Reverse Mortgages Provide Independence

Posted on July 4, 2012 by sidac

July 4^th we celebrate Independence Day in America honoring the day our country signed the Declaration of Independence. Signing the reverse mortgage documents is a way for seniors 62 and older to sign their own declaration of independence.

Independence is defined as “freedom from the control, influence, support, aid, or the like, of others.” This fits senior’s attitudes, they want to maintain control of their life, make their own decisions and not depend on others for assistance. They may be short funds for maintaining their lifestyle and sometimes they will eat cat or dog food because it is cheap and they do not want to rely on their children. Yet I’ll hear, “I want to leave my house as an inheritance to my children.”

Let me share a story of one of my clients, I’ll call them Ted and Anna. He was 91, she was 87. Being proud, they didn’t want to discuss their financial situation. However, their son-in-law finally talked to them about doing a reverse mortgage. When I met them and we started the reverse mortgage process, the children and I were told they were doing the reverse mortgage so they could put new linoleum on their kitchen floor. Once the loan was closed I was informed by their children that they had indeed put in the new linoleum along with new windows and they bought some new furniture. The kids were going to Ted and Anna’s and were told, “Don’t pull in the drive way, we just had it blacktopped.” When Ted and Anna went out to eat with their kids, they could pay for their kid’s meals too making them feel good that they could treat their children to a meal. Then one day the mother and daughter were sitting at the kitchen table and mom shared that before their reverse mortgage they used to go 3 days at the end of month without food or even milk because they would run out of money from their Social Security. As they were sitting there and looking at the paper, mom exclaimed, “Look, Depends are on sale, I can now stock up.”

While Ted and Anna were too proud to let their children know their financial situation and they didn’t want to depend on them to assist with their living expenses, once they signed the reverse mortgage documents they kept their independence and had funds for their needs and desires. This also improved their dignity.

Unfortunately while not wanting to rely on their children and wanting to leave their home as an inheritance to their children, seniors are doing without. This isn’t what their kids want – they don’t want their parents doing without so they can have an inheritance. Kids actually want their parents to have funds to remain independent.

Then we have the kids who are taking care of their parents by paying for groceries, meals when they go out, paying their bills, taking time from their busy schedules to clean their house, provide home care, and helping meet their other needs. This can have a negative impact on these kids’ finances. Yet their parents don’t want to use the equity in their home and do a reverse mortgage now just so they can leave an inheritance for these kids. In essence the kids are using their funds to take care of their parents now in exchange for an inheritance after their parents are gone.

Neither one of these scenarios make sense. Why be insistent on leaving an inheritance to the kids while you’re doing without now? Why depend on your kids and use their money to take care of you today so you can leave them an inheritance? They want you to have your independence now and they aren’t looking for the inheritance when you need to funds now. Actually the best inheritance you can leave your children would be to take care of yourself so they don’t have to worry about you.

Improve your cash flow during your retirement – sign your own Declaration of Independence with a reverse mortgage – then celebrate your independence.

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-YM

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.

Are “Hefty Fees” Really A Drawback of the Reverse Mortgage?

Posted on May 6, 2012 by Beth Paterson, CRMP

An all too common statement is that a drawback of the reverse mortgage is the hefty or high up front fees. But are they really hefty? Are the fees really a drawback?

First, have you looked at the fees to obtain a conventional mortgage? Do you realize the reverse mortgage fees compare to a conventional mortgage with the FHA Mortgage Insurance Premium being the difference? I’ve done side-by-side comparisons.

These comparisons reflect the third-party fees, including the appraisal, credit report, flood certificate, title fees, recording fees, Minnesota Mortgage Registration Tax, etc. are almost identical. Actually because HUD regulates the fees, mark-up and junk fees or processing fees aren’t allowed so the third-party fees may even be a little less than a conventional mortgage.

Another fee associated with both the reverse mortgage and a conventional mortgage is the origination fee, the fee that covers the lender’s time and costs associated with originating the loan including: loan officer’s and staff’s salary, licensing, administrative costs, business overhead (computers, electricity, health insurance, marketing, processing, underwriting,) etc. The underwriting fees are generally additional fees on conventional loans but have to be included in the origination fee on FHA reverse mortgages loans.

