recovery Act of 2008 (HERA) enhances consumer protections including encouraging states to establish minimum standards for licensing and registration of mortgage loan originators.  The SAFE Act will establish and maintain a national mortgage licensing system and registry for the residential mortgage industry.
Protected MN Reverse Mortgage Borrowers

Protected MN Reverse Mortgage Borrowers

When doing other types of mortgages, loans or financial decisions seniors do not have all of these same protections.  For example they do not have to go through counseling, have the same disclosures requirements, have regulated fees, are not guaranteed or have the non-recourse clause and often do not require the testing and licensing. Think about these situations that don’t have these same requirements or disclosures:

  • A reverse mortgage compares to a regular home equity loan in the fact that regardless of age the mortgages are used to finance lifestyle using the home equity.  With a forward/conventional loan the funds are taken as a lump sum and can be used however one wishes.
  • If a senior is selling they have costs associated with sale and receive funds in a lump sum.  No one is controlling how they use the remaining equity from the sale of the home.  And they have to determine where they are going to live.  If they are renting (i.e. regular apartment, independent living, or assisted living) the money may only last for a short period of time and they may still not have funds for future needs.
  • If the senior (or anyone) does a forward/conventional loan the funds are received in a lump sum.  They can do whatever they want with this equity.  And they have to make payments which can become difficult for them if “life happens.”
  • If they win the lottery they have money in a lump sum which can be spent however they wish.
  • With credit cards seniors (or anyone) are not restricted on how they are used.  They can charge for whatever they want.  And they then have created debt that has to be paid back on a monthly basis.

When you hear that seniors need to be “protected from the reverse mortgage” remember all these protections and know that seniors doing a reverse mortgage have more protections than any other loan or financial decision they make.  As with any decision, especially financial or legal, one should be educated and understand the service or product.  And while these protections are in place, the seniors still have a right to decide for themselves on whether the reverse mortgage is right for their situation.

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

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

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.

A Reverse Mortgage Or A Conventional Mortgage For Senior Homeowners? That Is The Question.

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Calling for MN Reverse MortgageThe call comes in:  “I took a loan out 3 years ago and now I want a reverse mortgage because I can’t make the payments.”  I respond, “Great, the reverse mortgage eliminates mortgage payments and allows borrowers to stay in their home.”   I define that a reverse mortgage is a mortgage like any other loan but with special terms for seniors 62 and older and borrowers still have 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.  Then I also review some other details of the reverse mortgage including that:

  • There are no income or credit score requirements to qualify.
  • No monthly payments required.
  • There is no limitation on how the funds can be used.
  • 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.
  • Medicaid can still be received with the reverse mortgage.
  • The loan is non-recourse which means there is no personal liability to the borrower or their heirs if they are not retaining ownership.
  • If the home is sold for more than the loan balance, the borrowers or their estate keep the difference.

Then after further discussion and review of their situation, I state, “Let me get some information so I can see how much reverse mortgage proceeds there are in your situation.”

The reverse mortgage needs to be in first lien position which means any current liens need to be paid off with the reverse mortgage.  There needs to be enough funds from the reverse mortgage to do this.  Often when a mortgage was done a few years ago, when I run the numbers I often find there aren’t enough proceeds to pay off their current mortgage.  Sometimes they are only short a few hundred dollars and they can come up with the funds needed to do the reverse mortgage (sometimes it’s only a matter of a monthly payment).  Other times they are short thousands.  For one couple who called a couple of weeks ago they were short over $40,000 to pay off their current mortgage.  Once I run the calculation with these scenarios I then have the difficult call back to tell this senior that the reverse mortgage is not an option.

I often hear of 70 and 80 year olds who are taking out a 30 year conventional mortgage and then they have to work in order to make the mortgage payments.  What happens when they can’t work and can’t make their mortgage payment?

I wish they would get the facts on reverse mortgages and get over their fear and do the reverse mortgage instead of a conventional mortgage in the first place.  Instead of doing the conventional loan, if the reverse mortgage would have been done originally the senior would be in a different situation now – a much better one.

