Refinancing A Reverse Mortgage – Should you?

Posted on January 10, 2017 by Beth Paterson, CRMP

Current reverse mortgage borrowers are receiving letters encouraging them to refinance. 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?
Why would you want to refinancing?

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 you 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.

As you know, during the housing crash home values decreased. Now while home values have started to increase, we often find that the borrowers will still not receive additional funds from refinancing their reverse mortgage. (However some states the values have increased faster and higher than others. In MN, while increasing, the values have not increased enough to warrant refinancing in many situations.)

If, however, the initial reverse mortgage was taken when there was a lower lending limit, i.e. $251,750 and the 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. In 2009 and through the end of 2016, the national limit was $625,500. January 1st through December 31, 2017 the FHA Lending Limit for reverse mortgages has been increased to $636,150.

Is refinancing a good idea just because the Lending Limit has increased? 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 next two questions, whether they are receiving monthly payments or have funds in a line of credit, are important because most likely it doesn’t make sense to refinance a reverse mortgage if they still have funds available to them that will last them for a few more years.

With a forward mortgage sometimes refinancing is done to reduce the interest rate. With the reverse mortgage generally 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 or their heirs if the loan balance is higher than what the home can be sold for.

The funds available to borrowers are determined by the age of the youngest borrower, the Expected Interest Rate and the program chosen. If the Expected Interest Rate is higher, less funds will be available.

Until 2008 all reverse mortgages were adjustable rate mortgages. Don’t panic, this isn’t a bad thing with a reverse mortgage. With the adjustable rate reverse mortgage there is more flexibility by having the option of a line of credit, monthly payments, a lump sum or a combination of these.

The adjustable interest rate is made up of an index and a margin. The index is based on the LIBOR and the margin is determined by the lender. HUD set a floor at 5.06% which means the funds available will be the same if the interest is at 5.06 or below. Currently the interest rates are remaining low, below the floor so one generally will not receive more funds if they were to refinance.

In 2008 a fixed rate option was introduced. With the fixed rate one has to draw all funds as a lump sum; the line of credit and monthly payment options are not available. One is not going to gain a benefit of more funds available by refinancing for a lower interest rate. However we have had some who refinance from a fixed rate to an adjustable rate to receive the flexibility the adjustable rate option offers, especially if one chooses to make payments on their reverse mortgage.

When refinancing one will still have closing costs so you have to consider if refinancing will offset off set a lower interest rate and/or funds one is receiving.

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, generally $125 for the counseling session.

The National Reverse Mortgage Lenders Association (NRMLA) ethics committee set a guideline that reverse mortgage borrowers who want to refinance must wait a minimum of 18 months along with the “closing cost test” and “loan proceeds test.”

The last question or why you are considering is important in the decision to refinance because there could be valid reasons to refinance that benefit you. Some include a title change, i.e. adding a younger spouse to title when they turn 62, taking on a new spouse are a couple reasons.

While options should always be considered, after reviewing the above questions and your answers, at this time refinancing generally doesn’t make sense for the majority of 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.

For further details on the reverse mortgage contact us if you are in Minnesota. As your local broker, we work with several lenders and provide free information and facts with no obligation, meeting in person whenever possible. For other states, contact your local reverse mortgage specialist who is a broker, one who works with several lenders, has their Broker License/NMLS and preferably holds the Certified Reverse Mortgage Professional (CRMP) designation.

This material may be re-posted provided it is re-posted in its entirety and without modifications and includes the contact information, copyright information and the following link: http://wp.me/p4EUZQ-1q4

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.

Our Experiences with Getting Our Reverse Mortgage

Posted on February 24, 2015 by Beth Paterson, CRMP

Happy With Reverse Mortgage Actual reverse mortgage borrowers have good things to say about their reverse mortgage experiences. Let me share what some of our Minnesota reverse mortgage borrowers have said.

Dave shared, “Having had an accident that eliminated my of my teeth, total dental implants was required. Without a reverse mortgage I could not have raised the money to have the implants done. It was a great relief to be able to smile again and eat sweet corn again.”

