Tag Archives: Legislation

One Bad Apple Spoils The Bushel of Reverse Mortgages

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

© 2009 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-8l

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 Are We To Judge How Reverse Mortgage Funds Should Be Used?

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The media and politicians are stating reverse mortgage funds shouldn’t be used for pleasure items such as vacations, giving to children, buying a car, boat or RV.  Yes, if a borrower uses their funds now for pleasure items, give money to their children or grandchildren, or even on bills or other expenses, there is a chance they won’t have funds at a later date.  Seniors, as anyone, should use their funds wisely.  But who are ‘we’ (media, politicians, lenders, counselors, attorneys, public, etc.) to judge and make decisions on how one’s funds should be used?  Do you want someone else making decisions for you?  Do you want the media, politicians, your friends, a lender or counselor to tell you that you can’t take a dream vacation because you may not have funds for your medical bills or housing at a future date?

Reverse Mortgage Allowed Travel to Florida

Reverse Mortgage Allowed Escape from Cold MN Winter & Travel to Florida

Larry and Lori did a reverse mortgage so they could continue to travel to Florida every winter.  The reverse mortgage allowed them to continue their lifestyle of escaping the cold Minnesota winters and to visit family in Florida.  Who are ‘we’ to determine whether this was right or not?  When their health started failing, they could no longer make the trips however the reverse mortgage gave them those extra years of travel and the security to be able to do so.

Two days after closing her reverse mortgage, Jane was on a flight to England to fulfill her dream of seeing a play that was ending the weekend after the closing.  The reverse mortgage made that dream a reality.   Were we to take control and choice away from her and say this was the wrong use of reverse mortgage funds “just because” in future years she may need funds for “something” else?  Were ‘we’ to take that dream away even if she might never be short funds for who knows what in the future?

We talk about creating a “bucket list” – the things we want to do before we die.  After working for years, raising families, serving their country why can’t a senior use their reverse mortgage funds to check an item or items off their “bucket list” while they are still healthy and able to fulfill their dream?  Seniors shouldn’t be treated like children, as one who can’t make their own decisions.  Living on this earth for many years does not mean one can’t make their own decisions.  If for some reason they cannot, then they should have a conservator appointed.

After his wife died, Bob did the reverse mortgage to replace the additional income lost from her Social Security.  Catching up on bills, with peace of mind of having extra cash flow each month by receiving monthly payments, he was so excited that he could also take a dream vacation and go to Yellowstone.  Taking the trip with his nephew last summer, months later he is still glowing that he was able to fulfill his dream.  Was this a “wrong” decision on his part?  Were we supposed to kill his dream?

Carl was in need of a new car.  Because he didn’t want to make car payments, he did the reverse mortgage to meet this need of purchasing a new car without having a monthly payment.  He’s still able to drive, should ‘we’ deny him his dignity and independence and say he shouldn’t purchase this car just because he is older and may have a need of funds for who knows what in the future?

If YOU, at age 30, 40, or 50, take a vacation today, are you aware that you may not have funds for your mortgage payment (or rent if you’re a renter) or living expenses, medical bills, etc. at some future date?  What if you take a vacation today and next month you are in a car accident and left disabled or diagnosed with cancer and can’t work, make your mortgage or rent payment, and pay your bills?  Since this is a possibility for any one of us, do you not take that vacation just because this could happen to you?  We all need to act responsibly but if we live totally as if the worse is going to happen to us no one would “live” life today – we would just live in a cocoon not really living.

If you, at age 30, 40 or 50, were forced to pay off your mortgage how much money would you have for “life” – pay for food, clothes; daily needs such as soap, shampoo, hair cuts; utilities; taxes; maintain your home; automobile, gas and auto insurance; health insurance and medical expenses; go out to eat; take your vacation, etc.?  Since everyone who has a mortgage is using the equity of their home for these purposes, I bet you would have a very different lifestyle if you weren’t using the equity in your home to maintain your lifestyle – whether a senior or you or me.  The media and politicians need to stop judging the decisions seniors make on how they use the equity in their home, just because they are a senior doesn’t mean they can’t make their own decisions or mean they need to live in that cocoon either.

1bigstockphoto_All_Aboard_316730

Reverse Mortgage made it possible to attend family weddings

Bonnie did a reverse mortgage to pay off her forward mortgage and improve her cash flow.  Years after the closing of her loan, Bonnie wrote, “A reverse mortgage has brought me bountiful solutions to resolving financial issues.  Its benefits enabled me to achieve the means to better enjoy living in my own home.  The equity available was spent in several areas for home improvement.  Herewith also were personal challenges, as a pledge to my church fulfilled and travel to family weddings and reunions assured.

“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.  Thus a respect for yourself increases.”

