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

We Are Not Chicken Littles - The Sky Is Not Falling on The Reverse Mortgage WorldWith Bank of America and Wells Fargo exiting the reverse mortgage industry along with the picture the media paints, I’m reminded of the story of Chicken Little thinking the sky is falling, looking at the doom and gloom.  Or jumping to the conclusion that because they have left the industry the reverse mortgage option is going away.

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

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

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

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

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

The funds can still be used for: Paying off current mortgages and helping one out of foreclosure.  Paying for home repairs and home modifications, medical expenses, home care and long term care.  Paying taxes and protecting other assets.  Fulfilling dreams or whatever one needs or wants.Sky is not falling on MN Reverse Mortgages SIDAC

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

© 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-s1

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

Often stated, the reverse mortgage is expensive and the fee the originator makes is part of the reason. Originating reverse mortgages is not as easy as one, two, three but a very time consuming process.

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

To help you understand the work and time we, as reverse mortgage expert originators, put into originating and processing a reverse mortgage let me walk you though an outline and approximate time involved.  Note: While you may not read the outline word for word (yes, it’s long), you’ll at least have a good idea of the time involved for originating each reverse mortgage.  Make sure you go to the last five paragraphs for the conclusion.

  1. Take the phone call from one interested in a reverse mortgage.  Generally spend 30 to 60 minutes providing initial information and getting information to run calculations to determine eligibility.
  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 45 to 60 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 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 talk with family members or have an additional 1 to 2 hours face-to-face with prospect and their family.
  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 – 20 to 30 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 however I believe that the face-to-face meeting provides better explanations of each of the forms one is signing.)
  12. Spend 1 to 2 hours 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 and counseling certification with signatures of both the counselor and the borrower(s) which is needed prior to starting the processing of the loan – 15 to 30 minutes.
    1. Originators now need to make contact with the chosen counselor, prior to the counseling session, and provide certain financial information to the counselor (calculations, etc) – 15 minutes.
    2. Make phone calls to have the signed counseling certificate faxed – 60 minutes.  Or will drive to pick up certification – another 60+ minutes round trip plus 10 to 15 minutes with borrower.
  14. Review file and prepare for submitting for processing – 15 to 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 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.
    16. When appraisal is received, enter new value, if repairs are required, etc. in software program for calculations – Originator: 10 minutes.
    17. Update processing software program with changes – Processor: 10 minutes.
    18. Call borrower to advise borrower of appraised value, required repairs if any, and any calculation changes – Originator: 15 minutes.
      1. Or up to several hours based on the appraised value, repairs, or other factors, the borrower decides a program change would be in their best interest (i.e., a change from fixed rate to adjustable rate), or contractor bids or additional inspections are needed for repairs.
    19. Prepare re-disclosure for borrower – Originator: 10 to 15 minutes.
      1. Or up to several hours or more if, based on the appraised value or other factors, the borrower decides a program change would be in their best interest (i.e., a change from fixed rate to adj rate).
    20. Mail re-disclosure to borrower – Originator: 10 minutes.
    21. Review all documentation to make sure everything needed is in the file for underwriting – Processor: 20 to 30 minutes.
      1. Multiple follow up calls to the borrower may be necessary to remind them and/or advise them on missing, corrected or additional documents that are necessary (i.e., SS card shows maiden name, etc) – Originator: 10 to 20 minutes each call.
    22. Scan and submit file to underwriting – Processor: 15 minutes.
    23. Request final fees from title agent – Processor: 10 minutes.
    24. Address any underwriting conditions by contacting title company, appraisal management company, borrower, or making other necessary changes – Processor: 30 minutes to several hours depending on the condition.  Conditions are required so that HUD will insure the loan and the investors will provide the funding.
    25. Have borrower sign loan commitment – required in MN to be signed and dated by borrower and can’t close for 7 days – Originator: 60+ minutes round trip to get borrower’s signature plus 10 to 15 minutes with borrower.  Can be done via fax or scanned and emailed if borrower has this capability.  If they live outside the metro area and don’t have capability to fax or scan and email the commitment will be done through the mail delaying the time for the closing (not what the borrowers want at this point).
    26. Gather, review and Submit changes/conditions to underwriter – Processor: 10 to 15 minutes.
    27. Discuss with borrower how they want their reverse mortgage funds and their availability for closing – Originator: 15 to 30 minutes.
    28. Schedule closing according to availability of title agent/signer (and possibly a notary), borrower and loan officer and lender’s closing department’s timing requirements, and possibly with family members and/or Power of Attorney (POA) – Processor and Originator: 30 to 40 minutes  each of the phone calls.
    29. Prepare closing document request to send to lender – Processor: 15 minutes.
    30. Receive closing documents, review that the numbers match those in our program – Processor: 10 minutes.
    31. Attend closing.  We believe in attending the closing with our borrowers to assist in explaining the closing documents.  We generally close at borrower’s home for their convenience or would drive to the title company’s office – Originator: 60+ minutes round trip drive time.   Drive time can be 5 to 10 hours round trip if the client is outside the metro area.
    32. Closing with borrower – 1 to 1 ½ hours.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: 10 to 30 minutes.
      1. If necessary, we may make another trip to the borrower’s home to get a signature on a document in order to keep on schedule for funding) – Originator: 60+ minutes round trip drive time.  If outside of the metro area we will assist borrower via phone and having sent over-night the necessary documentation – 60+ minutes.
    34. Keep borrower advised of funding status, i.e. when funds were wired to their bank and payments made for paying mortgages, taxes, etc. – Originator: 10 to 15 minutes per phone call, generally 2 calls.
    35. Once funded, send thank you letter – Originator and Processor: 15 minutes to prepare and mail.
  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.  They will also be familiar with the processing and assist with the processing as well as be available to answer questions even after the loan is closed.  Originators, processors, underwriters, lenders, title companies and their settlement agents, and all involved in the loan process need to be compensated for their time, experience, and expertise.