On a conventional mortgage one can “buy” a lower interest by paying a higher origination fee or a lower interest rate with a higher origination fee. The reverse mortgage is similar however the rate versus paying an origination fee or not is determined by the product (fixed or adjustable rate) and what the lender sets as allowable. For example, with the fixed rate one may have zero origination fee but the interest is a set amount determined by the lender or there may be a lower interest rate but the FHA allowable origination fee is included. (2% of the first $200,000, 1% on thereafter, with a cap of $6,000). Again the fee is comparable between a reverse mortgage and a conventional mortgage.

The fee that really makes the difference from a conventional mortgage is the FHA Mortgage Insurance Premium (MIP). The most common reverse mortgage, and only one available in Minnesota, is the HUD Home Equity Conversion Mortgage or HECM. With the Standard Reverse Mortgage the up-front MIP is 2% of the home value. (The MIP on a forward FHA loan is currently 1.75%.)

The many benefits of paying the FHA MIP on the reverse mortgage include:

Guaranteeing the funds are available for you.
Guaranteeing the lender against default or shortfalls
Keeping the interest rates lower, the interest rates have historically been lower compared to other mortgages.
Providing a line of credit growth rate (available only with reverse mortgages).
Ensuring as a reverse mortgage it is a non-recourse (no personal liability) loan; FHA makes up the difference if the loan balance is higher than what the home can be sold for.
Requiring counseling by a third-party HUD trained and approved counselor.
The HECMs are highly protected. See my Blog article “You Need To know Reverse Mortgage Borrowers Are Highly Protected.”

One must understand that the reverse mortgage is an open-ended term loan (the due date on the mortgage is the youngest borrower’s 150th birthday*) with no limit to how high the balance can grow and the collateral is only limited to the property (a non-recourse loan with no personal liability to the borrower or the heirs). With FHA’s generous allowance of proceeds, not based on income, assets, or credit scores, some reverse mortgages will end up with loan balances higher than the value of the home either due to the current declining home values or the nature of the loan with no monthly payments being made and accrued interest and on-going FHA MIP (essentially one is borrowing these fees each month). Therefore the MIP and other closing costs are necessary to make the program viable and are not a drawback to the reverse mortgage.

When comparing the costs of a conventional mortgage to the HECM Saver program which reduces the upfront MIP to .01%, the fees are essentially the same. However, in exchange for the reduced upfront MIP, reverse mortgage borrowers receive fewer funds and the interest rate is higher.

It’s important to note that the fees become part of the reverse mortgage loan balance – there are no out-of-pocket fees other than the cost of the appraisal. So borrowers are not required to come up with the money to cover the fees before they do a reverse mortgage.

If one thinks about it selling one’s home could also be considered expensive with similar fees to the reverse mortgage (the generally higher real estate agent’s commission and again the FHA MIP is the difference). Are the real estate commission and closing fees a drawback to selling one’s home?

Besides looking at the costs of a conventional loan or selling one’s home, how expensive are credit cards? While they don’t have up front costs, the interest on credit cards can be outrageous which over time this can make the credit card expensive. We often find seniors have high credit card debt because that is what they are using to finance their living expenses. The cost of credit cards don’t seem to be a drawback, people still get and use credit cards.

If a senior can’t afford to make mortgage payments, if they need funds for repairs, for home care or medical expenses, for daily living expenses, for the extra elbow room, funds to make that trip for a family reunion or wedding, or even to be able to check something off their bucket list, the benefits may outweigh the costs. The security, independence, dignity and control and peace of mind received from the reverse mortgage may outweigh the costs.

Do you not refinance or purchase a home because the of the fees on a conventional loan? And what about the costs of surgery? Would you not have surgery if it would improve or save your life just because of the fees? The cost of food is going up but do you do without food because of the costs? Not if the benefits outweigh the costs, right? Well, if the benefits of the reverse mortgage outweigh the costs, then the fees are not a drawback of the reverse mortgage.

