New Protocol for Reverse Mortgage Counseling

Posted on October 19, 2009 by Beth Paterson, CRMP

Since its inception when HUD started insuring reverse mortgages 20 years ago, anyone considering a reverse mortgage must receive counseling from a 3^rd party HUD approved counselor. Now effective this October a new protocol has been put into affect. To remain on HUD’s Counseling Roster, counselors must have passed the National HECM (Home Equity Conversion Mortgage) Counseling Exam. Only counselors who are employees of HUD-approved housing counseling agencies can take the exam and then be eligible to counsel potential reverse mortgage borrowers. Additionally they must have completed at least one HECM related training course within the past two years and meet some background check requirements.

With the intention to keep lenders from influencing counselors, lenders are required to provide potential borrowers with a list of 10 counselors, 5 are to be local and the additional 5 are the national counseling agencies. Also according to HUD’s requirements lenders are prohibited to provide only one or two counselors and/or steering to a particular counselor.

The purpose of the third party counseling is to make sure potential borrowers are familiar with the terms of the loan, the costs, and advise them of other potential options. The advantages can be if the potential borrowers have not talked with a lender or a lender has not provided the details they are getting the basics of the reverse mortgage. If they have talked with a lender and the lender has done a good job explaining the reverse mortgage, the counselor will reiterate what the lender has explained. Counseling sessions should generally take about an hour and HUD allows counselors to charge up to $125 commensurate with the time of the counseling session.

Through the years we, the ethical lenders, have been amazed how counselors have not followed HUD’s requirements, steered to particular lenders, told borrowers they shouldn’t do the reverse mortgage, how they should take their reverse mortgage funds, charged the full allowable amount of $125 for only 15 minutes of counseling time, and a number of other violations of HUD’s regulations.

When we from Prestige Mortgage, LLC, Reverse Mortgages SIDAC, meet with our prospective borrowers we usually take an hour to two hours going through the details and the calculations, reviewing their situation and discussing options for their situation. After the counseling session when we ask our borrowers how the counseling session went, we consistently hear, “They covered just what you did.” This means our borrowers have received enough education to have a good understanding of the loan.

Besides the new protocol to be a counselor, there will be a new protocol for the counseling session. Prior to the counseling session HUD is requiring that prospective borrowers receive calculation pages comparing programs, the amortization schedules, the Total Annual Loan Cost (TALC) and a booklet titled, “Use Your Home to Stay at Home” published by the National Council on Aging.

From what we understand counselors will be doing a financial analysis. Additionally counselors will be asking 10 questions in which borrowers will need to answer at least 5 correctly in order for them to receive the counseling certificate. If they can’t answer the questions correctly then they will not receive the certificate and will need to wait a minimum of 7 days and then go through another “limited” counseling session to review the topics they didn’t understand. And if counselors feel the prospective borrowers don’t comprehend the basic reverse mortgage details, they can withhold the counseling certificate.

The intention is to help borrowers assess their situation and whether the reverse mortgage is right for their financial situation. While on the surface this sounds like a good idea, the concern is whether the counselor will be passing along their opinion and not letting the borrower really make their own decisions and withholding the counseling certificate if they choose based on their opinion. This has happened in the past with counselors telling borrowers they should cut back on getting their hair done, not using the proceeds for a trip, shutting off their cable TV, etc.. I believe the discussion should be held however, the final decision should still be the borrowers. And we have to consider what provides seniors their security, independence, dignity, control and choices of their life. Visit my Blog articles: “Who Are We To Judge How Reverse Mortgage Funds Should be Used?” and “Is Your Opinion of Reverse Mortgages Denying Seniors?”

I’m proud that we take so much time educating our borrowers and discussing their situation and options so they can make their decision based on the facts of the reverse mortgage. Also that they have the information and knowledge to be able to answer the questions they will be asked during the counseling session.

With the new protocol of the counselors, I believe (hope) the best counselors will remain and the counseling sessions will provide the education without the opinions of the counselors being shared. I also hope that the counselors will be following the required protocol knowing that if they don’t HUD is likely to pull their ability to counsel. Time will tell if the new protocol of the counselors and the counseling session will benefit borrowers or make it more cumbersome and/or discouraging for the borrowers.