The originator does NOT receive the full fee collected.  The fee received by the reverse mortgage broker covers the originator’s salary, the processor’s salary, marketing expenses, overhead for the business such as computers, office supplies, copiers, health insurance for employees, etc.  Originating a loan is not charged by the hour.  However if we calculated time versus pay, with some borrowers, because of various problems that come up or they need some extra hand holding, if we were to be paid by the hour there have been times when I would  make less than $10 an hour.

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

© 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-rv

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.

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

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

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

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

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

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

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

  • Mortgage brokers often work with more than one lender which allows the borrowers to have more options available to be in their best interest and work with the lender/servicing company with the best customer service.
  • As of January 1, 2011 all mortgage brokers (reverse or traditional) are required to be licensed both at the Federal and State levels.  This is managed through the National Mortgage Licensing System or NMLS.
  • To meet the Federal Licensing requirements we needed to take 20 hours of education, pass a test (a very challenging one, I might add), pass Federal background checks, have our credit reports checked and be finger printed.
  • Each state has their own licensing requirements.  Minnesota required 20 hours of education and 8 hours continuing education each year.
    • Lending practices and standards, ethics, and Real Estate Settlement Procedures Act (RESPA) regulations were covered  in the education and on the test.
    • The test focused on conventional lending products so those of us who only offer reverse mortgages had additional challenges to pass the tests.
    • FDIC Bank and NCUA Credit Union originators do not have the licensing requirements so they have not received the education, passed the tests or gone through the same background checks.  At some point the bank and credit union originators will be required to be registered .  This will still not be the same as meeting the licensing requirements.
  • Mortgage Brokers who provide you any information about your loan including various loan options and interest rates must be licensed.
  • Mortgage Brokers are required to have their company and individual NMLS numbers on all marketing materials.  In Minnesota the company NMLS number is identified as “MO” or Mortgage Originator.  The individual is identified with their “MLO” or Mortgage Loan Originator number.  If you don’t see these numbers on business cards and  marketing materials including brochures, flyers, blogs, email signatures, presentations, etc. they are either not licensed or out of compliance.
  • You can check out your originator on the NMLS website at http://www.nmlsconsumeraccess.org/  This will provide you with a lot of valuable information on who you are working with to originate your loan including:
    • If they are licensed (if not listed or don’t have a license number, they are not licensed to originate loans)
    • If they are authorized to conduct business.  And which company they are authorized to represent.
    • If they are licensed in your state.  (You want to make sure the person you are talking with and that signs your application is licensed in your state.  Don’t work with a person over the phone that is not licensed in your state.  I have heard stories where borrowers talk with one person on the phone but another one signs the application because the call center person is not licensed in the state.  This is against the law.)
    • The company where they currently work.  (Does it match the information they have given you?)
    • Where they worked in the past.
    • Their company and branch license information.
  • Reverse Mortgage Broker Provides More Personal ServiceBanks and lender’s retail departments often have a phone/call center representative.  Conversations and applications are often done over the phone and through the mail verses reverse mortgage brokers who often take time to meet with borrowers face-to-face in their own homes.  This means one may receive more personal service from a reverse mortgage broker.
  • Large bank institutions often have their eye on the bottom line by departmentalizing activities which forces loan officers to focus on just taking applications and not understanding all aspects of the reverse mortgage including the processing and servicing.  My blog post, “They’ll Say Anything To Get An Application” points out a couple of these situations.

