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

Posted on June 12, 2010 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

“I was very pleased with what happened.”

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

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-l6

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

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

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

Posted on June 6, 2010 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A Letter to Minnesota Governor Tim Pawlenty Regarding Reverse Mortgages

Posted on May 17, 2010 by Beth Paterson, CRMP

From the time I first heard about the proposed reverse mortgage legislation in 2009, SF489, I have been writing to and in contact with MN Governor Pawlenty’s office. This year even prior to having details of the bill I started contacting Governor Pawlenty’s office, sending emails regarding the suspected legislation. After Friday evening May 14, 2010 when I finally found the details of the bill SF2430 I again sent Governor Pawlenty a message requesting a veto this time outlining with the details of the issues of the bill. Following is the latest letter I sent to him requesting a veto.

Dear Governor Pawlenty,

After having time to review the reverse mortgage amendment to SF2430/HF2699 I want to provide the reasons why this reverse mortgage legislation should be vetoed.

Besides the facts I have pointed out previously:

This bill has not been transparent – the amendment was just added on the afternoon of May 14, 2010 with no prior knowledge of the details to those of us in the reverse mortgage industry.
This reverse mortgage legislation is controversial. Any reverse mortgage legislation should not happen without a full hearing.
While it appears they pulled the language of suitability, this bill still contains some of the same language as the 2009 SF489/HF528 which was vetoed last year which would mean increased costs to reveres mortgage borrowers and/or cause some lenders to refrain from offering reverse mortgages in Minnesota.

The main issues include:

1. Why should a lender receive a civil penalty an dhave to pay $1,000 for something a counselor does or doesn’t do? Who and how is this going to be overseen?

The language of this is subjective setting up an opportunity for litigation and lenders may decide not to lend in the state if there is a risk of civil penalty for something they have no control over.

Implementing state laws that are different than the HUD requirements will make it more difficult for prospective borrowers to receive counseling.
- Some of the counseling opportunities currently available to our Minnesota borrowers will no longer be an option as some of the counseling agencies may decide that with different regulations they will not provide counseling in the state.
Having the state oversee counseling different than the HUD requirements is likely to be costly for the state in seeing that these regulations are followed by counselors in the state as well as across the country.

2. Adding the language for Lender default and forfeiture may mean lenders will choose not to loan with this requirement and HUD may choose not to insure the loans with these requirements.

3. Seven-day cooling off period; right of rescission will mean the loans will be more expensive for seniors and without the opportunity to waive the provision under certain circumstances such as foreclosure may mean that seniors could lose their home because the reverse mortgage could not be done timely.

It appears they changed the 10-day rescission period language to a seven-day cooling off period but it would have the same negative consequences as the 10-day rescission period.
Language is vague and subjective, i.e. “written commitment to make the reverse mortgage loan. “ What does “written commitment” mean? This makes it more likely for litigation.

4. This law would be additional costs to the state. While the bill may not be showing as a having a budget expenditure, there would be additional costs to the state in overseeing that state laws are followed versus the difference from the federal regulations. If the loan becomes more expensive to seniors and/or lenders choose not to loan in the state more seniors are likely to lose their homes without the reverse mortgage option. Consequently the foreclosures would increase and more housing would be needed for seniors and much of this would be born as state expense.

5. All lenders do not have to abide by the state rules. Federal chartered banks do not have to abide by the state rules because they are federal chartered yet brokers and non-federal chartered banks and lenders would have to follow any state laws. This would be a monopolistic-like advantage for the FDIC banks over other lenders. This obviously does not foster fair competition between all lenders and small business.

6. Seniors can apply for and if they qualify can receive a conventional or home equity loan to refinance without all the regulations that are done with a reverse mortgage. Sometimes they may feel it is easier and less invasive to do so. Unfortunately many who have taken a conventional or home equity loan run into problems making the required monthly payments then inquire about a reverse mortgage. With the lower home values many times these seniors do not qualify for the reverse mortgage and then often face foreclosure and lose their homes. Or they may just use credit cards to finance their retirement expenses then run into problems when they can’t make the payments. There aren’t additional requirements for seniors to qualify for credit cards. And there aren’t additional requirements for seniors to take out a car loan. So why have such tight regulations on reverse mortgages when seniors can make other choices that could be more detrimental to them.