The best I can do is continue to educate borrowers on the facts of reverse mortgages, discuss their situation and options and respect them to make the decision best for their own situation and have the information they need when they go through the counseling session.

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

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

Is your opinion of reverse mortgages denying seniors?

Posted on September 28, 2009 by Beth Paterson, CRMP

As you are advising seniors do you advise them based on your opinion of reverse mortgages? Do you believe that reverse mortgages are expensive? Do you believe it’s foolish to do a reverse mortgage because of the “high” costs and a “better solution” would be sell? Do you believe it is more practical for a senior to move in with an adult child? Do you believe they should consider a conventional mortgage instead of a reverse mortgage? Or get some financial assistance from their child? Are you criticizing seniors for doing a reverse mortgage and not selling or finding financing from another resource?

While sometimes the cold hard financial facts may demonstrate a better solution than the reverse mortgage. However, have you considered what the senior’s desires are? What about their comfort and happiness? Do they really want to sell? Do they really want to live in senior housing? Would they really be comfortable living with a relative? Would they really be happy if they moved out of the home and community they are familiar with and comfortable in? And what impact would receiving financial assistance from a child have on the child’s financial situation? What is going to give the senior their security, independence, dignity, and control? Advising based on your opinions is denying seniors their comfort and happiness as well as their control and choice.

Being familiar with their surroundings, their community, having the bank and grocery store down the street may give comfort to a senior. The neighbor may help with the yard work, watching out for them, bringing them a meal once in awhile. Their choice may be to stay in their home because that is what brings them comfort and makes them happy. They may feel more secure living in their familiar surroundings.

Moving in with an adult child can mean a loss of independence, dignity, and control for a senior. There could be additional stress and more of a financial burden on the child.

Having a child provide financial assistance through just providing funds or a sale lease back could have a negative impact on both the senior and the child. The senior will have lost some of their independence and dignity by depending on their child. The child’s situation may change and they may not be able to afford the financial assistance in the future. If it’s a sale lease back situation, the child may need to sell to meet their own financial circumstances which could displace the senior. Which would mean the senior’s security would be at stake.

I know a woman who sold her home to her daughter and son-in-law with the agreement that she could continue to live there. When the children moved in to the home that had been hers for years the daughter and her husband took over the main living area and she had to move her belongings to the basement and a different bedroom. They started redoing the yard, not necessarily a bad thing but since they were now the owners they were making changes she was not comfortable with. Additionally they have parties every weekend which disturbs her peace and quite. Unfortunately she is no longer comfortable and happy living in “her” home. This in the long run is affecting her peace of mind and her health. She no longer has her independence, dignity or control of her living situation. And her security could be in jeopardy if the children decide they want the house to them selves and require her to move out.

A reverse mortgage helps seniors with their many financial needs including paying off current mortgage payments, repairing or modifying the home, covering their basic month to month living expenses, paying for home health care or medical expenses.

Before you base your advice on your opinion of reverse mortgages, know the facts: “When You Don’t Know What You Don’t Know About Reverse Mortgages” and some of my other Blog posts will help you with this. Read “Reverse Mortgage Closing Costs – High or Mythical?” to see that reverse mortgage costs compare to conventional mortgage costs. “I Want To Stay In My Home – Don’t Tell Me To Sell!” will help you understand that selling and moving is not less expensive and may have negative consequences in the future. And to get a better understanding on how the reverse mortgage provides, security, independence, dignity and control read, “Know A Senior Who Wants Security, Independence, Dignity, And Control? A Reverse Mortgage May Be The Answer.”

While you may believe the best solution would be for a senior to sell, move in with a relative, or do a conventional mortgage, consider what will provide comfort and happiness for the senior as well as what will meet their desires. Don’t let your opinion of reverse mortgages deny seniors. It’s their personal choice on how and where they choose to live.

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.

Know a Senior Who Wants Security, Independence, Dignity, and Control? A Reverse Mortgage May Be The Answer!

Posted on September 21, 2009 by Beth Paterson, CRMP

A Reverse Mortgage Helps Their Lifestyle

When Andrew and Harriet, both in their 70’s, went to their bank to inquire about refinancing their current loan, their banker suggested a reverse mortgage and referred them to us at Reverse Mortgages SIDAC. They needed some additional funds for home repairs including a new energy efficient furnace. Anticipating future medical expenses, they liked the idea that with the reverse mortgage they could get money for their immediate needs, eliminate their mortgage payment, and still have funds for their future needs by having a line of credit.