*The reverse mortgage is due and payable when the home is no longer the primary residence of the borrower(s), i.e. when they sell, move, die. The due date on the reverse mortgage is the 150th birthday of the youngest borrower rather than a 15 or 30 year term on 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.

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.

Reverse Mortgages Receive Some Good PR Coverage

Posted on March 24, 2012 by Beth Paterson, CRMP

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

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

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

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

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

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.

Senior Loses Home After Listening to “Reverse Mortgages Are Bad” Advice

Posted on March 1, 2012 by Beth Paterson, CRMP

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

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

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

She of course wanted to think about it. During a follow-up conversation she said she had talked with her brother who told her she shouldn’t do the reverse mortgage because they are bad. When I inquired why he thought they were bad, she didn’t have a response. I asked if her brother could come up with the funds to pay her back taxes… “Maybe.”

I reiterated the details and benefits of the reverse mortgage emphasizing that the funds could pay the back taxes and she would have funds in a line of credit for her future taxes and that she wouldn’t have to make monthly mortgage payments. (Borrowers are still responsible for paying property taxes and property insurance.) I also offered to meet with her and her brother to educate them on the details and facts of the reverse mortgage.

A couple weeks later during another follow-up conversation, she was still hesitant because of her brother’s advice. I again inquired if her brother could come up with the funds for her back taxes… “No, he doesn’t have that kind of money!” With an inquiry if she had another way of coming up with the funds for the back taxes… no she didn’t. And her brother didn’t want to meet to learn the details and facts of the reverse mortgage. I explained that if the county foreclosed on her home she would be losing around $280,000 in equity.

Time was getting down to the wire in order for us to have time to process the reverse mortgage so I did one more follow-up call. She said her brother warned her not to do the reverse mortgage because they were “bad” and expensive. I reviewed the costs explaining they compare to a conventional mortgage other than the FHA mortgage insurance. And even beyond that the benefit of the reverse mortgage outweighed the costs… saving her home from foreclosure and the loss of around $280,000 in equity.**

A few months later when I checked the county records, the county was the owner of her property.

Listening to her brother who did not know, and was unwilling to learn the details and facts of the reverse mortgage, Ann had lost her home and a lot of equity. With all the benefits and protections, the reverse mortgage would have made a huge difference in the quality of her life.

It was sad and unfortunate that she listened to the unwise advice of “Don’t do a reverse mortgage, they are bad.”

Next time you hear “Reverse mortgages are bad” or “Don’t do a reverse mortgage” or “One should wait until their 70’s to do a reverse mortgage” remember this story and how the reverse mortgage could have made a difference.

*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.

**Property taxes are levied and collected by counties. When property taxes are past due after a certain amount of time (redemption period) they go into tax forfeiture. In most counties across the US, to get their money quickly, the county issues a tax lien certificate or a tax deed and will conduct a sale where the tax lien certificate or tax deed are sold at auction often for only the taxes, penalties and interest due. The winning bidder receives a legal claim to the tax debt or tax lien certificate. The property owner has the opportunity to pay off the debt and reclaim the property. If the owner does not pay back the certificate then the investor often gets the entire property for only the taxes, penalties and interest due.

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 People So Resistant to Reverse Mortgages?

Posted on February 17, 2012 by Beth Paterson, CRMP

I was at a resource provider network meeting the other morning when a Minnesota County government agency talked about their financial and foreclosure counseling services. When I mentioned they should keep in mind that a reverse mortgage should be considered for homeowners over 62 the response was resistance. Here’s how the conversation went.

Me: “Keep in mind that a reverse mortgage may be an option for your clients who are homeowners 62 and over.”

Agency: “Our clients don’t qualify for a reverse mortgage.”

Me: “Why do you say that? Are they homeowners 62 and over?”

Agency with hesitancy: “Some, but not many.”

Me: “Well for those 62 and over a reverse mortgage may help them.”

Agency, again with hesitancy: “They are in foreclosure.”

Me: “But a reverse mortgage may help save their home from foreclosure.”

Agency, defensively: “But one spouse may not be 62.”

