Basics of Reverse Mortgages – On The Radio

Posted on May 1, 2010 by Beth Paterson, CRMP

This past week I had the pleasure of being a guest on the radio show, “The Unexpected Caregiver” hosted by Kari Berit. We covered the basics of reverse mortgages to clarify the facts and share some stories of Minnesota reverse mortgage borrowers and how they have benefited from a reverse mortgage. Rather than writing this blog post I thought I’d share the link to the show for your listening: The Unexpected Caregiver – The Reverse Mortgage Basics with Beth Paterson – Part 1

Next week I will again be a guest on the radio show when we will cover the myths of reverse mortgages. Be sure to come back and check out this show to learn more about reverse mortgages.

Kari was a great host and deligtful to work with. In addition to Kari hosting the radio show she is an author, speaker and coach. Her book, “The Unexpeccted Caregiver” is full of ideas and resources to use as a caregiver. I love her book and highly recommend it. You can find more information at her website, www.TheUnexpectedCaregiver.com

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-j0

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

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

Why Be Embarrassed To Do A Reverse Mortgage?

Posted on April 25, 2010 by Beth Paterson, CRMP

Often thought to be a mortgage for those who are cash poor and house rich, with a reverse mortgage there may be an attitude of “I hope to never have to do a reverse mortgage.” And seniors may be embarrassed to let others know they did a reverse mortgage.

Why should there be embarrassment when doing a reverse mortgage when there isn’t an embarrassment when one has a conventional mortgage? Most homeowners have a mortgage or at least did one to purchase their home aren’t embarrassed by this fact. Well, it should be the same with a reverse mortgage. Just as a conventional mortgage isn’t just for the cash poor, house rich the reverse mortgage isn’t either.

A reverse mortgage is a mortgage just like any other but has special terms for senior homeowners 62 and older. To qualify for a conventional mortgage, lenders look at one’s income, credit score, and risks to ensure the loan payments can be made. The reverse mortgage has no income or credit score requirements and no monthly payment requirements which benefits seniors who are often on a fixed income. With a conventional mortgage monthly payments are required – these can sometimes be difficult for seniors to make on their fixed income.

As with a conventional mortgage the title stays in the borrower’s name and the homeowners are responsible for paying their taxes, insurance and maintaining the property.

Additionally there are more options on how the funds are received including monthly payments structured as needed, line of credit (with a growth rate), lump sum, or a combination of these. Another difference and benefit for seniors who do a reverse mortgage is that the loan is non-recourse, which means there is no personal liability for borrowers or their estate as long as the borrower or the heirs are not retaining ownership.

The loan amount on the reverse mortgage is determined by the home value, the age of the borrower and what’s called an Expected Interest Rate (only used to determine the loan amount – the interest on the loan can be different). The older one is the more funds are available to them. Closing costs are comparable to a conventional mortgage with an origination fee, appraisal fee, title company charges and recording fees. As a FHA HUD insured loan the Home Equity Conversion Mortgage or HECM fees are regulated by HUD.

HUD insuring the loan provides advantages including guaranteeing the funds are available for borrowers; guaranteeing the lender against default or shortfalls which means the interest rates are lower (currently under 4% on the adjustable rate, 5.56% on the fixed) compared to other mortgages; providing a line of credit growth rate (available only with reverse mortgages); insuring as a reverse mortgage it is a non-recourse (no personal liability) loan.

In the current mortgage market many seniors don’t qualify for a conventional mortgage so the reverse mortgage is a great option for them. Even if they do qualify for a conventional mortgage, the reverse mortgage can be more beneficial. If they have a conventional mortgage and “life” were to happen seniors often then juggle trying to make the mortgage payments or paying their medical expense or life necessities.

With a limited or fixed income seniors often struggle to maintain their lifestyle. Sometimes they feel they need to work just to pay their bills or pay their conventional mortgage. Refinancing with a reverse mortgage can mean improved cash flow allowing borrowers to maintain their lifestyle. It can also mean that they don’t have to work.