They decided to do a reverse mortgage with the understanding that they would still own their home (as they do with their current mortgage), monthly mortgage payments aren’t required, and the interest rate is lower than they could qualify for on a regular loan (adjustable rate currently under 4%). They understand they continue to be responsible for their taxes, homeowners insurance, and maintenance of the property and don’t have to repay the loan until the home is no longer their primary residence. They liked the idea that even if one of them goes into the nursing home, the other one can stay in the home. Additionally, it was appealing that the funds are tax-free*, Social Security and Medicare are not affected and Medical Assistance and other public benefits can still be received.

A mortgage with special terms for homeowners 62 and older, a reverse mortgage has no income or credit score qualifications** (See below for Financial Assessment requirement as of April 2015.) and a low interest rate, which offers many advantages for senior homeowners. Allowing access to cash from the equity of the home to use now and pay back when the home is no longer the primary residence of borrower(s), when the home is sold any remaining equity goes to the borrower or their heirs. With the reverse mortgage, if the loan balance is higher than the home can be sold for there is no personal liability to borrowers or their heirs as long as the borrower or estate are not retaining ownership.

“When a friend told me she was doing a reverse mortgage I thought, that sounds really good. I thought, if I do a reverse mortgage, I could do some things to my home, and maybe take a vacation. After everything was explained to me and my children in detail and in words I could understand I did a reverse mortgage. I now am getting new windows and siding and am going on vacation with my daughter,” said Judy in St. Paul.

Happy to Repay Son-In-Law from Reverse Mortgage

A few years ago Patricia had borrowed money from her son-in-law, Brad, to pay off a loan. Then Brad needed the money back for his own purposes. After consulting her family and an attorney, she did the reverse mortgage. She told us she was greatly relieved and the pressure was off her now that she no longer owed Brad money and wasn’t dependent on him. She added as a result of consulting the attorney, “Other good benefits are that I tended to my will being made, my health directives done, and a trust fund set up. All that is done now and I’m prepared for the future.”

The factors used to determine how much is loaned to borrowers include the home value or FHA lending limit ($625,500 through the end of 2009), the age of the borrower (the older one is the more funds they can receive), and an Expected Interest Rate. If one doesn’t have a mortgage on their home they benefit from having more funds available to them. Cash flow will improve when the current mortgage payment is eliminated if one does have a current mortgage on their home.

Even though home values may be lower at this time, it is still a good time to do a reverse mortgage because the interest rates are so low. When the home values go back up, it will mean there could be additional equity in the home. If one waits to do the reverse mortgage until home values go up, the interest may be higher and consequently less funds available.

As with a conventional loan, there are traditional closing costs including an origination fee, appraisal, title fees, title insurance and recording fees. With the FHA insured, Home Equity Conversion Mortgage (HECM) borrowers pay a mortgage insurance premium. Because the fees are up-front, they are often perceived as high. However, in the big picture the reverse mortgage may cost less because of the much lower interest rates historically available to borrowers with the adjustable rate.

“It was a blessing when we heard of reverse mortgages. We were behind in the property taxes and mortgage payments and faced foreclosure. We were really in a mess. The reverse mortgage cleared it all up and has lifted a weight from us that we can live in the house and not worry,” said Gwen and Robert.

A reverse mortgage has allowed thousands of Minnesota seniors to remain in their home with security, independence, dignity and control even during trying times. And if you know a senior who wants to sit back and relax with security, independence, dignity, and control, a reverse mortgage may be their answer.

*consult tax advisor who is familiar with reverse mortgages

**In April 2015 a Financial Assessment was implemented to determine borrower’s ability and willingness to pay property taxes and insurance into the future. This safeguard help make the reverse mortgage more sustainable so borrowers can remain in their home.

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

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

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

Posted on September 13, 2009 by Beth Paterson, CRMP

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

Reverse Mortgage Allowed Travel to Florida

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

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

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

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

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

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

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

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

Reverse Mortgage made it possible to attend family weddings

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

“With a reverse mortgage you begin to have independence anew and you begin to feel more secure. Being free from monetary anxiety you have better control over spending your equity. Thus a respect for yourself increases.”