Lower home values and higher loan balances contribute to the issue.  While the reverse mortgage rate is historically lower than conventional mortgages and the reverse mortgage has many benefits over conventional loans, there was a fear that made the senior take out a conventional mortgage instead of a reverse mortgage.  Then “life happens” and we get the call and we often have to deliver the bad news, not enough reverse mortgages funds to pay off the currant mortgage.

Closing costs are comparable (See my Blog, “Reverse Mortgage Costs – High or Mythical’), interest rates historically lower, so in the big picture the reverse mortgage costs less.  No monthly payments and options on how the funds can be received, the guarantee of funds and non-recourse features all make a reverse mortgage a better choice for seniors.

Even if one can qualify for a conventional loan today, when “life happens” (health, medical issues, can’t or don’t want to work any more, home repairs or modifications needed) and the monthly payment can’t be made, the seniors get into the balancing act of,  “Do I make my mortgage payment or pay my other expenses.” and if they can’t or don’t make the payments they’ll be at risk of foreclosure.  With the reverse mortgage this risk goes away because no monthly payments are required so they don’t have to worry about deciding between paying the mortgage or their other expenses.

Let’s look at one senior couple.  Four years ago they took out a conventional loan for $25,000 to meet their immediate needs.  Last year because they needed more funds they looked at a reverse mortgage.  Based on their home value of $120,000 and their age they would qualify for $75,000 in reverse mortgage funds, closing costs of $9,000 and a lower interest than their current conventional loan or than what they would qualify for on a new conventional loan.  (Remember to qualify for a conventional loan income, credit, assets and risks are taken into consideration to determine interest rate.  The reverse mortgage interest rate is not affected by income, credit, or assets.)

Yes, the closing costs on the $25,000 conventional loan were lower than the reverse mortgage because the conventional bases the fees on the amount received, $25,000 in this case and the reverse mortgage bases the fees on the full home value – this is because over time they can be access the full home value or even more than the home value.  In their situation the initial loan closing costs were $3,000 for the conventional loan.

With the reverse mortgage they would have had a lower interest rate, no monthly payment requirements and funds in a line of credit that would grow so more would be available for future needs.  One can’t get these benefits with any other loan.

They decide against the reverse mortgage and to do a conventional loan for another $25,000 and pay closing costs of another $3,000.

Now let’s look their situation in another two years:

  • They initially accessed $25,000 with closing costs of $3,000
  • The 2nd loan they accessed for another $25,000 with closing costs of another $3,000 totally $50,000 in funds received and $6,000 in closing costs.
  • Looking at their financial history, in another 2 years more than likely they will be contacting their bank for another loan.  So at this point their situation would be (if they can even qualify) another $25,000 and another $3,000 in closing costs totally accessing $75,000 and a total of $9,000 in closing costs.  This doesn’t include the interest rate expense that would be higher than on a reverse mortgage.

They would have been smarter if the reverse mortgage would have been done initially or at least at this point in time.  Over time would have been able to access more than $75,000 including the growth rate, closing costs would have been the same and interest expense would have been less.  In addition they would not have had to make payments, improving their cash flow through the years, the funds would be guaranteed for them, and the reverse mortgage is non-recourse so in the end they only pay what the home could be sold for without having to come up with the difference, or they get to keep any remaining equity if the home is sold for more than the loan balance.  (On a conventional loan the borrower or the estate could be responsible for the difference if the loan balance is higher than what the home can be sold for.)

And a few years from now they may not qualify for a conventional loan so they would have paid the $6,000 in closing costs to receive $50,000 and have made payments through the years.  Then when “life happens” and they can’t afford those payments, they could be facing foreclosure, and maybe not qualifying for a reverse mortgage.  And if they do qualify for the reverse mortgage, they will then have to pay the closing costs adding the closing expense on top of what they have already paid.  All in all, the reverse mortgage would have been less expense in the long run.  View “Is Waiting To Do A Reverse Mortgage The Best Decision” for a comparison of funds now or in the future.  It’s important to note that their banker thought that the reverse mortgage through us was a much better option for this couple.