7. Implementing this legislation is insulting to our seniors who have worked hard all of their lives – they are not children, they have lots of experience and knowledge – some that we could and should learn from – so why are we treating them like children? They have the right to be educated on their options then decide what is right for their situation, not have legislators, counselors, or lenders make decisions for them.

Keep in mind that: A reverse mortgage is a mortgage just like any other loan but has special terms for seniors 62 and older. And besides the special terms to benefit them to qualify and improve their life the reverse mortgage borrowers are already highly protected (see attached article)! I would like to educate those making legislative decisions on the facts and terms of reverse mortgages then determine what legislation needs to be implemented for proprietary reverse mortgages.

Again, I ask that you veto the reverse mortgage legislation SF2430/HF2699 to protect Minnesota Seniors and the reverse mortgage businesses.

Thank you,

Beth Paterson
Executive Vice President
Prestige Mortgage LLC
Reverse Mortgages SIDAC
Security, Independence, Dignity and Control
The Experts Excelling In Service
Phone: 651-762-9648
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Be sure to visit our website and
Blog for reverse mortgage facts and details:
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While Governor Pawlenty recognizes the issues as he stated in his 2009 veto letter, the unfortunate fact is that this legislation was not a stand alone bill but is attached to a foreclosure bill and without the line-item-veto authority may be signed into law. If this is the case it will be very unfortunate for Minnesota seniors as well as the reverse mortgage industry.

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

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

Do You Know The Best Kept Reverse Mortgage Secret in Minnesota?

Posted on May 7, 2010 by Beth Paterson, CRMP

During the 2009 Minnesota Legislation Session a reverse mortgage bill, SF489/HF528 was introduced and then passed by the Senate and House but eventually vetoed by Governor Tim Pawlenty. During this session I was very involved in addressing my concerns as a reverse mortgage originator, processor and senior advocate, testifying against the bills at every hearing, writing to the Attorney General Lori Swanson, the authors of the bills, Senator Tarryl Clark and Representative Jim Davnie as well as Governor Pawlenty explaining the facts of reverse mortgages and the issues with the bill if signed into law. Actually I was the only person who testified during this legislation that has actually originated and processed reverse mortgages. The others who testified were all lobbyists, attorneys or had little knowledge and no experience with the details or originating reverse mortgages.

Some of the issues of the bill included a 10-day rescission period, originators determining suitability and cross-selling prohibition that those who do a reverse mortgage could not purchase insurance products within the 18 months after the reverse mortgage closing.

Governor Pawlenty’s veto letter stated that it is important that reverse mortgages continue to be offered in Minnesota and the legislation could have unintended consequences causing mortgage bankers to refrain from offering reverse mortgages. He stated the suitability clause was poorly written and would cause litigation. Governor Pawlenty encouraged the authors to rewrite legislation that protects seniors but does not limit the availability of reverse mortgages in Minnesota.

Early during the 2010 legislation session I heard through the grapevine that a FDIC bank was supporting and “pushing” a bill modeled after the California reverse mortgage law into this legislation session. For months now I have been researching to find details about this potential legislation but to little avail. While I was so involved during the 2009 legislation, and as an actual originator trying to educate the bill authors and legislators on reverse mortgages, the process and issues with their bill, I was not contacted by any of them to assist with any new legislation.

Last month the National Reverse Mortgage Lenders Association (NRMLA) stated that a senator was expected to add an amendment on reverse mortgages to a bill that was slated to pass. My research has continued and I have learned that, yes, the author of last year’s Senate bill is working on finding a bill to add the reverse mortgage amendment to but with no confirmation of which bill and/or the verbiage of the anticipated amendment.

I have also learned that a FDIC bank is working on verbiage for the reverse mortgage amendment. Not sure if this would be the same bill or two different bills. For some undetermined reason this legislative act has taken on a shroud of secrecy.