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

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

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

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

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

It is NOT Reverse Mortgage Fraud When…

Posted on September 4, 2009 by Beth Paterson, CRMP

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

It is NOT reverse mortgage fraud when a senior who has a reverse mortgage and has a child or grandchild who scams their parent of money. It is theft, financial exploitation, and abuse by the child or grandchild! Children and grandchildren also steal, financially exploit and/or abuse seniors who don’t have a reverse mortgage.

It is NOT reverse mortgage fraud if a Power of Attorney misuses the funds from a senior’s reverse mortgage. It is financial exploitation and abuse by the Power of Attorney, not of, or because of, the reverse mortgage.

It is NOT reverse mortgage fraud when a title company’s closer doesn’t follow the regulations (as the story in the recent Wall Street Journal reported) and they take the money the lender sent to pay off a borrower’s current liens. It is theft and fraud by a title company’s closer and can, and has, happened with conventional loans.

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

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

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

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

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

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

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

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

Posted on August 29, 2009 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

Enjoying Life with Their Reverse Mortgage

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

The title stays in the borrower’s name same as with any mortgage. The borrower owns the home, no one else does.
The borrower may be able to stay in their home as long as it’s their primary residence or until their 150^th birthday.
Lower interest rates than other loans – historically the reverse mortgage interest rates have been lower than conventional loans, lines of credit and credit cards.
A borrower won’t lose their home because of a reverse mortgage – they don’t have to make monthly payments. They are however, as with any loan, responsible for taxes, insurance and maintaining the property and abiding by the terms of the loan agreement.
The reverse mortgage funds are tax-free (although if proceeds are used for certain purposes taxes may apply – consult with a tax advisor).
The proceeds are not considered income so Social Security and Medicare are not impacted and one can receive Medicaid.
The HECM is government insured and guaranteed to be available for borrowers. (Currently proprietary reverse mortgages are not available or are limited by county and city offerings.)
Borrowers or their heirs get to keep any remaining equity after the loan is paid off.
Allows access to more funds without paying additional closing costs – there is a growth rate with the line of credit and monthly payment options.
There are no out of pocket costs, income or credit qualifications for the reverse mortgage.
There are no prepayment penalties.
Seniors can have money for covering their everyday living expenses, making home repairs, covering medical expenses, paying for long term care, paying taxes and debts, paying off their current mortgage to improve their cash flow, buy a new car, taking a desired vacation or visiting children who live out of town.
The reverse mortgage has helped many seniors save their home from foreclosure.
The reverse mortgage gives seniors their security, independence, dignity and control.

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

The Media Needs The Reverse Mortgage Facts!

Posted on August 26, 2009 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

Celebrating her reverse mortgage

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

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

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

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

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

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

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.

Is Waiting To Do A Reverse Mortgage The Best Decision?

Posted on August 5, 2009 by Beth Paterson, CRMP

Mary, A Happy Minnesota Reverse Mortgage Borrower

Let me introduce you to, Mary, a Minnesota Reverse Mortgage borrower whose home value, as most homes, had decreased over the last few years. While she didn’t have any mortgages to pay off and didn’t have immediate needs for the funds she decided to do a reverse mortgage now instead of waiting. Her decision was based on the fact that if she waited her home value may continue to decrease whereas if she did the loan now she would have the funds in the line of credit for future use and they would grow so more funds would be available when she needs them. Additionally if she waited the Expected Interest Rate (used to determine how much can be loaned) may be higher making less funds available to her to her in the future.

Over the last few months we have talked with seniors whom we originally talked with 2, 3 or 4+ years go and had educated them about the reverse mortgage option. At that time they decided to wait and not do a reverse mortgage. Some even did a conventional mortgage or what we in the industry call a “forward” mortgage. Now “life has happened” and they decide they now want to do the reverse mortgage. Unfortunately with many of these seniors we have to tell them the sad news that less funds are available now and in some cases there aren’t enough proceeds to pay off their current mortgage, sometimes they are short $20, 000, $30,000 or more. This is due to decreased home values and changes in the Expected Interest Rate, the interest rated used to determine how much can be loaned. We are finding this can also be the case for even those we talked with just 6 months ago.

Let’s compare doing a reverse mortgage now to waiting 5 years before doing your reverse mortgage.