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

© 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-qB

Related articles and information:

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

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

Reverse Mortgages Give Reasons For Hope

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

  • Stay in one’s home where they may have raised their family, are familiar with the neighborhood and their neighbors and where they usually want to remain.
  • Pay off a current mortgage to eliminate the monthly mortgage payments.
  • Save one’s home when faced with foreclosure or tax forfeiture.
  • Have improved cash flow with no monthly mortgage payments.
  •  Have funds for making home improvements or home modifications.
  •  Retire and not feeling like you have to work just to have money to pay the bills.
  •  Have cash flow to be able to pay taxes.Reverse Mortgage Finances Home Health Care
  •  Have funds to pay for home health care.
  •  Have funds for some assistance with home care or companion services.
  •  Have funds for adult day services.
  •  Have funds for medical expenses and prescriptions.
  •  Afford going to the dentist.
  •  Afford new eye glasses.
  •  Have funds for the needed hearing aid.
  •  Have funds to cover long term care expenses.
  •  Cover everyday living expenses.
  •  Not rely on credit cards.
  •  Not rely on children.Reverse Mortgage Makes Grocery Shopping Easier
  •  Have funds for the little extras in life, like:
    • getting one’s hair done,
    • having cable TV,
    • buying groceries,
    • going to lunch with friends,
    • treating their children to dinner,
    • going to community plays or the theater or a concert,
    • taking the grandchildren to the zoo or a movie,
    • Depends (I had a client say with their reverse mortgage they could now afford to by Depends),
    • being able to do hobbies.Reverse Mortgage provides funds to enjoy hobby of golfing
  • Purchase a more dependable car
  • Afford transportation if one can no longer drive.
  • Afford the travel for the family wedding or reunion.
  • Take the vacation they have dreamed of all their life.
  • Protect some of their other retirement funds or investments where there might be taxes or penalties on withdrawals.
  • Purchase a new home to downsize and/or  move closer to family
  • Have funds for emergencies.
  • Reduce financial stress.
  • Have funds to full fill needs and goals.
  • To live with security, independence, dignity and control.

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

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

© 2011-2015 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

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

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

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

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

How Do Reverse Mortgages Compare to Conventional Mortgages?

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

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

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

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

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

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

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

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

© 2010-2011 Beth Paterson, Beth’s Reverse Mortgage Blog, 651-762-9648

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

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…? Other Options To Consider

Senior Needing MoneySeniors need money for a variety of reasons including home repairs or modifications, medical expenses, home care, long term care, taxes, insurance, cash for emergencies, covering mortgage payments, a reliable car, everyday living expenses and even just maintaining their lifestyle.  There are always options to consider and they should be reviewed when making important decisions especially when they are big decisions such as doing a reverse mortgage.