My concern with this process and any amendment that may be added to legislation is that this is a very controversial issue that could impact those of us who are brokers or lenders that are not federal chartered banks. We are not on the same playing field – federal chartered banks do not have to abide by the state rules because they are federal chartered yet brokers and non-federal chartered banks and lenders would have to follow any state laws.

What does this mean? If a 10-day rescission is implemented, the FDIC bank would still be working off the 3-day rescission; yet non-federal chartered banks and lenders would have to operate with the 10-day rescission. The same is true for a suitability clause and for cross-selling. This would be a monopolistic-like advantage over other lenders. This obviously does not foster fair competition between all lenders and small business. Is this the purpose of the FDIC Bank in supporting and pushing through legislation that they don’t even have to follow? Is this for their gain rather than for the seniors?

Additionally this legislation has not been transparent. We have not been able to find out exactly what the legislation entails. From what I have heard there is potential that it could be similar to or even worse than last year’s legislation but this is being kept a secret.

I feel that any reverse mortgage legislation should not happen without a full hearing. And without all of us impacted, especially brokers and lenders who are not federal chartered banks having an opportunity to see and address any proposed legislation. Without disclosing the information and keeping this a secret and not consulting those who it will actually be impacting (i.e. the non-federal chartered bank originators who actually work in the field on a daily basis and with the seniors) it appears legislators are not looking at protecting seniors yet looking out for their own political gain.

When we are trying to help homeowners stay in their home, receive help with their mortgages and/or avoid foreclosure it would be a disservice to seniors to pass Minnesota reverse mortgage legislation at this time. Additionally at this time when there are so many changes on the federal level through HUD affecting reverse mortgages, it will be a disservice to Minnesota seniors to pass state legislation adding to the confusion of the product.

Additional suggested reading:

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

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

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

Posted on April 12, 2010 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

Why are you so afraid of reverse mortgages?

Posted on March 28, 2010 by Beth Paterson, CRMP

I had a call the other day from a daughter who was inquiring about helping her mom who owns her home but is currently in a nursing home. When I mentioned “reverse mortgage” she stated, “I don’t want her to get a reverse mortgage.” Before I could even get a better understanding of the circumstances to see if a reverse mortgage was even an option the conversation ended. With her mind already made up that reverse mortgages “are bad” she obviously didn’t even want the facts.

When a home health care aid, financial advisor, attorney or other professional suggest a reverse mortgage they often can see the “wall” go up and the resistance along with the response, “Oh no, I wouldn’t do that.”

Comments on articles and Blogs or in discussions show lack of information and belief of the misinformation about reverse mortgages. As I have often stated and posted in my Blog, there are many misconceptions about reverse mortgages. So why are you judging them and afraid to get the facts from an expert?

I’ve had seniors tell me that their friends have said they shouldn’t do a reverse mortgage. When I’ve asked them “Why?” the response I receive is “We’ve heard bad things about them.” “They are a scam.” But when I ask what those were or why they think this, they have no response – no real documentation or knowledge of what is bad about reverse mortgages or why they think they are a scam. It is all based on fear and misinformation.

Are you afraid to go to the doctor when treatment can make a difference for a health condition? Are you afraid to go to an accountant or attorney when they can help your circumstances? Why are you afraid of a reverse mortgage when it could make a difference in your life?

Edna explains her experience with the reverse mortgage with this statement: “After retiring I found that my income was too little for the active life I was used to, with trips to family, and a modest vacation each year. But bills were piling up and I needed a real solution if I was to stay in my home! I turned to Beth Paterson for information and was very pleased to learn there were still good choices for my situation and I could stay in my pleasant home avoiding a move! Beth your help was great! My children thank you for the time you took to explain things for them as well. I have my dignity and security back again. What a relief!”

Maybe your fear is based on the unknown. Maybe it’s based on misstatements you’ve heard. You don’t have to be afraid of reverse mortgages! Let’s look at the facts to ease your fears:

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

No other loan has as many advantages, protections or benefits to seniors like the reverse mortgage! So are why are you so afraid of reverse mortgages?