Me: “The requirement is that both borrowers be 62 so the younger one would need to be removed from the title, and while that is risky and not normally recommended, if it’s a matter of losing their home or being able to stay in their home, the reverse mortgage may be an option. It’s at least worth considering.*”

*I suggest they talk with an attorney so they are aware of the risks of removing a younger person from the title.

Agency: “But there may not be enough funds to pay off their mortgage.”

Me: “We can work with the banks to negotiate them taking the reverse mortgage proceeds as a payoff. It’s been done where the banks accept the reverse mortgage as a payoff. It can be a challenge but it is at least worth a discussion and a try. We have done some amazing things.

“All I’m saying is that instead of saying there aren’t options, we can’t help, the reverse mortgage should at least considered as an option and explored for those over 62.”

This conversation raises the question, why are people resistant to reverse mortgages when it can make such a difference in the lives of seniors?

Are they so hung up that it’s not their agency solving the problem they don’t think anyone can? Or is it they don’t want someone else to help? Are they afraid that someone else can help and they can’t? Is it because their funding depends on them solving the problem and it’s more beneficial to them to not help and not provide all options? Is it because they are a non-profit government agency and we are a private for-profit company? Is it they don’t think I should get paid for my services (after all as a government non-profit agency and as paid staff they are making a salary with sick days and vacation days while I’m commissioned, no paid sick or vacation days.)? Or is it they just don’t understand reverse mortgages?

I don’t understand why they or others wouldn’t want to offer an option that may benefit the seniors even if it’s not their program that solves the problem. Even if it helps just one person/couple, isn’t it worth it?

A reverse mortgage is a mortgage that has special terms for those 62 and older to use their equity while they still own and live in the home. Income and credit aren’t considered to qualify for an interest rate and monthly payments are not required during the term of the loan. The loan is due when the home is no longer the primary residence of the borrower(s).

The most common reverse mortgage, and only one available in Minnesota, is the HUD Home Equity Conversion Mortgage or HECM which is insured by FHA. The borrowers pay a FHA Mortgage Insurance Premium (MIP).

When the loan is being paid off, the borrower or the estate keep any difference between the loan balance and the sale price. As a non-recourse loan, if the loan balance is higher than the sale price on the home, the lender is repaid the fair market value and the borrower doesn’t have to pay the difference – the FHA MIP covers the difference. The loan documents spell out there is no personal liability to the borrower or their estate, unlike conventional mortgages that can get funds from the estate to cover the loan balance.

One of the other meeting attendees commented to me after the meeting, “It appears they don’t really care to be helping people.” That’s a sad impression to give when you are an agency paid to help the community.

I believe we all need to work together and offer options to help, whether non-profit, government or private for-profit. If the reverse mortgage is considered and explored but is not the right option, I want to be able to know about other options and people who may help so I can do referrals to someone who might be able to assist them. This is why I attend provider network meetings to learn about resources and options.

I wish others wouldn’t be so resistant to reverse mortgages when they can make such a difference for seniors.

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.

Are you afraid to do a reverse mortgage? Twelve Reasons You Shouldn’t Be.

Posted on October 30, 2011 by Beth Paterson, CRMP

Does what you’ve heard about reverse mortgages make you afraid of them? Has your fear kept you from getting the facts to see if one might benefit you?

A reverse mortgage is a mortgage with special terms for seniors 62 and older. The most popular, and only one available in Minnesota, a Home Equity Conversion Mortgage or HECM, is insured by HUD. Let’s look at twelve reasons you shouldn’t be afraid of reverse mortgages.