To determine how much is loaned with a reverse mortgage we use your age, your home value, and Expected Interest Rate. With FHA Reverse Mortgages the Expected Interest Rate is calculated weekly by the Federal Government and is used to determine initial funds available. The Expected Interest Rate is currently based on the LIBOR SWAP, as this is considered a long term projection of future interest rates. As the Expected Interest Rate changes to a higher rate, in the future less initial funds could be available to borrowers.

While home values are a little lower right now home values will most likely rise in the future. It is also likely the Expected Interest Rate will go up. This means that even with the future increased home value, the amount available on the reverse mortgage could be the same or less if you wait to do a reverse mortgage. For example:

	TODAY	5 Years from now	Initial Interest Rate is currently below 4%
AGE	70	75
HOME VALUE	$200,000	$225,000
*Based on Expected Rate of	7.14	8.14
AVAILABLE (Approximate net after fees)	$92,710	$88,199
DIFFERENCE	$4,511
These are all estimates. Different assumptions would result in different numbers. Interest rates are based on rates of 8/4/09.

Keep in mind, funds left in a Line of Credit grow. So if you have $92,710 in your line of credit today, in the future you could have more funds available to you. Here’s an example:

Line of Credit Growth*	No Draws	Draw $4,000 each year
Today	$92,710	$92,710
Year 1 Balance	$96,515	$92,515
Year 2 Balance	$100,476	$92,312
Year 3 Balance	$104,600	$92,101
Year 4 Balance	$108,893	$91,881
Year 5 Balance	$113,362	$91,662
*Growth Rate based on Assumption of Expected Interest Rate of 3.529% in this example. Actual Line of Credit Grows based on current interest rate plus .5%.

Consider having security knowing you readily have funds available in your Line of Credit without paying additional closing fees in the future. When you use the funds each year you will be taking advantage of having the money you need during your retirement years and the benefit of improved financial health.

As Jerry stated, “The Reverse Mortgage enables us to live in our home without mortgage payments. Line of credit will grow for our future needs. The whole package is a win-win for my wife and me.”

Let’s look at a scenario if you are currently making payments on a mortgage, lien, or bank line of credit. There is still an advantage to doing the reverse mortgage now. As an example, if you owe $75,000 and are paying 7% interest:

Interest Expense for next year on your current loan	$5,422
Interest Expense based on reverse mortgage rate of 4% (4% is the approximate current interest rate on the adjustable rate program) Plus .5% for FHA Annual Mortgage Insurance Premium (MIP)	$3,446
Interest Expense based on reverse mortgage fixed rate of 5.56% Plus .5% for FHA Annual Mortgage Insurance Premium (MIP)	$4,673

In addition to lower interest with a reverse mortgage, eliminating your monthly payment will improve your cash flow. While the loan balance will rise because you are not making payments, the reverse mortgage is non-recourse which means there is no personal liability to you or your estate if the loan balance is higher than what the home can be sold for if you or your estate are not retaining ownership.

My borrower, Mary was happy with her decision to do her reverse mortgage sooner than later because she now has security knowing she has funds available for her needs, independence to live on her own without relying on others for financial support, she’s maintained her dignity of being able to pay her own bills, and continues having control of her life and the ability to make her own choices.

Waiting to do the reverse mortgage may not be the best decision. Doing a reverse mortgage now may be more beneficial. Are you ready to live with more now?

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 Closing Costs – High or Mythical?

Posted on June 27, 2009 by Beth Paterson, CRMP

You’ve probably heard or read that reverse mortgage closing costs are high. That’s a matter of perspective. Have you looked at closing costs on a conventional home mortgage? We’re going to compare these here to dispel this myth.

As with a conventional home mortgage (known as a “forward”), the closing costs for reverse mortgages may vary depending on the home value and the complexity of the loan.