Before looking at some of the other options let’s define a reverse mortgage.  The most common reverse mortgage is the FHA insured Home Equity Conversion Mortgage or HECM offered through HUD.  A jumbo or proprietary/private  reverse mortgage may be available in some states (not available in Minnesota).   A mortgage like a conventional mortgage, a reverse mortgage is a loan against one’s home using the equity now with the home as collateral, however, the reverse mortgage has special terms for those 62 and older.  The amount loaned is based on the age of the borrower, the home value and an expected rate rather than on one’s credit score and income.  The older one is the more funds they can receive.  Just like a conventional mortgage, the homeowner remains on title – the bank does not own the home.

Proceeds from the reverse mortgage can be taken as monthly payments, line of credit, lump sum or a combination of these.  Monthly mortgage payments aren’t required but the loan is due and payable when the home is no longer one’s primary residence.  In the case of a joint tenants as long as one is still in the home as their primary residence the loan is not due until both have left the home as their primary residence.  The due date on the mortgage is the 150th birth date of the youngest borrower.

Another benefit of the reverse mortgage is the fact that it is a non-recourse loan which means there is no personal liability to the borrower or their heirs as long as they are not retaining ownership.  In other words if the loan balance due on one’s home is $250,000 but the home can only be sold for $200,000 the borrowers or their heirs are not required to come up with the difference of the $50,000 as long as they are selling the home and not keeping it in the family.  The opposite also is also a benefit, if the home is sold for more than the loan balance, the borrower or the heirs receive the difference.

Social Security and Medicare are not affected and one can still receive Medicaid or Minnesota’s Medical Assistance as long as the loan proceeds are structured properly.  Because the funds are considered loan proceeds, not income, generally the IRS does not consider the reverse mortgage proceeds as income for tax purposes.  Additionally reverse mortgages are more highly protected than any other financial option available.

Now let’s look at some other options.