Are you going to say these personal uses of her reverse mortgage funds were wrong?  Who are you or I to judge?  I certainly don’t want someone to tell me how to use the funds from my mortgage.  And I don’t want to tell a senior that they shouldn’t use their reverse mortgage funds to fulfill their dreams just because someone else doesn’t use their funds wisely or because they may not have funds for who knows what in the future.

With all of this said, I do believe it is important one should plan for what may happen in the future and everyone should use their funds wisely.  An elder law attorney, financial advisor, and CPA educated in senior issues and reverse mortgages* can help seniors plan and think through their situations to help them make the best decisions for their circumstances.  Note, I said help, not make the decisions for them. In the end, it should be the individual senior’s decision on what they choose to do with their reverse mortgage (or any) funds.

*They need to be educated with the facts from a reverse mortgage expert, not the media, politicians, word-of-mouth, etc. or they could be guiding the senior to make bad decisions.

© 2009 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-6g

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.

It is NOT Reverse Mortgage Fraud When…

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You may have seen some headlines about reverse mortgage fraud.  But I want to clarify that what is often being called reverse mortgage fraud is not really reverse mortgage fraud.

  • It is NOT reverse mortgage fraud when a senior who has a reverse mortgage and has a child or grandchild who scams their parent of money.  It is theft, financial exploitation, and abuse by the child or grandchild!  Children and grandchildren also steal, financially exploit and/or abuse seniors who don’t have a reverse mortgage.
  • It is NOT reverse mortgage fraud if a Power of Attorney misuses the funds from a senior’s reverse mortgage.  It is financial exploitation and abuse by the Power of Attorney, not of, or because of, the reverse mortgage.
  • It is NOT reverse mortgage fraud when a title company’s closer doesn’t follow the regulations (as the story in the recent Wall Street Journal reported) and they take the money the lender sent to pay off a borrower’s current liens.  It is theft and fraud by a title company’s closer and can, and has, happened with conventional loans.

As unfortunate as these situations are, they are NOT reverse mortgage fraud and the media should not call it such.

Let’s look at an analogy:  If a store selling TV’s is robbed because the thief was enticed and wanted the TV it is the person who did the stealing that committed the crime, not the TV manufacturer.  In this scenario the store represents the senior, both are victims.  The money or reverse mortgage funds are represented by the TV.  And the lender, provider of the reverse mortgage funds is represented by the TV manufacturer and provider of the merchandise.TV

So this is not fraud by the TV manufacture just because the thief stole the manufacturer’s TV.  Nor is it reverse mortgage fraud just because the reverse mortgage provided the funds for someone to steal from or abuse a senior.

Do you we see the media publishing articles that TV manufactures committed fraud when one of their TV’s was stolen?   Then why does the media and politicians accuse reverse mortgage lenders of fraud when someone else is committing the crime?  Why are the words reverse mortgage used in the same sentence as fraud in these types of circumstances?

For the facts the media should know read my previous posts:

© 2009 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-5O

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.

But Wait, There’s More… Reverse Mortgage Facts The Media Needs To Know

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Man reading newspaperWith the fear factor and incorrect information the media is publishing, seniors don’t even want to include a reverse mortgage with other options they are considering to determine which would be the best for their situation.  Unfortunately they just assume the reverse mortgage shouldn’t be done and that any other option would be a better decision.  Maybe another option would be best, maybe not.  The media needs to stop throwing the baby out with the bathwater and let the decision be based on the facts of the reverse mortgage, not on a fear factor.

The media and politicians need to stop assuming that a conventional mortgage or HELOC is available to seniors.  Generally seniors don’t qualify for these loans.  And even if they do, they too have costs similar to the reverse mortgage, a higher interest rate than the reverse mortgage, and risks to the homeowner and the lender when “life happens” and payments can’t be made.  Even if they do qualify today, what happens in six months, a year, two years or five years when they can’t make the payment?  Doing the reverse mortgage instead of a conventional mortgage or HELOC is generally a better option for seniors.  Read “Is Waiting To Do A Reverse Mortgage The Best Decision?”

Reverse mortgages are not riskier or more complex than any other financial decision made by seniors, or anyone else for that matter.  In fact, NOT getting a reverse mortgage could be riskier for a senior.

Homeownership offers more benefits than renting.  One owns the home, and can benefit from the equity.  If renting, one has the expense of monthly payments and covering utilities (whether included in the rent or separate) and insurance.  If a senior does the reverse mortgage, payments are not required which improves their cash flow (no mortgage or rent payments).  The amount of their utilities, taxes, insurance and maintenance of their home is probably less than monthly rent of another property and they are at the mercy of future escalating rental rates.  If they can’t afford the rent payments where are they going to live?  On subsidized housing?  The reverse mortgage allows them to stay in the home without monthly payments and allows them control and choices of their living conditions.

