Tag Archives: Reverse Mortgage Counseling

Are Reverse Mortgage Property Tax Defaults Really Due To The Reverse Mortgage? …They Are Not The Only Reason Seniors Lose Their Home

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Reverse mortgages are not the reason for tax defaultsThere is a lot of talk about the issues of reverse mortgage defaults causing borrowers to go into foreclosure and lose their homes because of not paying their taxes and insurance… claiming that the tax defaults are a reason one should not do a reverse mortgage.  The media and so-called senior advocates are pushing this point hard.  Are you aware that anyone who doesn’t pay property taxes on one’s property can face foreclosure?

If one has a conventional mortgage and doesn’t pay their taxes, the lender will pay the taxes on behalf of their borrower and increase the homeowners mortgage payments to cover the taxes.  If they let their homeowners insurance drop, the lender will place “forced” insurance on the property and pass the costs along to the borrower.

Even if one doesn’t have a mortgage, a reverse or conventional, one can lose their home for not paying their taxes – the counties foreclose on them.  Here in Minnesota the county claims the property as a tax forfeiture.

Ann, a 65 year old woman called me inquiring about a reverse mortgage stating she owed over $20,000 in back taxes and was facing tax forfeiture in just a few short months.  Ann had no other debt and her home was worth more than $300,000.  Based on her situation, she wouldn’t qualify for a conventional or “forward” mortgage.  Someone had suggested the reverse mortgage a solution to her situation.

I explained the details of the reverse mortgage: A reverse mortgage is a loan with special terms for those 62 and older.  As an FHA insured loan HUD oversees the Home Equity Conversion Mortgage or HECM providing protections like no other financial option.  With the HECM there are no income or credit score qualifications* and no monthly payment requirements.  The home would remain hers with the title in her name.  And the reverse mortgage funds could pay off her tax debt and she could leave the remaining funds in a Line of Credit with a growth rate for future needs including paying her property taxes going forward.  Or if she chose she could receive monthly payments, a lump sum or a combination of these options.

The loan would be due and payable when the home was no longer her primary residence or on her 150th birthday.  If at the time the loan was due and payable and the home was sold for more than the loan balance she or her estate would receive the difference in funds.  Or if the loan balance was higher than what the home could be sold for, as a non-recourse loan she or her estate would not have to come up with the difference, the FHA Mortgage Insurance covers the difference to the lender.

In her situation she would have had a large line of credit that would allow her funds to pay her taxes and insurance going forward… and some other life necessities or a little extra here and there to maintain or improve the quality of her life.

There are many homeowners who lose their home for not paying their property taxes.  When one gets behind on their taxes, they also reduce their option of qualifying for a conventional mortgage, especially with the tighter credit and income qualifications.

And think about it, if one doesn’t have insurance on their home and there is a fire or a storm that destroys the home, the homeowner loses their home and they don’t have money to rebuild.

Another consideration regarding reverse mortgage defaults is they are minimal compared to conventional or “forward” mortgage default foreclosures.  I’m sure some of the forward foreclosures included seniors who had been sold a mortgage without consideration on whether they would be able to make payments in the future.  In fact I know of an 80+ year old woman who did a 30-year mortgage… what was the likelihood she would be able to make mortgage payments for 30 years?  A reverse mortgage would have been a better loan choice for her.

When the senior homeowners with forward mortgages have had “life happen” and they couldn’t make the payments, they also didn’t qualify for a reverse mortgage because they owed more than the reverse mortgage proceeds, they went into foreclosure.  (We often receive calls from seniors in this situation and have to say we can’t do the reverse mortgage for them.)  If these seniors had done the reverse mortgage initially instead of doing the forward mortgage, they would be benefitting from no mortgage payments and having funds to pay their taxes and insurance as well as for their other needs.Reverse Mortgages Make Positive Difference in Seniors' Lives

Reverse mortgages make a huge positive difference in the life of senior homeowners; the majority of reverse mortgage borrowers are satisfied with their reverse mortgage.  Reverse mortgages shouldn’t be discounted because a small percentage are in default.

When reverse mortgage borrowers haven’t paid their taxes the lenders/servicers work with the borrowers to find ways to help them including sending them to counselors who  work with borrowers to find a way to assist them address the issue.

Unfortunately, Ann’s brother had told her reverse mortgages are bad and she shouldn’t do one and she listened to him.   Consequently the county foreclosed on her.  She not only lost her home and a place to live, she lost the $280,000+ in equity.  Whereas a reverse mortgage could have saved her home from foreclosure and she would have been able to pay her taxes and remain in her home with funds for other needs or desires including paying her future taxes and insurance.

So you see, reverse mortgage tax defaults are really defaults on taxes with a reverse mortgage in place and are not the only reason seniors can lose their home – they happen with conventional or no mortgages at all as well.  The media and politicians should stop attacking the reverse mortgage industry as the bad guys and gals – counties across the country are foreclosing on seniors’ homes too.

*To address the issue of tax and insurance defaults, in the near future we anticipate financial assessments with the reverse mortgage to determine if the borrowers are able to pay property taxes and insurance into the future.