To increase his cash flow Bernie did a reverse mortgage and had this to say, “After talking with 2 other reverse mortgage representatives, receiving apologies for non-functioning DVDs, and talking to an attorney, I chose Reverse Mortgages SIDAC. It is so helpful to deal with local persons. Both Beth and Steve followed up with everything. They were very helpful in personal visits and phone calls. Beth has also been helpful with other senior issues.”

Larry and Karen* did the reverse mortgage to stabilize their finances. They found Reverse Mortgages SIDAC to be friendly, courteous and respectful of them. Additionally they shared they found that all pertinent information was discussed regarding reverse mortgage options and costs and the details were explained so they understood them. They also felt that they were informed of what to expect during the processing and kept informed of the status through the process. In addition they said they received explanations of the forms that were signed at closing. Overall they shared their experience was positive.

Mike shared, “Without the help and knowledge of Beth Paterson who first told me about the reverse mortgage to buy I would never have been able to get our beautiful new townhome, which my wife needs because of her mobility to navigate a lot of stairs. I owe Beth a big debt of gratitude. She is the best! She is knowledgeable and she cares and worked tirelessly for us.”

Wayne recommends us stating, “Reverse Mortgages SIDAC is very customer focused and will settle for no less than what the applicant request’s objectives are. They knew the “system” very well and lead the borrower though it step by step. Above all, Reverse Mortgages SIDAC is respectful and honest.”

Helping them out of foreclosure, Gary and Cathy* said, “Thanks so much! Beth and Steve you guys are the best!”

Satisfied Reverse Mortgage Borrower Yvonne wrote, “My experience with Beth and Steve was very enjoyable. I was always able to reach one of them. I paid off my mortgage, so eliminated the monthly mortgage payment! It has made a big difference in my quality of life to have that additional income every month.”

To supplement her income, Marilyn did the reverse mortgage, sharing, “I didn’t really want to have to do this reverse mortgage because I’m too proud. But thank goodness it was there for me. Steve was so very helpful as was Beth. At closing all documents were in order perfectly. I’m very glad I reached out to this company. Everything went so well.”

Bonnie did the reverse mortgage to “secure my retirement” allowing her to retire. Of her experience she said, “Beth and Steve were wonderful! Caring, efficient, thoughtful. All are words that describe them and their service – I had contacted a nationally advertised company but did not feel at all comfortable with them. I went with Reverse Mortgages SIDAC because they are local and knowledgeable about Minnesota and my needs here.”

“Having Beth and Steve to guide me through every step of the process was the blessing that made a reverse mortgage possible. We were able to complete the process in time to obtain the maximum possible funds under the old system, making my dream of remodeling possible,” Matthew stated.

These are just a few of the experiences reverse mortgage borrowers have had. Keep them in mind as you hear about reverse mortgages and are considering one. Work with a reverse mortgage originator who is local, specializes and has experience in reverse mortgages, is ethical adhering to the NRMLA pledge and takes their time to give you the details so you understand the reverse mortgage and will have a positive experience and find the benefits. If you’re in Minnesota, give us a call.

*Some names changed to protect privacy.

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-1bu

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.

What to expect working with Reverse Mortgage Originators: Our pledge to our borrowers

Posted on February 7, 2015 by Beth Paterson, CRMP

Reverse Mortgage Borrower Satisfed with process I’ve heard from borrowers that when they have inquired about reverse mortgages from some lenders they sometimes feel pressured, receiving numerous phone calls, wanting to send them the counseling information and an application before they are ready to make a decision.

I happen to be sitting at the kitchen table with a homeowner informing her about reverse mortgages, providing her with all the details and facts and answering her questions when she received a call from another loan officer. She kindly explained to the caller that she was actually meeting with me face-to-face, a local originator and was not interested in further communication from them, the caller. Before hanging up, even though she had said she was taken care of, the other loan officer said they were still going to call her back. She expressed frustrations that they didn’t listen to her and that she had also received other calls pressuring her before she had heard about me.