Reverse mortgage borrowers are, however, still responsible for paying their taxes, insurance, and maintaining the home as they would be under any circumstances.  If they don’t pay taxes the county can foreclose, if they don’t have insurance and there is a fire or other destruction to the home, they won’t have a home, if they don’t maintain the home and it becomes really run down the city may fine and/or evict them whether or not they have a reverse mortgage.  If they are renting and can’t pay the rent they would be evicted.

Another common statement is the reverse mortgage has high closing costs – compared to what?  What other financial option is available that offers seniors the same benefits?

It shouldn’t be considered a loan of last resort.  As Mary, one of my borrowers who used the loan in order to retire stated, “When you retire is IS the last resort – you no longer have that income coming in.”  So what do you consider a last resort?

That reverse mortgages could be the “next sub-prime” mortgage is another fear the media and politicians are forcing on all of us with no substantial or viable comparisons.  Don’t let this keep you from a reverse mortgage, read my article, “Don’t Let Fear Keep You From A Reverse Mortgage But Know What To Look For In A Lender.”

The reverse mortgage has protections unlike any other loan or financial option.  Borrowers are required to go through third party HUD approved counseling which reviews the program, costs, positives and negatives, risks, and other options that may be available for them.  HUD is implementing a new counseling protocol for added protections.

Enjoying Life with Their Reverse Mortgage

Enjoying Life with Their Reverse Mortgage

Let’s review the facts of some benefits a reverse mortgage provides:

  • The title stays in the borrower’s name same as with any mortgage.  The borrower owns the home, no one else does.
  • The borrower may be able to stay in their home as long as it’s their primary residence or until their 150th 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 of a reverse mortgage – 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 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 can receive Medicaid.
  • The HECM is government insured and guaranteed to be available for borrowers. (Currently proprietary reverse mortgages are not available or are limited by county and city offerings.)
  • Borrowers or their heirs get to keep any remaining equity after the loan is paid off.
  • Allows access to more funds without paying additional closing costs – there is a growth rate with the line of credit and monthly payment options.
  • There are no out of pocket costs, income or credit qualifications for the reverse mortgage.
  • There are no prepayment penalties.
  • Seniors can have money for covering their everyday living expenses, making home repairs, covering medical expenses, paying for long term care, paying taxes and debts, paying off their current mortgage to improve their cash flow, buy a new car, taking a desired vacation or visiting children who live out of town.
  • The reverse mortgage has helped many seniors save their home from foreclosure.
  • The reverse mortgage gives seniors their security, independence, dignity and control.

Ed wrote, “Our reverse mortgage is great.  Gives us some elbow room.  Special thanks to you.”  Now these are the facts the media should be using!

© 2009 Beth Paterson http://bethsreversemortgageblog.wordpress.com 651-762-9648

The Media Needs The Reverse Mortgage Facts!

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ManReadingThe media paints a negative picture of reverse mortgages by using incorrect or misleading information.  It’s unfortunate and frustrating from the standpoint that this scares people from getting the facts and making a decision based on the true facts.  A recent example of this is the September issue of Consumer Reports and TV interviews based off the Consumer Reports article.

Consumer Reports starts out with a story about Mr. Minor who is facing losing his home after his wife passed away, implying it was because of a reverse mortgage.  As you read later in the article, Mr. Minor was not 62 when a reverse mortgage was done on the home with his wife who was over 62 as the borrower.  He was under the impression that his name could be added on the title when he turned 62.

The fact is that when a couple is doing a reverse mortgage with a non-borrowing spouse (Mr. Minor in this case because he wasn’t 62 at the time of the origination of the reverse mortgage), lenders require the non-borrowing spouse sign documents stating they are aware they may lose the home when the older spouse is no longer in the home as their primary residence.  This would also be covered with the required counseling and then again at closing.  It is unfortunate that Mr. Minor had a wrong impression or may have been told incorrect information from a loan officer.  Being told this information is a very rare circumstance – so the loan officer should be addressed, not the whole reverse mortgage industry blasted with negative media.

Mr. Minor says he was misled that the reverse mortgage was a good way to pay his wife’s medical bills.  So if they didn’t do the reverse mortgage, how would they have paid the medical bills?  Obviously the funds they received did benefit them to pay those medical expenses.

This article states that Mr. Minor owes more than the home value implying that the reverse mortgage caused this.  What is not pointed out here is the fact that Mr. and Mrs. Minor would have used those funds during the term of the loan.  If funds aren’t used, they are not part of the loan balance that has to be repaid, they remain equity in the home.  Whether to pay medical bills, medications, home care, daily living expenses or used to pay off a current mortgage (eliminating the mortgage payments so they had those funds for other uses), the majority of the loan balance was used by them.  The rest of the loan balance would have been for interest, FHA Mortgage Insurance Premium (MIP), and servicing fees.  Any loan has interest and servicing fees, whether a home loan, auto loan, bank line of credit, or even credit cards.  Have you added up what you paid in interest expense over the term of your loan(s)?  Yes, you are making payments so the debt is reduced over time but you have paid the interest.  And with the reverse mortgage payments aren’t generally made so loan the balance increases to be paid when the home is no longer the borrower’s primary residence.