At the age of 70, Len was still working a physically challenging job just to be able to pay their conventional mortgage. When they did the reverse mortgage Len was able to retire and enjoy his time with his family. “[The reverse mortgage] definitely saved us.” they said.

Helen, another Minnesota homeowner, has some retirement investments but rather than cashing in on those she chose to do a reverse mortgage. This allowed her to do some desired home repairs as well as have cash for future needs.

Cheryl wanted to travel so she did the reverse mortgage on her Minnesota home so she could pay off her conventional mortgage and improve her cash flow allowing her the funds to fulfill her desires without touching her retirement funds.

Knowing that the reverse mortgage is like any mortgage but with special terms one should not be embarrassed to do a reverse mortgage rather than a conventional mortgage – after all it’s just another mortgage option.

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-iQ

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 Helps Minnesota Senior To Be Prepared for Future

Posted on April 17, 2010 by Beth Paterson, CRMP

Reverse Mortgage Helped Bob Be Prepared

Bob’s wife passed away so her Social Security was no longer received. To replace the 2^nd Social Security check his financial advisor suggested a reverse mortgage so he could stay in his home and maintain his lifestyle.

We met and discussed his situation, the facts of the reverse mortgage and how it would benefit him. During his decision period, a friend suggested he sell and move into a senior apartment. But he wanted to stay in his home where he had lived for many years and with his many memories. He also wanted to keep his dog, his loyal companion. Besides he decided that moving and selling wasn’t cheaper than staying in his home and living in a senior apartment meant he’d have to make monthly rent payments which would not improve his cash flow which was his goal.

A reverse mortgage is a mortgage like any other mortgage, using the equity in one’s home, but has special terms for senior homeowners 62 and over. There are no income or credit score qualifications and no monthly payments required.* (See below for Financial Assessment requirement.) Senior homeowners maintain the title as the reverse mortgage lender does not own the home. Borrowers are responsible for paying their property taxes and insurance as well as maintaining the home. Reverse mortgage borrowers are highly protected – more so than with any other loan.

The HECM Adjustable Rate program allows for borrowers to receive their funds in monthly payments, line of credit, lump sum or a combination of these. The monthly payments can be structured as tenure payments, received as long as borrowers occupy home as their primary residence, or as they need. The line of credit grows so more funds become available in the future. There is also a HECM Fixed Rate option which is favorable if one is pulling all their funds out in a lump sum.

As a non recourse loan there is no personal responsibility to repay the loan as long as the borrower or the estate is not retaining ownership. This means if the loan balance when due and payable is $200,000 but the home can only be sold for $150,000 the borrower or the estate do not have to come up with the $50,000 as long as they are not retaining ownership. The loan is generally repaid from the sale of the property when the home is no longer the primary residence of the borrower, usually when they move, die or sell. If the home is sold for more than the loan balance the remaining equity goes to the borrower or the estate.

In Bob’s situation, the reverse mortgage paid off his current conventional mortgage and eliminated his mortgage payments – this improved his cash flow. Then Monthly Payments were set up to add the extra money he needed each month to maintain his lifestyle. Additionally funds were left in the line of credit for future needs.

A summer after he did his reverse mortgage he used some of the funds to take a desired vacation to Yellowstone National Park with his nephew – creating memories for both of them. After he returned from his trip Bob called me to share how happy he was that he was able to take the trip.

Then, as many of my borrowers do, recently he called again. As we were chatting he said that I wouldn’t recognize his house because he’s done some upgrading. In addition he had the home modified so it would be wheelchair accessible. While he doesn’t need this now, he’s prepared for the future when it will be needed. The joy in his voice showed.

Even though he didn’t have his wife to share his life he is able to have the funds to maintain his lifestyle and be prepared for his future in his home. Bob is enjoying his live with security, independence, dignity and control.

*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.

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

Posted on April 12, 2010 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

Let’s Get Real About Equity Required For A Reverse Mortgage

Posted on April 4, 2010 by Beth Paterson, CRMP

It is a common belief that one has to have a lot of equity in their home in order to do a reverse mortgage. In reality a reverse mortgage can be done if there are enough proceeds from the reverse mortgage to pay off any current liens. If there aren’t enough reverse mortgage proceeds if the borrower can come up with the difference a reverse mortgage can still be done and benefit them.