  1. State and Community programs for special purposes such as home repairs. There may be some options for low or no interest loans or grants to help seniors or those with low-income have funds for home repairs.  These are often forgiven if you are in the home for a period of time such as 10 years.  This can be a great option if one only needs funds for repairs such as a new roof or repair a bathroom.  Unfortunately the funds for these programs are not as readily available.  Additionally we have found that seniors often have more needs than just home repairs such as they have credit card debt or their Social Security just isn’t enough for meeting their living expenses.
  2. Property tax deferrals. If a senior is having difficulty paying their taxes they may qualify for a property tax deferral.  This is a program that allows property taxes to be deferred or delayed until one sells their home.  This can be a great option if paying taxes is the only issue.  Again, seniors often have a need for more cash than just covering their taxes.
  3. Liquidation of stocks, bonds, 401Ks, and/or other investments. If one has other investments this may be an option which would have no outside approval needed and possible minimal costs to access the funds although there may be penalties and/or tax consequences.  Things to consider is there enough funds to meet the needs of cash?  And is it better to keep those investments until when the value increases (opportunity costs).  When liquidating other investments one may lose the additional financial security.
  4. Is selling a cabin or other property an option?Sale of other assets, for example lake home, RV, boat, real estate property. This may provide extra cash although it may be difficult or time consuming to sell and may not provide enough funds for their needs.  Additionally it may reduce one’s quality of life.
  5. Loans from relatives. Loans from relatives can be an easy transaction to complete, cost effective, i.e. no or low interest and possibly no or low payments.  Is there a relative who will loan the money?  Will the loan be enough to meet one’s  needs?  What happens if the relative’s life changes, i.e. they have medical issues or lose their job and they need money for their own needs – will they require the senior repay the loan and how will this be done?  How will this impact the senior at this point?  What will it do to family relationships?
  6. Relative becomes “bank” and provides loan using home as equity. As noted above, it could be an easy transaction, credit and income may not be considered, and it could be cost effective with a lower interest and low payments.  The above questions and concerns should also be considered when doing this type of transaction.  When doing this type of arrangement I would recommend setting up legal documents to reflect terms of the loan just as with a loan from a professional lender would do.
  7. Sell home to relative or investor and lease or rent back. This can have the same advantages as I noted above.  As pointed out above, I would recommend setting up legal documents to reflect terms of the loan just as with a loan from a professional lender would do.  And again the same concerns that I pointed out above should be considered before entering this type of arrangement.  If it is a lease back/rental situation what happens when the senior can’t make the payments?  Will they be forced to leave their home?  If the relative is doing the loan and their situation changes they may not be able pay the mortgage on the home they may need to sell the home or they could face foreclosure.  This will be a difficult situation for all parties involved and hurt the family relationships.  If the investor’s plans or goals change they may decide to or need to sell and then what happens to the senior?
  8. Selling, moving and renting. This could provide one with access to all equity in the home with no restrictions on the use of the funds.  If one is in a home too large to manage or it is no longer safe for them to be in the home and they can’t afford the home care, this may be the best option.  Things to consider are the costs of selling, how disruptive will the selling and move be since seniors want to stay in their home with familiar surroundings.  Where are they going to live and will the funds be enough to cover the living expenses now and in the future especially if they are renting.  Will their quality of life be reduced if they want to stay in their neighborhood.  Selling and receiving all funds in a lump sum could affect receiving government benefits such as Medical Assistance.Selling and Moving Or A Reverse Mortgage?
  9. Moving in with children or other relatives. Selling and moving in with children or other relatives could provide extra cash as well as support or care by their loved ones.  Things to consider would be if the children have space for their parent(s) to move in with them.  Do the children have time to provide the extra care? Can they afford to give the extra support to their parents?  What will it do to the family relationships?  Seniors don’t want to rely on their children so how will this impact the senior?
  10. Home sharing. Remember the TV show “The Golden Girls”?  Setting up a home sharing situation could be an advantage to increase cash flow as it would reduce expenses by sharing costs.  Another advantage could be having someone else around.  If the senior is selling and moving in with someone else consider the costs of selling and moving, the disruption to their lifestyle, and living with someone else.  If they are the one renting will they have enough funds to cover living expenses in the future.  And how will it impact the receipt of government benefits?
  11. Line of credit or Home Equity Line of Credit (HELOC). A line of credit at a bank will allow one to borrower only what is needed and the initial loan costs may be low.  They will be able to access the cash as the needed it.  At this time it may be difficult to qualify because of their fixed income and/or credit.  They may not qualify for enough funds to meet their needs and even if they have what they need now, will they need an additional loan for future needs?  If they do qualify for a bank line of credit they will have to make payments and defeat the purpose of improved cash flow.  And if life changes they may not be able to make the payments.
  12. Home Equity loan. This may be an option if one can qualify… to qualify one needs to meet the requirements of income, credit and ability to repay the loan which also determine the interest rate.  One may borrow only what is needed, i.e. $30,000 and the loan origination fee is based on the actual amount of the loan.  Historically the interest rate is higher than with a reverse mortgage.  Being payments are required if life changes, one may not be able to make the payments and then may face foreclosure.

The reverse mortgage may be a bigger benefit to a senior than these options but before one makes the final decision, the negatives of the reverse mortgage should also be reviewed.  Generally the negative is there will be less funds available for heirs or when the loan is being repaid because the loan balance is increasing as one is using the funds during the life of the loan and not making payments.

Another negative is the interest is not a deduction until it is paid generally at the time the loan is being paid off.  Although payments can be made on the reverse mortgage and once the FHA Mortgage Insurance Premium is paid payments can be applied to the interest to receive a tax deduction on interest paid.

Closing costs are often perceived as high although they are comparable to a conventional mortgage.  An explanation of the costs can be found at “Do You Understand The Reverse Mortgage Closing Costs?” and a comparison of the costs are at “Reverse Mortgage Closing Costs – High or Mythical?

Reviewed Options But Happy With Reverse Mortgage DecisionDoes the reverse mortgage have more pros over the other options?  Reverse mortgage borrowers who have evaluated their options feel the positives outweigh the negatives because they want to remain in their home, live comfortably, have some “elbow room,” and be independent with financial peace of mind without being burden on their children. Usually the children are doing fine on their own and want their parents to eliminate their financial worries and enjoy their life more fully.