About her reverse mortgage, Corine says, “Having a reverse mortgage has taken some of the fear away that I had for the future. I have more means to meet future needs. My experience with the reverse mortgage was most positive. Beth was wonderful and most informative. Very patient and steadfast. I felt I could really trust her to safe guard my interests.”

Kay has this to say about her reverse mortgage, “Steve was extremely knowledgeable and helpful throughout the whole process. I never felt pressured to make the decision by I am very glad I did it, particularly since the volatility of the stock market pretty much wiped out my IRAs! Thank you so very much.”

If you still have your fears of reverse mortgages after seeing the facts and testimonies of those who have benefited from them, contact us so we can address your concerns and provide you with the facts. You shouldn’t have a fear about reverse mortgages.

Everyone’s situation is different and as you do with an accountant or attorney you discuss your situation and get the facts and potential solutions. As a type of home equity mortgage with special terms for seniors, the facts of reverse mortgages should be received from a reverse mortgage expert to determine if it is right for your situation. At least accept the fact that it could be an option and don’t be afraid of them. A reverse mortgage may just improve your life during your retirement as they have done for hundreds of thousands of seniors.

To help overcome your fears, read more stories on how reverse mortgages made a difference for those who did one:

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

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.

Beware Of Reverse Mortgage Misstatements – The Fact Is Reverse Mortgage Lenders Do NOT Own The Home!

Posted on March 21, 2010 by Beth Paterson, CRMP

There are many myths and misconceptions of reverse mortgages! Probably the most flagrant is the misconception that reverse mortgage lenders own the home. I get very frustrated when I constantly see or hear the statements: “You lose ownership of your home.” “The lender will own the home.” and “Good for the lender, bad for the borrower.”

The fact is a reverse mortgage is a mortgage just like any other mortgage where the borrower is using the equity of their home to meet their needs and desires now. As with a conventional mortgage, a reverse mortgage is a method of using the home as collateral to borrow money and a lien is placed against the property. The title remains in the borrowers’ name. The borrower is still responsible for taxes, insurance, maintaining the home, and abiding by the terms of the loan.

The difference between a conventional mortgage and the reverse mortgage:

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

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

The reverse mortgage needs to be in first lien position which means any current liens or mortgages must be paid off from the proceeds of the new loan. When refinancing with conventional home equity loans current liens or mortgages must also be paid off. In either situation there needs to be enough equity from the home to pay off any current mortgage.

Sometimes one can take a second mortgage with a conventional mortgage. With a reverse mortgage HUD does not allow a second mortgage. If the reverse mortgage funds are not enough to pay off the current mortgage, the borrower may choose to pay down the difference with their own funds or gifted funds. The intention of HUD is that borrowers are not incurring debt in order to do a reverse mortgage.

When Linda passed away and the loan became due and payable her heirs sold the home, they chose the real estate agent and made the decision of what the listing price would be as well as decided on the acceptable sale price. In this situation the home was sold for more than the loan balance so the remaining equity went to the heirs. The title of the home had remained in Linda’s name with the reverse mortgage, she was able to have funds to meet her needs and the heirs were able to receive the remaining equity.

Dennis took out his reverse mortgage in 2002. When he passed away this year the reverse mortgage loan balance was higher than what the house could be sold for. In his situation the FHA Mortgage Insurance Premium covered the difference so his heirs did not have to come up with the difference. Dennis was able retain ownership of his home and to use the equity during his lifetime for his needs and he did not leave a debt to his children.

With either a conventional mortgage or a reverse mortgage borrowers own the home, the title remains in their name and the mortgage is a method of using the home as collateral to borrower money. For seniors there are many advantages to doing a reverse mortgage instead of a conventional mortgage.

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.

Food For Thought To Fulfill Key Messages of Social Work Month 2010

Posted on March 19, 2010 by Beth Paterson, CRMP

During March we recognize and honor Social Workers for the value they bring to our seniors. In a variety of roles, with their knowledge and experience in providing resources social workers assist our seniors. The National Association of Social Workers provides a list of Key Messages for Social Work Month 2010. These include inspiring to improve lives and assisting with problem solving as well as resolving issues that may negatively impact the community. I’d like to offer some food for thought tying into these messages.