The Reverse Mortgage improves cash flow because one doesn’t have to make mortgage payments. Even if the reverse mortgage proceeds are used to pay off current liens the senior’s cash flow will be improved because they will have eliminated their mortgage payment.

For example, Wayne was struggling to make his mortgage payments of $1,200 a month. The reverse mortgage proceeds were just enough to pay off his current liens. While he didn’t have funds available from the reverse mortgage beyond paying off the mortgage, his cash flow improved by $1,200 a month because he no longer had to make the mortgage payments.

When we ran the calculations for Minnesota home owners, Jerry and Dorothy the reverse mortgage proceeds were short $3,000 to pay off their current mortgage. They chose to pull some funds from their savings so they could do the reverse mortgage and eliminate their mortgage payments – a benefit and savings in the long run. (Note that HUD, who insures the most common reverse mortgage, the Home Equity Conversion Mortgage (HECM) does not allow the difference to be from another loan or credit cards. If the funds are coming from an outside source, not from your own resources, then it must be a gift, not a loan to be repaid.)

If one is having a hard time making the payments and facing foreclosure the revere mortgage may be the solution in saving their home. Because income and credit scores are not considered to qualify for a reverse mortgage, the reverse mortgage may be a solution. If reverse mortgage funds are not enough to pay off the current loan, we work with foreclosure and housing counselors and lenders to receive a short payoff using the reverse mortgage as the funds to pay off the current mortgage.

If one is unable to handle monthly loan payments of their mortgage or credit card payments, a reverse mortgage may be the solution. Or maybe one chooses not to make monthly payments any more. A reverse mortgage may be the solution for this situation also. Once the reverse mortgage pays off one’s current lien(s) or mortgage(s), there are no more monthly payments.

Minnesota borrower, Dave said he did the reverse mortgage “to remove a monthly payment from my budget.” Adding, “A reverse mortgage means I’ll have a place to live even in case of serious illness.”

So don’t dismiss the reverse mortgage thinking you don’t have enough equity. Consider the option and see if there is a way that the reverse mortgage may benefit you.

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

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

Why are you so afraid of reverse mortgages?

Posted on March 28, 2010 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted on March 21, 2010 by Beth Paterson, CRMP

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

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

The difference between a conventional mortgage and the reverse mortgage:

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

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

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

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

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

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

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

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

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

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

Posted on March 14, 2010 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

You Need To Know Reverse Mortgage Borrowers Are Highly Protected!

Posted on March 7, 2010 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

Protected MN Reverse Mortgage Borrowers

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

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

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

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

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

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

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

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

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

Reverse Mortgages Come To The Rescue for Senior Homeowners

Posted on February 28, 2010 by Beth Paterson, CRMP

Are you looking for some funds to supplement your retirement? Do you need to modify your home to meet your needs? Are you looking for a way to pay for the home health care you need? Do you have a mortgage and find making the payments is a struggle? Or maybe you want to continue making your trip south during the winter but funds are short to do so.

A reverse mortgage may be your answer. A reverse mortgage is a home equity loan with special terms for senior homeowners 62 and older. Similar to a conventional loan, you own the home and are responsible for taxes, insurance, and the maintenance. The difference, and the benefit to seniors, is there is no income or credit score qualifications and no monthly payments required. It also offers more flexibility on how you can receive the funds including monthly payments, line of credit, lump sum or a combination of these versus a lump sum with a conventional mortgage.

An additional benefit is funds left in the line of credit grow so more funds become available over time. The loan becomes due and payable when the home is no longer the primary residence of the borrowers or on their 150^thbirthday. Another difference and benefit of the reverse mortgage is that the reverse mortgages are non-recourse loans. This means there is no personal liability if the loan balance is higher than what the home can be sold for and the borrower or their estate are not maintaining ownership.