As professional reverse mortgage originators we should respect your decisions and not pressure you into making a decision. Those of us who specialize in reverse mortgages and are members of the National Reverse Mortgage Lenders Association (NRMLA) pledge to a Code of Ethics and Professional Responsibility. Pledging to serve you with integrity and keep your best interests as our primary consideration, here is the pledge other NRMLA members and I have made that we will:

Know and comply with all State and Federal laws and regulations that protect reverse mortgage borrowers
Present you with the full range of reverse mortgage products available from our company.
Clearly explain the terms, benefits and costs of each product we present.
Inform you of your responsibilities as a reverse mortgage borrower including paying real estate taxes on time, keeping the property properly insured and maintaining the home in sound condition.
Work with you and, if you request, with your family and financial advisors either face-to-face or on the telephone as frequently as you choose to educate you, answer any and all questions and help you assess whether a reverse mortgage might be beneficial to you.
Explain the benefits of and statutory requirement that you have reverse mortgage counseling.
Provide you with a list of HUD-approved independent housing counseling organizations that employ exam qualified counselors to serve you. The choice of the organization is yours and yours alone.
Help you prepare for your counseling session to make it most effective by providing you with questions you might ask and information you should be prepared to provide to the counselor.
Prepare loan comparison projections and an amortization table for the loan being proposed to review at your counseling session.
Not charge any fees prior to the completion of mandatory counseling.
Help you analyze your financial ability to meet your responsibilities under the reverse mortgage.
Recommend that you seek professional advice if you are receiving assistance from SSI, Medicaid or other government programs.
Recommend you seek professional tax advice when appropriate.
Allow you to decide when to close on the reverse mortgage loan and not pressure you to make a decision.
Provide you with opportunities during the loan process to change your mind and not take the loan.
Pay off the existing liens shown of record, verify taxes are paid, and make sure that you have proper insurance upon closing.

Beyond the NRMLA pledge, there is a select group of specialists, the Certified Reverse Mortgage Professionals (CRMP), who have taken the extra step and demonstrated their knowledge and competency in reverse mortgages by having a minimum of two years’ experience, personally closing 50 or more loans, earning 12 hours of continuing education courses specific to reverse mortgages and ethics, passed a rigorous exam as well as a background check. Each year CRMPs must complete an additional 12 hours of continuing education to remain certified. CRMPs are dedicated to upholding the industry high standards of ethical and professional practices.

I am proud to say I have earned the CRMP designation. You can find a list of the other CRMPs on the NRMLA website.

Additionally Reverse Mortgages SIDAC has their own Code of Conduct that we adhere to.

As you explore the reverse mortgage option, make sure you are working with a reverse mortgage specialist who has experience with and knowledge about reverse mortgages, not just the title, one who adheres to the NRMLA Pledge to Reverse Mortgage Borrowers and even more specifically one who is a CRMP as well as one you are comfortable and respects 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.

Be Cautious on Reverse Mortgages… And From Whom You Are Getting Your Reverse Mortgage Information

Posted on August 26, 2012 by sidac

Cautious is defined as showing or using caution; a warning or having alertness or taking care in a situation. Therefore I feel you should be cautious of the food you are putting in your mouth, the medications you are taking, the safety of the products you purchase, the credit card you are applying for, how you are spending your money, answering the door when you weren’t expecting anyone, purchasing services from the person going door-to-door, the car you are purchasing, the home you are buying. Should you be cautious of reverse mortgages? Of course you should be cautious of reverse mortgages. But you also need to be cautious of who you are getting your reverse mortgage information.

State Attorney Generals, politicians and other government agencies are issuing cautions on reverse mortgages. Some of their advice is good, unfortunately, with many of these “warnings” the information is not accurate. Their advice that one should get information and have an understanding the product and it’s pros and cons is good advice… just as you should for any product or service. Unfortunately one government agency, the Consumer Financial Protections Bureau (CFBP) didn’t even talk with borrowers to write their report, therefore their report is not based on actual circumstances and discredits the quality of their information.

Senior advocacy groups also offer their cautions on reverse mortgages without having facts or experience with these unique products. Their opinions include that reverse mortgages should be used as a last resort; should only be for older seniors; are for the cash poor, not for those planning for long-term care. In my years of specializing in reverse mortgages (since 1999) I have found that these are misguided cautions. Everyone’s situation is different, so assumptions should not be made and generalized for all situations.