Ninety-three percent of seniors want to remain in their home. They are comfortable living in the home and community with their memories where they raised their children, know the neighbors, are familiar with the grocery store and the pharmacy. They feel safe and warm in their familiar surroundings. With the home as their identity it gives them comfort being in their long time home. So let’s talk about a couple ways to help fulfill the desires of seniors, improve their lives and help them stay in their home and their community.

Read rest of article at Home Instead Senior Care Burnsville or Home Instead Senior Care Hastings

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.

Which Is Best… A Fixed Rate or Adjustable Rate Reverse Mortgage?

Posted on March 14, 2010 by Beth Paterson, CRMP

Adjustable rates mortgages have gotten a bad rap but with the reverse mortgage they should be considered. While considered the most desirable, a fixed rate is not necessarily the best option. Let’s discuss the advantages and disadvantages of each.

First you need to know how the loan amount is determined. With the reverse mortgage the Principal Limit or maximum loan amount at the time of origination is determined by the home appraised value or FHA’s Maximum Claim Amount ($625,500 through 2010), the age of the borrower, and the Expected Interest Rate. The Expected Interest Rate is only used to determine the loan amount it is not necessarily the same as the interest rate on the loan.

Currently the Expected Interest Rate on the Fixed Rate is lower than on the Adjustable Rate therefore the initial Principal Limit on the Fixed Rate option is higher than the Adjustable Rate option. But this still does not make the Fixed Rate always the best option.

The Adjustable Interest Rate has the option of receiving funds as monthly payments, a line of credit, lump sum or a combination of these. All the funds need to be drawn as a lump sum to receive the best interest rate with the Fixed Rate option. While HUD requires that lenders offer the monthly and line of credit options with Fixed Rate, the interest rate would be so high that these options are never even discussed with the Fixed Rate.

Jerri needed some extra funds and was doing a reverse mortgage to meet these needs. Her situation was she didn’t have a current mortgage and she was already receiving Medical Assistance (Medicaid in MN).

When we compared the Fixed Rate to the Adjustable Rate based on her home value and age, Jeri would receive more funds with the Fixed Rate. However if she would choose the Fixed Rate option she would have to draw all the funds up front. Drawing all the funds up front would mean that unless she spent them in the month they were received she would lose her Medical Assistance.

While not receiving as much available upfront, by choosing the Adjustable Rate she could take out what she needs immediately in the lump sum and leave the balance in a line of credit and draw it when she needs it. Being the Line of Credit grows at a half percent more than the interest rate of the loan, she could have more funds available to her in the future. (Loans originated after the Fall of 2010 the growth rate is 1.25% more than the interest rate of the loan, i.e. if the interest rate is 2.5% the growth rate would be 3.75%.)

Jeri chose the Adjustable Rate so she would not lose her Medical Assistance yet have the funds she needs to meet her needs.

Tom wanted to improve his cash flow and found that making the mortgage payments on his current mortgage was a challenge. With the reverse mortgage Tom’s cash flow would improve because his current mortgage would be paid off eliminating his $1,200 monthly payments. And with the reverse mortgage monthly payments are not required. This means he has the $1,200 that he was paying in mortgage payments to no use as he needs.

In his situation the Fixed Rate would pay off his current loan and provide Tom about $8,000 more in a lump sum. Reverse Mortgage Borrower decides on option best for his situation

When we compared the Adjustable Rate option to the Fixed Rate, there was about $10,000 less available with the Adjustable Rate option. And in order to pay off his current loan Tom would need to bring about $2,000 to the closing. (The reverse mortgage lender needs to be in first lien position so all current loans need to be paid off with the reverse mortgage.)

In comparison Tom would receive $8,000 additional funds at closing with the Fixed Rate versus having to bring $2,000 to the closing with the Adjustable Rate.

Being Tom is not on Medical Assistance and he also wanted some funds upfront to pay off some credit card debt the Fixed Rate would not negatively impact him.