There are no limitations on how you spend the funds. Look at how the reverse mortgage benefited some seniors:

Eliminate Mortgage Payments, Home Upgrades and Line of Credit: Dee and Peter did a reverse mortgage to eliminate their current mortgage payment, take a lump sum for some home upgrades, receive an extra $300 a month in monthly payments to supplement their Social Security, and still have funds in a line of credit for future use.
Maintain Lifestyle: Helen and Harold did a Reverse Mortgage to afford to take their annual trip to Florida during the winter months. They are thankful they are able to maintain their lifestyle.
Not Rely on Children: Nancy had accrued some debt including some credit cards and borrowing from her children. She did a Reverse Mortgage to pay off those debts and to have a line of credit available for future needs. She also enjoyed having some extra cash to purchase some things to fix up her home and to go to lunch with friends on occasion. Because her children had their own expenses and needs, they were relieved that their mother had done the Reverse Mortgage and could live more comfortably without relying on them.
Protect Other Investments: To have extra spending money without having to cash out their CDs or other investments, Jerry and Carol decided to do a Reverse Mortgage. Providing them more freedom and control of their life during retirement.
Purchase a New Home: Marilyn wanted to purchase a new home so she used the Reverse Mortgage rather than a conventional mortgage to finance her new home. This meant she didn’t have mortgage payments to make and provides her a better cash flow during her retirement years.
For more ideas on how seniors used their reverse mortgage funds visit “Meet Our Borrowers” and “Uses of Proceeds” on our Reverse Mortgages SIDAC website.

As with any mortgage loan there are closing costs. The costs of the reverse mortgage are comparable to a conventional mortgage. They include the origination fee, appraisal, title settlement and recording fees. With the FHA HECM (Home Equity Conversion Mortgage) 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. As a FHA loan the fees include the FHA Mortgage Insurance Premium – this would be the same if they are doing a conventional FHA loan. When comparing costs side by side to a conventional loan the difference is the up-front FHA Mortgage Insurance Premium. The benefits of FHA insuring the loan include guaranteed funds, a lower interest and the loan being non-recourse as well as regulating the fees. “Reverse Mortgage Closing Costs – High or Mythical” provides a side-by-side comparison.

When considering whether to do a conventional mortgage or a reverse mortgage you must consider if you can even qualify for a conventional mortgage; then if you can make the payments over time. For example, what happens if “life happens,” could you continue making those payments? Would you be stressed trying to pay living expenses, medical bills, or would you be facing foreclosure? These articles can assist you in reviewing what to do: “A Reverse Mortgage Or A Conventional Mortgage? That Is The Question.“or “Is Waiting To Do A Reverse Mortgage The Best Decision?”

When you decide to do a reverse mortgage make sure you work with an originator or loan officer who is FHA licensed, specializes in Reverse Mortgages, has years of experience and knowledge in reverse mortgages in your state, meets the state licensing requirements (for example in MN mortgage brokers need to be individually licensed – even if they are calling you from another state), and are willing to meet with you to review the details, before the application, during the application and at closing. I would caution about working with a lender from another state who is mailing all the documentation, including the application and not “meeting” with you to explain and review what you are signing. Ask for references and find out if they will be there for you even after the loan has closed. If you feel pressured, call another lender. You can find a list of questions to ask an originator at our webite: www.RMSIDAC.com, “Why Choose SIDAC,” “What To Consider When Talking To Lenders.” Or my blog article, “Don’t Let Fear Keep You From a Reverse Mortgage But Know What To Look For In A Lender.”

To ensure that borrowers understand reverse mortgages HUD requires anyone doing a reverse mortgage to complete counseling through a third-party. They will review the program and discuss other options that may be available.

Will the reverse mortgage be the answer to your financial retirement needs? Explore the option, get the facts, know what to look for in a lender, you might find it will benefit you as it has benefited hundreds of thousands of other seniors.

Additional 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.

Minnesota Reverse Mortgages SIDAC

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

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You Need To Know Reverse Mortgage Borrowers Are Highly Protected!

Reverse Mortgages Come To The Rescue for Senior Homeowners