The third party and recording fees are standard for any loan. However, with the reverse mortgage HUD regulates the fees and requires that only the actual cost may be charged to the borrower, they do not allow mark ups such as processing fees. Look at an estimated comparison based on a Minnesota home valued at $200,000:

THIRD PARTY FEES	REVERSE FHA	FORWARD	FORWARD FHA
Appraisal	$375	$300	$375
Credit Report	$20	$20	$20
Flood Certification	$16.50	$16.50	$16.50
Courier Fee*	$25	$55	$25
Escrow, Settlement or Closing	$250	$250	$250
Abstract or Title Search	$150	$150	$150
Title Exam	$135	$135	$135
Document Preparation Fee	$100	$100	$100
Title Insurance	$585	$585	$585
Endorsements	—	$100	$100
Recording Fees	$92	$46	$92
County/Mortgage Registration Tax	$256	$275	$275
Plat Drawing	$60	$60	$60
Name Search	$30	$30	$30
Special Assessment Search	$30	$30	$30
TOTAL THIRD PARTY FEES	$2,124.50	$2,152.50**	$2,243.50

* Courier Fee is for sending a payoff on a current mortgage to the mortgage holder.

** These fees do not include all mark ups/processing fees so these may be higher when mark ups/processing fees are included.

Now let’s compare the Lender Fees:

FHA’s Mortgage Insurance Premium (MIP) is paid directly to FHA. This is 2% of the home value for the reverse and 1 ½% for a forward. The advantages with FHA insuring the reverse mortgage include:

Guaranteeing the funds are available for you.
Guaranteeing the lender against default or shortfalls which means the interest rates are lower (currently under 4%) 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 origination fee is what the originating lender receives to cover the loan officer’s salary, overhead to run the business, i.e. staff salaries, administration costs, computers, electricity, office supplies, marketing expense, gas mileage, health insurance of employees, etc.. The origination fee also includes the processing and underwriting costs which are generally separate and charged to the borrower on forward loans. HUD regulates the reverse mortgage origination fee to be 2% of the 1^st $200,000; 1% thereafter with a cap of $6,000.

The reverse mortgage fees are based on the full home value because over time borrowers can access more than the home value at the time of origination.

An estimate based on a $200,000 home value:

LENDER FEES	REVERSE FHA	FORWARD	FORWARD FHA
Origination/Points	$4,000	$2,000*	$2,000*
MIP	$4,000	$0	$3,000
Underwriting/Processing	$0	$700	$700
SUBTOTAL LENDER FEES	$8,000	$2,700	$5,700

Backend fee**	$0	$2,000	$2,000
TOTAL LENDER FEES	$8,000	$4,700	$7,700

Prepaid Interest***	N/A	++	++

*Typical points on Forward loans are 0-4%; this example is based on $100,000 loan at 2% points
** Forward loans often have a 1% backend fee
*** Number of points are directly related to interest rate charged; the more points paid the lower the interest rate; the lower points paid, the higher interest rate

TOTAL LOAN FEES	REVERSE FHA	FORWARD	FORWARD FHA
	$10,124.50	$6,852.50	$9,943.50

Note: THE DIFFERENCE IS BASICALLY THE FHA MORTGAGE PREMIUM! Refer to above comments on the benefits of FHA insuring the loan.

The fees associated with the reverse mortgage are fully financed as part of the loan with no out of pocket expenses. (As of 2010 Appraisal Management Companies must be used to order and process the appraisal. This fee is generally required to be paid for by borrower up front or “out of pocket.”)

When considering whether to do a forward mortgage or a reverse mortgage you must consider if you can even qualify for a forward mortgage; then if you can make the payments over time. For example, what happens if “life happens,” could you continue making those payments or would you be facing foreclosure?

You also need to consider that if you do a forward mortgage now, you’ll be paying the closings costs on that loan and then when you need more funds in the future and you refinance you’ll be paying the closings costs again. These together can equal or exceed the total of the closing costs on the reverse mortgage.

Whereas with the reverse mortgage you pay the closing costs upfront and then without paying closing costs again you have access to more funds through your life as long as you are living in the home as your primary residence.

In the big picture the cost of the reverse mortgage is less than a forward mortgage over time because the interest rate is lower on the reverse mortgage. Therefore typically it doesn’t take too long for a forward mortgage to make up and then exceed what difference there is in closing costs of the reverse mortgage.

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.

I want to stay in my home – Don’t tell me to sell!

Posted on June 21, 2009 by Beth Paterson, CRMP

Often thought to be less expensive than a reverse mortgage, selling and moving is encouraged when one needs funds in retirement. My question is, if you sell where are you going to live? How long would those funds last? While selling should be considered, you need to look at the all details before thinking that it is less expensive, easier and would give you more equity from your home. Let’s look at the options.

Yes, if you sell you will have up front access to more of your equity than with a reverse mortgage. Whereas you can’t access 100% of the equity at the time you are originating a loan.