© 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-nC

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.

Who Should You Believe About Reverse Mortgages?

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

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

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

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

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

  1. A reverse mortgage is a mortgage just like any home equity loan where one uses the equity of the home but it has special terms for seniors 62 and older.
  2. The lender or bank does NOT own the home – YOU OWN THE HOME, you keep the title and are responsible for property taxes and insurance, association dues (if applicable), maintaining the property and abiding by the terms of the loan.
  3. There are no income or credit score requirements to qualify for the FHA Home Equity Conversion Mortgage (HECM). (Some proprietary jumbo reverse mortgages may have credit qualifications.)
  4. No monthly mortgage payments are required.
  5. There is no limitation on how the funds can be used.
  6. Offers more options – Funds can be received in monthly payments structured for life or as needed, line of credit (with a growth rate), lump sum, or a combination of these.
  7. Social Security and Medicare are not affected because it is a loan, not considered income.
  8. Medicaid (Medical Assistance (MA) in Minnesota) and other government benefits can still be received with the reverse mortgage.
  9. Borrowers can stay in the home as long as it is their primary residence or in the case of a couple as long as one borrower is still in the home as their primary residence.  The due date on the mortgage is the youngest borrower’s 150th birthday.
  10. At the time of sale if the home is sold for more than the loan balance, the borrower(s) or their heirs receive the difference.  The lender or bank does NOT keep the difference!
  11. The loan is non-recourse which means there is no personal liability to the borrower or their heirs if they are not retaining ownership.  So borrowers or their heirs don’t have to come up with the difference if the loan balance is higher than what the home is be sold for as long as they are not retaining ownership.  Borrowers are not leaving a debt to their children.
  12. As borrowers use the funds/equity and are not making monthly payments the loan balance increases meaning because they used the money now, there will be less available when the loan is being repaid.  (With a conventional mortgage one is using the equity but making monthly payments which repays the interest and a portion of the principal each month.)
  13. Fees are regulated and only HUD allowed fees are permitted with no mark-ups or junk fees.  Even though many times they are considered expensive or high they compare to conventional loans, in fact the difference comes down to the FHA Mortgage Insurance Premium.  You can see a comparison of the costs in my article, “Reverse Mortgage Costs – High or Mythical?” and “Do You Understand The Reverse Mortgage Closing Costs?
  14. FHA offers and insures through HUD the majority of reverse mortgages known as the Home Equity Conversion Mortgage or HECM, making it the most highly regulated mortgage available.   The advantages include:
    • Guaranteeing the funds are available for you.
    • Guaranteeing the lender against default or shortfalls which means the interest rates are lower (currently under 3% on the adjustable rate; 5.56% on the fixed) compared to other mortgages.
    • Providing a line of credit growth rate (available only with reverse mortgages).
    • Insuring as a reverse mortgage it is a non-recourse (no personal liability) loan.
  15. The HECM borrowers are highly protected.  See my Blog article “You Need To know Reverse Mortgage Borrowers Are Highly Protected!

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

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

© 2010 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-n4

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.

Should One Refinance Their Reverse Mortgage?

Receiving Letters to Refinance Reverse MortgageCurrent reverse mortgage borrowers are receiving letters encouraging them to refinance.  Even their monthly statements are encouraging them to look at refinancing.  While refinancing a reverse mortgage is an option, let’s explore whether it should be considered.

Just like refinancing a conventional, or what we call a forward, mortgage borrowers consider refinancing a reverse mortgage when they need more money.  But just like a forward mortgage, one needs to make sure they are going to receive a benefit when they refinance.  And just like a forward mortgage, when refinancing the closing costs are part of the transaction.

When I receive the calls from my borrowers who have received the letters or encouragement on their statements I start with these questions:

  • How long ago did you take out your reverse mortgage?
  • What was the value of your home at that time?
  • What is the value of your home now?
  • What is your current loan balance on your reverse mortgage?
  • Are you receiving monthly payments?
  • Do you have funds in a Line of Credit?

These questions are pertinent in helping one decide if it makes sense to consider refinancing.