Reverse mortgages are highly protected – One of the protections includes that borrowers receive counseling from a HUD trained and approved third-party counselor. Others include prohibiting cross-selling, disclosures and implementing requirements that limit scams and fraud.
No monthly payments required – Your cash flow improves because you don’t have to make a monthly mortgage payment. Instead of making monthly mortgage payments, the reverse mortgage is due when the home is no longer the primary residence of the borrower(s) or on the 150th birthday of the youngest borrower. And with no monthly mortgage payments required, the risk of foreclosure is reduced.
A variety of program options are available – The HECM Standard, HECM Saver and Home Purchase Programs are available with a fixed rate and adjustable rate options. This gives you options to find one that is right for your situation.
The interest rate is not determined by your income and credit score – The interest rate is based on the program chosen, no matter what one’s income or credit score is. With a conventional mortgage, one’s credit score, income and assets will impact the interest rate of their loan – with a fixed income the interest rate is likely to be higher if one even qualifies for a conventional mortgage.
Funds are guaranteed to be available during the term of the loan – As long as one abides by the terms of the loan, the funds are guaranteed to be available. Borrowers are responsible to pay property taxes, insurance and maintain the home and if applicable pay home owner association fees.
Flexibility on how funds are received – Funds are available to borrowers in a line of credit (has a growth rate), monthly payments (structured to your needs), lump sum or a combination of these.
No limitations on how the funds can be used – One can use the funds received from the reverse mortgage however they choose – there are no restrictions. The reverse mortgage is like any other mortgage where the borrower is using the equity of their home to meet their needs and desires now.
The title stays in your name – the bank does NOT own your home, you continue to own the home.
Closing costs are comparable to conventional loans – as with any mortgage there are closing costs. While often said to be expensive, actually the reverse mortgage closing costs compare to those of a conventional loan.
Fees charged are regulated by HUD – HUD only allows the necessary fees which are standard and customary – no mark up and “junk” fees are allowed.
Reverse mortgages are non-recourse – This means if the loan balance is higher than what the home can be sold for, the borrower or their estate does not have to come up with the difference. If the home is sold for more than the loan balance, the difference goes to the borrower or their heirs.
Social Security and Medicare are not Impacted – One can still receive Social Security and Medicare with a reverse mortgage. Medicaid may also be received under ceratin circumstances. The reverse mortgage is a loan and the proceeds are not considered income.

Face your fear and get the facts about reverse mortgages and see if one may be right for your situation. You may find that a reverse mortgage could make your life easier and provide you cash for your needs and desires.

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.

Evaluating HECM Reverse Mortgage Payment Plan Options

Posted on October 23, 2011 by Beth Paterson, CRMP

A Home Equity Conversion Mortgage or HECM, also known as a reverse mortgage, is a mortgage which allows seniors 62 and over to convert the equity of there home into cash. Unlike a conventional mortgage, with the HUD insured HECM there are no monthly mortgage payments required. Instead the borrowers have options on how they want to receive the cash “paid” to them: a lump sum, monthly payments, a line of credit, or a combination of these. It shouldn’t be looked at as “one size fits all.” One needs to evaluate the different options to decide which is best for their situation. Let’s review them here.

A Lump Sum – A lump sum is pulling an amount of funds at the time of closing. A lump sum can be done with both the adjustable rate program and the fixed rate program. The adjustable rate program offers more flexibility because one can choose the amount they want at the time of closing with the remainder received in monthly payments or a line of credit. The fixed rate program requires borrowers pull out all of the funds in a lump sum at the time of closing.

Considerations that need to be taken into account with the lump sum:

Pulling all funds at closing is ideal if one has a use for all the funds. For example used to pay off a current mortgage or other debt or to purchase a new home without the requirement of monthly mortgage payments.
If one doesn’t have a use for all the funds, what will be done with funds not used? A savings account and CDs are not paying much interest so that is generally not wise to pull all funds and place in savings accounts or CDs.
The interest starts accruing on the loan balance when the funds are drawn so in the case of a lump sum, the interest is added on the amount drawn up front. If one doesn’t have a use for the funds and they are put in a savings account, the interest accrued will likely be higher than what is earned as interest on funds in a savings account.
Pulling all the funds in a lump sum could impact one who is on or going on Medicaid (Medical Assistance in MN) or other public benefits. Funds from the reverse mortgage are not considered income because it is a loan against the property, so they are not considered an asset for Medicaid qualifications. However if one pulls funds from the reverse mortgage and place them in their checking account, savings account, a CD or other investments, they could then be considered an asset and impact qualifying for Medicaid and other public benefits.

Minnesota law allows for reverse mortgage borrowers to pull funds and spend them in the month they were received and not impact their Medical Assistance and other public benefits. Check with your state’s laws to see what is allowed where you live.