Another fact that is often not stated or misstated is that the reverse mortgage is non-recourse.  This means there is no personal liability to the borrower or the estate if the loan is being paid off and not kept by the borrower or the estate.  So even if the loan balance is $200,000 and the home now can only be sold for $130,000, the lender is paid the $130,000 and the FHA Mortgage Insurance covers the difference.

Often called complicated, the reverse mortgage is a mortgage and while different than a conventional mortgage, they are not any more complicated than any other loan.  Seniors take out conventional loans and don’t necessarily understand all the terms or risks of these.  One risk on a conventional loan is that they may not be able to make the mortgage payment at a future date when “life happens.”  Borrowers may then face foreclosure.  Whereas the reverse mortgage helps seniors save their home from foreclosure.  There are many loan documents to help disclose all the details.  Additionally borrowers are required to receive counseling from a third-party to explain the loan details, this isn’t required with any other type of loan for seniors.  I have consistently been told that my book, “Understanding Reverse Mortgages,” and my education and explanations make it easy to understand.

Other misleading or misconstrued statements include the reverse mortgage is not right if the children want to keep the home.  While the loan will need to be repaid for the children to keep the home, they may still keep the home.  Let me tell you about a borrower who needed new glasses, teeth, clothes, and some home repairs.  She loved going to plays yet couldn’t even afford the local community plays.  She decided the reverse mortgage would help her afford her needs and enjoy her life.

After we had reviewed all the facts, positives and negatives, and she had completed the application, she called and said she wanted to stop the process because her son didn’t want her to do the reverse mortgage.  When I asked why, she said he wants to keep the house after she’s gone.  Upon further questioning she said it was so he could have the house and rent it out after she was gone.

My response was to ask, “So you’re going to do without your glasses, teeth, clothes, home repairs, affording the little things you enjoy so your son can make money after you are gone?”  I went on to ask, “Is he going to cover all these expenses of things you need now?”  Of course the answer to this question was, “No, he can’t afford to.”  I explained that he could still have the house after she was gone, he would need to pay off the mortgage balance, maybe by getting a new mortgage but then he could rent it out and make money on it that way.

Celebrating her reverse mortgage

Celebrating her reverse mortgage

She went ahead and did the reverse mortgage.  I have received a call from her a couple times a year since she closed her loan 4 years ago.  She is pleased that she did the reverse mortgage and the difference it’s made in her life.  And when she passes away or is no longer in the home, her son has the option to pay off the mortgage balance and keep the home.  In the mean time she’s had the use of funds to meet her needs and make her life enjoyable.

There is a statement that taxpayers are making up the difference on default loans or will need to in the future.  The fact is that borrowers pay a FHA Mortgage Insurance Premium to cover any defaults.  Unfortunately the MIP was put in the general fund and now there is a risk that there may not be enough funds for the current fiscal year.  Plenty of borrower paid MIP dollars have been paid into FHA over the years but unfortunately the federal government doesn’t hold these funds in escrow type accounts as they use these funds for other general HUD programs.  If these funds had been accumulated and reserved for the HECM, this would be a non-issue in the current year.  This issue is brought on by the way the government manages these funds.

Other misrepresented statements are about closing costs being high.  Please see my post “Reverse Mortgage Closing Costs – High or Mythical?” for the facts on this.

Regarding the media’s statements that the reverse mortgage should be a last resort read “AARP Has It Wrong About Reverse Mortgages” and “Reverse Mortgages Help Celebrate Independence.”

The media needs to provide the facts, not use scare tactics.  When borrowers have the facts, the decision to do the reverse mortgage can be made intelligently.  And, as with the hundreds of thousands satisfied reverse mortgage borrowers, those deciding to do the reverse mortgage based on the facts will find their life is much better, living with security, independence, dignity and control and a peace of mind.

In fact, today I received a call from a borrower who said, “I could not pay my bills without my reverse mortgage.  I’m glad I did it to maintain my lifestyle.”

© 2009 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-55

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

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

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

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

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

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

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

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

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

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

Updated 2011.

© 2009-2011 Beth Paterson, Beth’s Reverse Mortgage Blog,651-762-9648

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

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

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

AARP Has It Wrong About Reverse Mortgages!

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

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

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

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

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

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

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

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

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

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

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

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

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

© 2009 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-9

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

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

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