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

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

Related articles:

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

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

Reverse Mortgages Receive Some Good PR Coverage

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Couple Getting Reverse Mortgage InfoWhile the media often feeds into the myths and misconceptions about reverse mortgages, the past two weeks there were two pieces that provided accurate and good information about this finance option for seniors.

First was a post in the New York Times on March15th titled, “More Homeowners Seek Reverse Mortgages At Earlier Age”  http://bucks.blogs.nytimes.com/2012/03/15/more-homeowners-seek-reverse-mortgages-at-earlier-age/

And on March 21, NBC Today Money 911 panelists provided a good answer to a daughter who thinks she should get an inheritance rather than her mother having done the reverse mortgage.  http://www.finishrich.com/blog/nbcs-today-show-money-911-march-21-2012/

The reverse mortgage provides funds for the senior’s needs and wants.  It helps them have money for their security, independence, dignity and control… no matter what their age.

It’s good to see the media catching on and providing facts for a change.

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

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

Related articles:

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

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

Should One Refinance Their Reverse Mortgage?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Related articles:

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

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

Reverse Mortgage Borrowers’ Responsibilities… or Consequences

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Having reverse mortgage terms and responsibilities explained

Having reverse mortgage terms and responsibilities explained

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

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

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

Related articles on Reverse Mortgages in Minnestoa:

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

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

Fast Forward To August… Seniors Would Have Lost Their Home To Foreclosure Under New Minnesota Reverse Mortgage Law

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Reverse Mortgage Saves MN Senior's HomeA couple days ago I shared the story of how the reverse mortgage was used to save Ken and Mary’s home from foreclosure.  While we were able to make this happen now in just the 3 weeks we had, if we had received the call from Ken and Mary after August 1, 2010 when the new Minnesota reverse mortgage law is in affect, the ending would be different.

Because of the new 7-day “cooling off” period requirement, Ken and Mary would have lost their home.  Why?  Because the new law requires that borrowers receive and sign a commitment and then wait 7 days before the loan can be closed.  This is in addition to the 3-day federal required rescission.

Let’s look at the timing.  The loan was underwritten and cleared on a Friday, just 5 days before the payment was needed to be in the sheriff’s office.  This, from my understanding is when the commitment would be issued.  So if the commitment was issued on a Friday, the borrowers would need to receive the commitment, sign it and return it.  Even if this was able to be implemented on Friday, the borrowers would need to wait 7 days before the closing could take place.  (I’m assuming actual days, not excluding Sundays and Holidays as the 3-day rescission period does – this has yet to be defined.)

The 7th day would be the following Friday, already 2 days past the redemption date.  Then we have the 3-day rescission period, Saturday, Monday, Tuesday.  Funding would take place on the next Wednesday.  This would have been 7 days after the redemption period.  Seven days too late!

An additional risk of delay as a result of the new law could be the counseling.  Currently reverse mortgage borrowers can receive counseling from HUD-approved counselors in the state or from a list of national counselors.

The new Minnesota law requires the reverse mortgage borrowers only receive counseling from HUD-approved counselors located in the state.  Because there are only 7 counseling agencies in the state of Minnesota, with all borrowers needing to receive the counseling from these 7 agencies, borrowers could face a longer wait time to receive their counseling.  Even now scheduling times with a counselor can be 2 to 3 weeks out.  While they make some exceptions if one is in foreclosure, there could still be a longer wait to receive the counseling, not necessarily the next day as Ken and Mary were able to receive now.

Being processing of a reverse mortgage cannot start until after borrowers have received and signed the counseling certificate, the longer time frame could also mean the seniors losing their home.

The law makers, in an effort to “protect” seniors, will be causing some seniors to lose their home to foreclosure.  Interesting enough the reverse mortgage bill was added as an amendment to the foreclosure bill.

Sad day - you're going to lose your homeI’m glad we were able to help Ken and Mary save their home.  It’s going to be a sad day come August 1st when we have to tell the “Ken’s and Mary’s” who call us and say we have 3 weeks to redeem our home from foreclosure, “Sorry, we can’t take your application, process, close and fund the loan in that time frame because there is a new law that says you have to find a counselor in Minnesota that can do your counseling tomorrow and then after the file is underwritten and ready to close you have to have a 7-day cooling off period in addition to a 3-day rescission period.”  This will break my heart.

In my opinion, one senior losing their home because of the new law and an extra unnecessary “cooling off” period is one too many!

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

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

Related articles:

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

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

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

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Reverse Mortgage Interest RateAdjustable 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.

Reverse Mortgage Adjustable Rate Reverse Mortgage Best for MN BorrowerReverse Mortgage Adjustable Rate Reverse Mortgage Best for MN BorrowerIn 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.

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

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

Related Articles:

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

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

 

You Need To Know Reverse Mortgage Borrowers Are Highly Protected!

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

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

Protected MN Reverse Mortgage Borrowers

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

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

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

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

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

Related articles:

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

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

New Protocol for Reverse Mortgage Counseling

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Receiving Reverse Mortgage CounselingSince its inception when HUD started insuring reverse mortgages 20 years ago, anyone considering a reverse mortgage must receive counseling from a 3rd 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.

Receiving Reverse Mortgage DetailsWhen 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.

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

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:  http://wp.me/p4EUZQ-85

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.