When Tom met with the reverse mortgage counselor he was told that if he could come up with the $2,000 the adjustable rate would be able to be done and they would have more funds when the reverse mortgage was being paid off. This is not necessarily the case.

On the surface when looking at the Estimated Amortization Schedule it does appear that the remaining equity would be higher. However it is speculative to guess what the interest rate is going to be on the Adjustable Rate option in the future. And one needs to keep in mind that the Amortization Schedule is an estimate based on the current interest rate.

Currently the initial rate on the Adjustable Interest Rate is lower than the Fixed Interest Rate so it may look more favorable. Unfortunately we don’t know if the Adjustable Rate will remain as low as it currently is, in other words it’s not guaranteed to remain the same. So if the interest rate jumps high at some point in time in the future, the remaining equity could be the same or less than what could be available from the Fixed Rate.

The Home Equity Conversion Mortgage (HECM), currently the only reverse mortgage option available in Minnesota, is insured by HUD. HUD guarantees the funds are available to the borrower, helps keep the interest rate lower, allows for the funds in the Line of Credit to grow and protects the borrower as a non-recourse loan. This means there is no personal liability to the borrower or the estate as long as they are not retaining ownership.

In Jeri’s situation by doing the Adjustable Rate while she may not receive as much up front, she will have the funds guaranteed and the growth rate on the line of credit. Additionally even if the reverse mortgage interest rate does go up, when the loan is due and payable if the loan balance is higher than the home can be sold for, she or her estate will not need to come up with the difference (the non-recourse protection).

In Tom’s situation, while when the loan is due and payable he may or may not have more equity if he did the Adjustable Rate, with the Fixed Rate he is receiving $8,000 at closing rather than having to come up with $2,000. By using the $8,000 wisely, i.e. paying off credit card debt with very high interest rates and then saving the remainder in a saving account that may earn a little interest, he has the reverse mortgage interest rate guaranteed.

As was the case when the Fixed Rate was first introduced, at some point in the future the Expected Interest Rate on the Adjustable may be lower than the Fixed Rate and provide more funds to the borrower. Not having a crystal ball we need to review each interest rate option and look at each situation as an individual circumstance without judging whether the Fixed Rate or the Adjustable Rate is better. One shoe doesn’t fit everyone and one reverse mortgage interest rate option does not fit everyone. The Adjustable Interest Rate may fit better for some circumstances and the Fixed Interest Rate better for others.

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

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

You Need To Know Reverse Mortgage Borrowers Are Highly Protected!

Posted on March 7, 2010 by Beth Paterson, CRMP

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

Third-party counseling is required on all reverse mortgages. Counseling is absolutely mandated with no exceptions and is provided by HUD trained and approved counselors. During the counseling sessions the counselors are required to follow a protocol approved by HUD. Evolving over time, HUD’s counseling guidelines and regulations now require distance between the counselors and lenders. Lenders are required to provide borrowers with a list of 5 local and 5 national counselors without steering borrowers to any specific counselor. Additionally, counselors are restricted from steering to lenders.
- The counselor’s role is to educate about reverse mortgages, explain the allowable fees, and terms of the loan so potential borrowers have an understanding of the reverse mortgage. They also provide other potential options. They counselors are not to make a decision for the borrower on whether they should or should not do the reverse mortgage.

Cross-selling is prohibited. Mortgagee Letter 2008-24 (HUD’s guidelines and requirements) states that a “HECM mortgage originator or any other party that participates in the origination of a FHA insured HECM mortgage shall not participate in, or be associated with, or employ any party that participates in or is associated with, any other financial or insurance activity.” Additionally if a lender or bank has financial departments they must demonstrate to the Secretary of HUD that they have and maintain “firewalls and other safeguards designed to ensure that (i) individuals participating in the origination of a HECM mortgage have no involvement with, or incentive to provide the mortgagor with, any other financial or insurance product; and (ii) the mortgagor shall not be required, directly or indirectly, as a condition of obtaining a mortgage under this section, to purchase any other financial or insurance product.”
- Lenders require mortgage brokers sign forms that they do not sell insurance and do not cross-sell.
- All lenders application packages have disclosures stating that annuities and/or other financial products are not required to be purchased with reverse mortgage funds.