Closing costs for selling include 6% for the agent as well as other closing costs. On a $200,000 home sale the closing costs would be $13,400 to $14,400 depending on what the buyer would pay towards closing costs. Not to mention the costs and hassle of the move.

Closing costs with the reverse mortgage include the same fees as any mortgage: origination fee, appraisal, title fees, title insurance, credit and flood searches and recording fees. Because the reverse mortgage is insured by FHA there is also the FHA mortgage insurance premium (MIP). Keep in mind if one is doing a forward FHA mortgage they too pay the MIP. In Minnesota on a $200,000 home value closing costs would be approximately $10,400. (More on reverse mortgage fees next week.)

So the costs for selling aren’t any cheaper than the reverse mortgage – in fact it would cost more to sell and move than the costs of the reverse mortgage.

When selling and moving into a rental property you need to consider how long the additional funds from the sale will pay the rent. For example, if you own a home valued at $200,000 and you have a current mortgage for $100,000 that would be paid off leaving $86,600 in equity (after estimated $13,400 in closing costs). If your rent is $1,500/month, that would be 58 months or just over 4 ½ years of rent NOT including utilities, or other living expenses.

If you don’t have a current mortgage, then $186,600 would be left after closing costs giving 10 years of rent payments at $1,500 per month. (Senior housing rents would more than likely be $3,000+/month shortening the length of time your funds would last for rent.) Then when you don’t have more money for rent, where are you going to live? Public Housing?

Let’s take a closer look at selling compared to a reverse mortgage:

As with a sale, the reverse mortgage would also pay off the current mortgage ($100,000 in this example).
When selling you receive all the funds in a lump sum. With the reverse mortgage funds can be received in a lump sum, line of credit, monthly payments, or a combination of these. Funds in a line of credit grow so more funds become available over time. A growth factor is also built in if you choose to receive monthly payments. Over time with the reverse mortgage you could be accessing more than the home value was at the time of origination versus just receiving the value when you sell.
- Note: Depending on qualifying factors (age, home value, & expected interest rate) with the reverse mortgage additional funds may be available after paying off a current mortgage. Even if no additional funds are available after paying off a mortgage, cash flow would be improved with the reverse mortgage because there are no mortgage payments or rent payments.
- Unless you are investing the funds from a sale and getting significant returns on your investment, the reverse mortgage provides more funds over time and offers more options. Investments that are considered risky may not be a good option for seniors.
With the reverse mortgage you will have a roof over your head without a mortgage payment or rent payment and you can stay in your home until the 150^th birthday of the youngest borrower – yes, that is until you are 150 years old − as long as the home is your primary residence, you pay your taxes, insurance, maintain the property, and don’t break the terms of the loan (same for any loan agreement).
- If you consider the costs of property taxes, insurance and maintaining the property, cash flow is still more favorable with the reverse mortgage. Total your annual property taxes and insurance then divide by 12 months. Could you rent something for this amount? For example, if your property taxes are $2,000/a year and your annual insurance premium is $800 for a total of $2,800 or $233.33 a month, add $100 a month for maintenance totaling $333.33 a month – where can you rent something for this amount?
In addition, the reverse mortgage is non-recourse which means there is no personal liability to you if the loan balance is higher than the fair market value at the time the loan is due.

Now let’s consider if you are selling and purchasing and moving to a new home. With the sale you will be paying the closing costs in addition you may also pay some of the closing costs on the purchase. Unless your current home has a lot more equity than the new home, you will need to obtain a new mortgage for the difference. Would this really benefit you?

Selling and moving may benefit you if you are downsizing to a townhome or condo. And if you do need a new mortgage for the difference of your sale price and the purchase price of the new home, a reverse mortgage home purchase program may be an option. We’ll discuss this in a future article – if you want this info sooner contact us if you are in Minnesota or a reverse mortgage lender in your state.

If your home is larger than you can manage and has a lot of equity where you could purchase a new one without the need of a mortgage, then moving might be a good option for you to access funds.

The reverse mortgage is less expensive and, in most cases, makes more sense than selling and moving. Now when you hear “consider selling over doing the reverse mortgage,” you can respond, “I don’t want to sell and move, the reverse mortgage is less expensive and gives me more options.”

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

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

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