Keep in mind the factors used to determine the amount a senior can receive from their reverse mortgage include:  the interest rate of the program chosen, the age of the borrower (the older one is the more funds one can receive), and the home value based on an FHA appraisal or the FHA Lending Limit.

The first three questions are important in determining if they will be able receive more money when refinancing.  As one aged during the time home vales were increasing refinancing made more sense because borrowers were more likely to be able to receive additional funds.

Now generally one’s home value has decreased so we find that the they will not receive additional funds from refinancing their reverse mortgage.  If, however, the initial reverse mortgage was taken when there was a lower lending limit, i.e. $251,750 and their current home value is, say $400,000, then refinancing may be considered.

For many years the FHA Lending Limit was based on the county in which one lived.  In 2008 the Lending Limit was changed to a national limit of $417,000.  For 2009 and 2010 the national limit has been increased to $625,500.  Because the limit will be going down to the $417,000 January 1, 2011 there is a push with marketing letters and statements encouraging borrowers to take advantage of the higher lending limit.  Is refinancing a good idea here?  Not necessarily, especially if one’s home value isn’t in the higher valued range.

The current loan balance is important because when refinancing the reverse mortgage, the current reverse mortgage needs to be repaid.  If there aren’t enough proceeds to pay off the current mortgage and to receive additional money then refinancing doesn’t make sense.

The final two questions, whether they are receiving monthly payments or have funds in a line of credit, are important because it doesn’t make sense to refinance a reverse mortgage if they still have funds available to them.

With a forward mortgage sometimes refinancing is done to reduce the interest rate.  With the reverse mortgage it doesn’t make sense to refinance for the interest rate.  Remember one isn’t making payments with a reverse mortgage so the interest rate doesn’t impact their monthly cash flow, it only impacts the amount that will be repaid when the loan becomes due and payable.

It is important to note that the reverse mortgage is non-recourse which means there is no personal liability to the borrower if the loan balance is higher than what the home can be sold for as long as the borrower or their heirs are not retaining ownership.

Until 2008 all reverse mortgages were adjustable rate mortgages.  Now, don’t panic, this isn’t a bad thing with a reverse mortgage.   Additionally, the interest rates are remaining low, certainly under 4% and likely under 2% or 3%.  The interest rate is made up of an index and a margin and the current margin is higher than the earlier years meaning that the current interest rates will be slightly higher than what borrowers currently have on their reverse mortgage.

In 2008 a fixed rate was introduced.  Even though the current fixed rate is a little lower than when it was initially introduced one is not going to gain a benefit of more funds available by refinancing for a lower interest rate – enough time hasn’t passed to offset the costs of refinancing.

Even if the interest rate increases or is higher than what is available now, costs of refinancing will not offset the lower interest rate.  Consequently at this time it doesn’t make sense to refinance for a lower interest rate.Reverse Mortgage Borrower Contemplating Options

The Streamline Refinance of the FHA Housing and Urban Development (HUD) Home Equity Conversion Mortgage or HECM reverse mortgage requires a calculation demonstrating borrowers receive at least 5% more or they must go through the counseling session to review their situation.  Some lenders require the counseling for any borrower refinancing their reverse mortgage.  This is a strong protection to help borrowers from falling for a lender’s marketing letters and thinking refinancing may be a good idea when it really isn’t.  Unfortunately it can cost seniors to find out this information as counselors are allowed to charge up to $125 for the counseling session.

While options should always be considered, after reviewing the above questions and their answers at this time refinancing generally doesn’t make sense for reverse mortgage borrowers.  Hopefully seniors don’t get sucked in with marketing letters & statements by completing an application so that the lender can just take an application when refinancing doesn’t make sense for them.

© 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-mT

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.

My Reverse Mortgage Funds Are Used… Now What?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

© 2010 Beth Paterson, Beth’s Revers 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-mD

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 Mortgage Borrowers’ Responsibilities… or Consequences

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Having reverse mortgage terms and responsibilities explained

Having reverse mortgage terms and responsibilities explained

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

© 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-lL

Related articles on Reverse Mortgages in Minnestoa:

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

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