For example I had a borrower who was on Medical Assistance (MA), doing the reverse mortgage to be able to remain in her home with home care. For her convenience the family was having a bathroom installed on the main floor. At the time of closing they pulled $10,000 for the bathroom installation. Because it was spent within the month, she remained on MA. However if they had only spent $5,000 of the lump sum draw, she may have lost her MA benefit because the additional $5,000 would have put her over the allowable $3,000 in assets. (Check with an elder law attorney to see what is allowable in your state.)

With their fixed income Paul and Mary were struggling making their mortgage payments on their conventional mortgage. They did a fixed rate payment plan HECM using all the funds available from the reverse mortgage to pay off their conventional mortgage. Without having monthly mortgage payments their cash flow improved: the $1,200 monthly mortgage payment they had been making on their conventional mortgage was now available to meet their other needs.

Jim and Paula used the fixed rate reverse mortgage to purchase a new home closer to their children.

I emphasize that choosing to pull the funds out in a lump sum should only be done if you have a use for all or the majority of the funds at the time of the draw.

Monthly Payment Option – The amount of money one could receive as a monthly payment. The borrower can receive tenure (for “life”/as long as the home is your primary residence) payments or determine the amount they wish to receive each month. For example, a term payment can be received for a certain period of time, i.e. 10 years. Or a fixed amount each month, i.e. $100 each month or $800 each month. This option is only available with the adjustable rate program.

Considerations for receiving monthly payments:

It’s a great option to add extra cash each month in an amount that fits one’s needs if they need a regular amount each month.
Offers control so one pulls out what one needs each month.
The loan balance won’t grow as quickly as with a full lump sum draw. Interest only accrues on the amount pulled at which time it becomes part of the loan balance.
If one has not accessed all the funds via monthly payments they are not part of the loan balance to be repaid.
One can receive Medicaid and other public benefits while receiving funds in monthly increments.
If one is not spending the funds each month and one is leaving them or a portion of them in their checking account, their checking account balance could accumulate so that they have an asset more than what is allowable for Medicaid or other public benefits.

Margaret was receiving home care and needed additional funds to cover the private pay charges. A reverse mortgage was set up for the amount she needed each month.

With his reverse mortgage, Gene chose the monthly payment option to meet his need of an additional $200 a month to supplement his Social Security payments.

A line of credit – A credit amount from which the borrower can receive funds at any time and in any amount of their choosing. With the reverse mortgage the amount of the line of credit cannot exceed the Principal Limit. This option is only available with the adjustable rate program.

Considerations for the line of credit payment option:

One chooses when they want to draw funds and in the amount they need or want.
Offers flexibility and control over your cash flow.
The loan balance won’t grow as quickly as with a full lump sum draw. The loan balance is increased at the time the borrower accesses funds in the line of credit.
If one has not accessed the funds in the line of credit they are not part of the loan balance to be repaid.
One can receive Medicaid and other public benefits with the line of credit option – as long as the funds pulled are spent in the month they are received (check with your state).
Money in the line of credit can grow, so more money could be available to the borrower in the future. Often confused as an interest rate, it is actually a growth rate. Growth rate means more funds are available for use at a future date. If one has not accessed the money in the line of credit it is not their money so interest is not earned.

Connie did a reverse mortgage so she would have funds available in a line of credit for emergency needs.

After paying off a conventional mortgage for Bob, he left the balance in a line of credit. A year later he pulled some funds and took a dream vacation to Yellowstone with his nephew. He also pulled funds at a later date to modify his home so it would accommodate a wheel chair when the time came.

A combination of payment plans – An option to pull funds as a lump sum at closing, leave some funds in a line of credit and receive monthly payments; pull funds as a lump sum to meed an immediate need then leave the balance in a line or credit or set up as monthly payments; or leave some funds in a line of credit as well as receive monthly payments. This option is only available with the adjustable rate program.

Considerations for the combination payment plan:

Offers flexibility to meet one’s needs.
Review considerations for each option outlined above.