Satisfied MN Reverse Mortgage Client

Satisfied MN Reverse Mortgage Client

Marlene who initially did a conventional mortgage and then turned to us to do a reverse mortgage said when she did the conventional loan she didn’t understand the reverse mortgage and so was afraid to do it.  At the reverse mortgage closing she said she wished she had done the reverse mortgage in the first place.  She’s just glad that we were able to help with the reverse mortgage when we did.

In conclusion, when one is in their senior years the reverse mortgage is generally a better choice than a conventional mortgage, even if they do qualify for a conventional loan.  If one does the reverse mortgage instead of a conventional loan their retirement years will be so much smoother, less stressful – they’ll have peace of mind along with security, independence, dignity, and control.  And when at a future date they do decide to do a reverse mortgage we won’t have to deliver the bad news that there aren’t enough funds to pay off a current mortgage.  They should have done the reverse mortgage in the first place.

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

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

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.

Changes With The Good Faith Estimate Leave Reverse Mortgage Borrowers Confused And At Risk

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Reviewing Reverse Mortgage Fees

Reviewing Reverse Mortgage Fees

As we welcome in the new year we are also looking at many changes with reverse mortgages.  The first of which is the New RESPA (Real Estate Settlement and Procedures Act) requirements.  These include a new Good Faith Estimate (GFE) and HUD-1 (closing Settlement Statement).  (Note, these RESPA changes apply to conventional loans also – so if you are looking are refinancing or purchasing you’ll want to be familiar with them too.)  The intent is to make it easier for borrowers to compare fees between service providers, application and final HUD-1 Settlement Statement fees, and disclosure of yield spread premiums or lender paid fees.

With the new regulations a GFE will ONLY be provided with an actual application.  It is no longer allowed for the informational or quote package to include a GFE.  The borrowers are at risk because they may just want to receive estimates on the fees when they request a GFE, and not knowing the new regulations they will be signing an application and the broker/lender may start processing the loan even before they’ve made a final decision – especially the unethical originators and lenders.  Besides the info needed for information purposes such as name, address, birth dates, home value/estimated home value, amount of balance of current loans, information that will trigger the application include the Social Security Number, monthly income and assets and other pertinent personal information.  This information should NOT be provided until lender is chosen and ready to proceed with an application.

Included are now three fee categories on the GFE:  those that cannot change, those that have a 10% tolerance, and those that can change without restrictions.  There are areas of allowance for “Changed  circumstances” which will include:

  • Fees that may change due to a difference in the appraised value include, i.e. origination fee, FHA Mortgage Insurance Premium, Title Insurance, MN Registration Tax, inspections, surveys, certifications, etc.
  • Required services not known prior to the application, such as but not limited to roof, foundation, engineering inspections or certifications, and surveys.
  • Recording fees for unknown liens, mortgages, loans, judgements, title changes such as deeds, trusts, death certificates, Power of Attorney, and release fees, etc.
  • Required services by providers chosen by borrower rather than the lender, such as title services and fees, title insurance, and notary fees
  • Other circumstances particular to the borrower of transaction, including the need for flood insurance or environmental problems
  • Acts of God, War, disaster or other emergency
  • Changing from one product to another.
  • Home Owners Insurance

Signing Reverse Mortgage ApplicationA new GFE will need to be provided to the borrower within 3 days for these changes to be permitted at closing.  It is the broker/lender’s responsibility to disclose and document the disclosure of the new GFE to the borrower(s).  If not disclosed properly, the broker/lender will have to pay the difference, it cannot be charged to the borrower(s).

At the time of inquiry and for information purposes only, we, Prestige Mortgage/Reverse Mortgages SIDAC, will, as we have always done, be providing an explanation of closing costs.

While we have always provided accurate GFE’s (usually within only $100 difference between application and actual fees at closing) you can now expect all lenders to be providing the GFE fees to be the same as at closing.

Unfortunately in the process of trying to make sure all fees are disclosed to borrowers the new 3 page GFE (formerly 1-page)  is more complicated and will be more confusing for borrowers.  We will do our best to help borrowers understand the fees, changes, and forms.

Review a comparison of Minnesota Reverse Mortgage costs to conventional loan fees in the post, “Reverse Mortgage Costs – High or Mythical?”

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

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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.

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