The reverse mortgage should not necessarily be a last resort; can benefit those 62 as well as those 82 or 92; those needing a better cash flow because their home is their only asset or those who want to protect some of their assets for their long-term care planning purposes. Rather than being an advocate, cautions of these sorts are really a disservice because they scare people rather than encourage them to get the facts and allow seniors to make their own decisions.

On a news talk show recently they were discussing reverse mortgages with a financial advisor who was being portrayed as a reverse mortgage expert. As I listened to the interview I was astounded by the inaccurate information provided by this so-called “expert.” Being financial advisors are not allowed to offer reverse mortgages, they are not the reverse mortgage specialists or the experts so they don’t have all the facts. They have their areas of specialties, as reverse mortgage specialists, we have ours. At the end of this interview an 800 number was provided with the statement that this was the HUD number to be call to get more information. I didn’t get the number written down so I don’t know whether this was a number to HUD or not. What really made my jaw drop was the interviewer’s statement that one shouldn’t need to call the number because they just heard all the “facts” from “Mr. Financial Advisor.” Unfortunately if they listened to those “facts” they would be very misled and not really understand the reverse mortgage or have the truths about them.

The FHA insured, HUD reverse mortgage, the Home Equity Conversion Mortgage or HECM, is the most common reverse mortgage in the country and the only one available in Minnesota. One can obtain reverse mortgage information from HUD. Note all those who offer reverse mortgages are not included on the FHA list of lenders. In January 2011, HUD issued a Final Rule eliminating their approval process of loan correspondents or brokers although brokers can still participate through a sponsorship from a FHA approved sponsor. For example, we, Reverse Mortgages SIDAC, are a broker, with a FHA licensed sponsor and meeting the federal and state licensing requirements through the National Mortgage Licensing System (NMLS), NMLS #173899.

While not on the FHA list, brokers offer many benefits including working with many different lenders, are local, often meeting with you face-to-face in your home. Review the difference on my post, “Are You Confused on Whether to Use A Reverse Mortgage Broker, Bank or Lender.”

So yes, take precautions with reverse mortgages, as you should with everything. But also take precautions on who or where your information is coming from.

Do you go to a plumber, politician or the media if you have health issues? No you go to the doctor, and you go to the doctor who specializes in your specific condition. The same is true with reverse mortgages, go to the person who specializes in reverse mortgages.

Get the facts from someone who specializes in them, has years of experience and only offers reverse mortgages (not other mortgages), one who works with various lenders, is local in your state not a “call-center” where they only talk with you over the phone. A financial advisor can be part of the team to help you analyze your overall financial situation.

Keep in mind, the decision is yours on whether or not the reverse mortgage is right for your situation. It’s not up to the Attorney Generals, politicians, seniors advocates, media, reverse mortgage counselor or originator/loan officer.

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

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

A Reverse Mortgage Doesn’t Leave An Inheritance. But How Are You Going To Meet Mom’s Needs Today?

Posted on April 23, 2012 by Beth Paterson, CRMP

“I want to leave an inheritance for my kids.” “I want my son to get my house.” “The reverse mortgage will eat up my inheritance.” “The reverse mortgage isn’t good for the kids.” “The reverse mortgage should only be done with those who don’t have children.” These are statements that are often seen or heard when a reverse mortgage is mentioned. My question is, do you, the children, have the money needed to cover the costs of mom or dad’s needs today if they don’t have the money and don’t do a reverse mortgage?

Let me share a story. As I always do, I have a discussion on the needs and desires of one who is considering a Home Equity Conversion Mortgage (HECM) or a reverse mortgage. In this one particular situation, the woman, Chris, was living off her Social Security income of about $600 a month. She needed new teeth, new glasses, some new clothes, and her home needed some repairs. She loved going to plays but couldn’t even afford the community plays for $5 to $10. Doing a reverse mortgage would help Chris “live with more” so she completed the application.

A few days later she called to say she decided not to proceed. When I inquired why the change, she replied that her son didn’t want her to do it. After some exploratory questions as to why, she said her son wanted her home after she had passed away so he could rent it out and make money.

How outrageous is this? Was she really going to do without all the things she needed as basic necessities not to mention just being able to have some money for a few extra things to enjoy life while she’s still alive just so her son could make money off her house after she passed away?