HUD regulates the fees. HUD outlines what lenders and third-parties may charge stating they must be customary and reasonable costs necessary to close the mortgage. Mark-ups are not allowed. You may find HUD guidelines at their website (http://www.hud.gov/offices/hsg/sfh/ref/sfhp2-15.cfm) and in Mortgagee Letters 2008-34; 2006-07; 2006-04; 2004-18; 2000-10.

The Good Faith Estimate (GFE) must disclose all fees. RESPA (Real Estate Settlement and Protections Act) requires all fees be disclosed at the time of application, restricts what fees can be changed and for the fees that can be changed borrowers must receive new disclosures.

The Total Annual Loan Costs (TALC) must be disclosed. Providing a comparison of the percent of the costs to the amount received through the loan, this document discloses that the longer one keeps the loan the less expensive it is.

Sample Closing Documents must be provided at the time of application. HUD requires that borrowers must receive the sample closing documents as well as a booklet regarding home equity loans. This gives borrowers time to review the documents they will be signing at closing. They may also have family, trusted friends or their attorney review the documents during the processing.

Disclosures must be provided to borrowers at application. There are a variety of disclosures including:
- Non-borrowing spouse disclosures outlining the risks if a spouse will not be on the loan.
- Taxes and Insurances are the responsibility of the borrower(s).
- Annuities and/or other insurance and financial products are not required with a reverse mortgage.
  - If annuities are being purchased the costs of the annuity are to be included on the TALC.

Three-day Right of Recession. As with any refinance, there is a three-day right of recession giving the borrower(s) time to review and decide whether or not to proceed.

HUD insures and guarantees the funds. As a HUD insured loan the funds are guaranteed to be available to the borrower as long as the borrower(s) abide by the terms of the loan.

Non-recourse loan. Unlike any other loan, the reverse mortgage is a non-recourse loan which means there is no personal liability to the borrower or the estate as long as the borrower or their estate is not retaining ownership when the loan is due and payable.

There are guidelines for marketing practices. HUD, The Federal Trade Commission and industry associations review and have cracked down on misleading advertisements.

State licensing and the SAFE Act. Many states require mortgage brokers take test and receive licensing in order to originate loans including reverse mortgages. (Note: FDIC insured banks are exempt from these requirements.) The Housing and Economic Recovery Act of 2008 (HERA) enhances consumer protections including encouraging states to establish minimum standards for licensing and registration of mortgage loan originators. The SAFE Act will establish and maintain a national mortgage licensing system and registry for the residential mortgage industry.

Protected MN Reverse Mortgage Borrowers

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

A reverse mortgage compares to a regular home equity loan in the fact that regardless of age the mortgages are used to finance lifestyle using the home equity. With a forward/conventional loan the funds are taken as a lump sum and can be used however one wishes.

If a senior is selling they have costs associated with sale and receive funds in a lump sum. No one is controlling how they use the remaining equity from the sale of the home. And they have to determine where they are going to live. If they are renting (i.e. regular apartment, independent living, or assisted living) the money may only last for a short period of time and they may still not have funds for future needs.

If the senior (or anyone) does a forward/conventional loan the funds are received in a lump sum. They can do whatever they want with this equity. And they have to make payments which can become difficult for them if “life happens.”

If they win the lottery they have money in a lump sum which can be spent however they wish.

With credit cards seniors (or anyone) are not restricted on how they are used. They can charge for whatever they want. And they then have created debt that has to be paid back on a monthly basis.

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

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

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

Minnesota Reverse Mortgages SIDAC

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

Tag Archives: Minnesota

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

A Letter to Minnesota Governor Tim Pawlenty Regarding Reverse Mortgages

Do You Know The Best Kept Reverse Mortgage Secret in Minnesota?

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

Beware Of Reverse Mortgage Misstatements – The Fact Is Reverse Mortgage Lenders Do NOT Own The Home!

Which Is Best… A Fixed Rate or Adjustable Rate Reverse Mortgage?

You Need To Know Reverse Mortgage Borrowers Are Highly Protected!