While I was astounded by this response, I kept my tongue in check and calmly asked her if her son was going to provide the money she needed now or was she going to do without the glasses, teeth, clothes, and home repairs so her son could benefit after she passed away. She said, “Of course not, he doesn’t have the money to help me.”

Is living from Social Security check to Social Security check just to get by and maybe doing without some of the things in life that give dignity such as having lunch with friends, getting one’s hair done, or having cable TV really a good option over a reverse mortgage? Why should one be more concerned about leaving an inheritance than having their independence and control of their life and living comfortably? Why do children think they deserve an inheritance rather than their parents being able to live comfortably, have security, independence, dignity and control of their lives? Aren’t these the same things every one of us wants? Why would you deny your parents?

Even if one’s children are able to help their parents today, do their parents really want to be dependent on their children? What happens if “life happens” to their children, they lose their job, get sick, have to come up with money to pay for their kid’s college, etc. and they no longer have the funds to help their parents? This can impact everyone!

What if one needs home care or has medical expenses? Why should one do without needed care so they can leave an inheritance? Why do children think they should receive an inheritance over their parents having the dignity of paying for their own care and expenses?

If one moves into senior housing, whether independent living, assisted living or skilled care, does one really think there will be funds left to leave for an inheritance? Or will the children have to help pay for the senior housing? Whether private pay or services paid by Medicaid or other government funds, there may not be an inheritance.

And whose money is it anyway? Who should benefit from the use of funds or assets that the senior worked so hard for? Shouldn’t the money and assets be used for whatever one’s parents need or want?

Many seniors say, “My kids are doing better than I am.” This is often the case but even if this isn’t the case, why should one be concerned about leaving money after their gone?

A reverse mortgage is a loan against one’s home to allow seniors 62 and older to remain in their home with security, independence, dignity and control. The most common, and only one available in Minnesota, is the FHA insured HECM. The reverse mortgage offers many benefits including no monthly mortgage payment requirements, and no income or credit requirements to qualify for a low interest rate. The loan is due and payable when the home is no longer the primary residence of the borrower(s) or on the 150th birthday of the youngest borrower. As a non-recourse loan, if the loan balance is higher than what the home can be sold for at fair market value, the borrower or their estate are not responsible for the difference. And the opposite is true too, if the loan balance is lower than what the home is sold for, the borrower or their estate receives the difference.

The borrower remains the owner of the home with the title staying in the name of the borrower(s). In addition, the reverse mortgage has many protections, likely more than any other financial product or service. To learn what these are read, “You Need To Know Reverse Mortgage Borrowers Are Highly Protected.”

I’m happy to say Chris did proceed with her reverse mortgage. And for the last six years I’ve received at least one call, sometimes a couple calls, a year saying she’s so relieved to have the money to meet her needs. Besides the initial needs, she has had funds to fix her car when it needed some repairs, to cover some medical expenses and she had funds to take a trip to attend a family wedding. And yes, she’s even enjoying the community plays every now and then.

Once Chris passes away her son will have the opportunity to keep the home by obtaining a conventional mortgage to pay off the reverse mortgage. If he’s renting the property out, the rent payments he will be receiving will cover the mortgage payment – he could still make money if priced accordingly. In the meantime Chris is remaining in her home with the security, independence, dignity and control she deserves and enjoying her life.

So what do you think is better? Doing without today just so a child can have an inheritance or the senior being able to fulfill one’s needs and wants while they are alive?

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?

Posted on July 18, 2010 by Beth Paterson, CRMP

Current 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.

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 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.

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.

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

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

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

My Reverse Mortgage Funds Are Used… Now What?

Posted on July 11, 2010 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted on June 27, 2010 by Beth Paterson, CRMP

When 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

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.

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.

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.

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.

Minnesota Reverse Mortgages SIDAC

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

Tag Archives: Reverse Mortgage Ethics

Refinancing A Reverse Mortgage – Should you?

Our Experiences with Getting Our Reverse Mortgage

What to expect working with Reverse Mortgage Originators: Our pledge to our borrowers

Be Cautious on Reverse Mortgages… And From Whom You Are Getting Your Reverse Mortgage Information

Should One Refinance Their Reverse Mortgage?

Reverse Mortgage Borrowers’ Responsibilities… or Consequences

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

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