When Jerry and Delores did their reverse mortgage a conventional mortgage was paid off, they pulled $3,000 out in a lump sum for some immediate needs, set up a payment plan of $300 a month and left the rest in a line of credit. This fit their needs to improve their cash flow.

Dorothy needed hearing aides. She did her reverse mortgage, using a lump sum draw to purchase her hearing aides then leaving the balance in her line of credit for her future needs.

Note that with the adjustable rate program one can change the payment plan during the term of the loan. For example, after having a mortgage of $50,000 paid off at closing, and initially one pulls $1,000 at the time of close but leaves the balance in the line of credit, after 3 years one can have the payment plan restructured to receive a monthly payment amount. There is a one-time fee of $20 for the payment plan change.

Three years after Jerry and Delores did their reverse mortgage they no longer needed the monthly payments so they contacted the servicer of their reverse mortgage and stopped the monthly payment, leaving all the funds in the line of credit.

These same payment plan options are available for both the HECM Standard and the HECM Saver.

The reverse mortgage is beneficial to seniors if the right payment plan is chosen. As outlined, there are advantages and disadvantages for each of the options. Review these considerations and work with your reverse mortgage expert to help you decide which option is right for your 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.

You Need To Know That With A Reverse Mortgage You Remain in Control

Posted on October 11, 2011 by Beth Paterson, CRMP

When sitting down with a new prospect the other day I asked what they had heard or thought about reverse mortgages. Bob responded that reverse mortgage borrowers lost control of their home and their money. Have you heard this too? I want to correct this misconception for you.

Reverse mortgage borrowers remain in control of their home. They own the home, just like with any mortgage.

They have the option to paint the home the color of their choice, plant trees or landscape as they choose, and to decorate the inside as they desire (or not make changes).

I had one borrower ask if they could paint their house purple. With a chuckle I responded they could although the neighbors may not like the color purple. The point is, as the homeowner they have the option to choose what color they want to paint their house.

Borrowers are, however, responsible for maintaining the home. This is to the homeowners best interest anyway, and whether they have a reverse mortgage, a conventional mortgage or no mortgage at all. Maintaining means things like no bare wood or chipped paint, roof replaced when needed, foundation and structure is sound, electrical and plumbing in working order.

In their will or trust the reverse mortgage borrowers still choose who will inherit the home or equity of the home.

While the reverse mortgage borrowers will be using the proceeds for their needs or wants during the term of the loan, when the home is no longer their primary residence, the loan is due and payable. The loan is generally paid back from the sale of the home with no personal liability to the borrower or their heirs. If the home is sold for more than the loan balance the borrower or the heirs receive the difference.

If an heir wants to keep the home, they have this option – they would just need to pay off the reverse mortgage balance. This can be done through a conventional mortgage, their own funds or if they were the beneficiary on an insurance policy.

Note that if the loan balance is higher than the fair market value, as a non-recourse loan the borrower or their heirs only need to pay the fair market value of the home, they do not need to come up with the difference. With the FHA HUD insured Home Equity Conversion Mortgage (HECM) the FHA Mortgage Insurance will cover the difference for the lenders.

They have the option to sell when they want and choose the real estate agent. If they have passed away then their estate chooses the real estate agent.

The way one wants to receive their reverse mortgage proceeds is also their choice. They can receive the funds in a line of credit, monthly payments, lump sum or a combination of these.

And how they use these funds is in their control – lenders cannot dictate how one spends the proceeds from their reverse mortgage. Borrowers can and have used their reverse mortgage funds to pay for home repairs, purchasing a new car, traveling, home care or whatever one needs or wants… it’s their choice.

The reverse mortgage provides control for borrowers to have funds so they can make their own choices. For example, where they want to live (in their own home vs government subsidized housing), who they want to care for them (vs the government deciding which home care agency they can use).

Reverse mortgage borrowers do remain responsible for paying their property taxes, having home owners insurance, maintaining the property and paying home owner association dues if applicable, just as they do with or without a conventional mortgage.

Losing control of your home or money with a reverse mortgage is a misconception. In reality reverse mortgage borrowers have control and in some cases even more control than without doing a reverse mortgage. Having funds available gives them more choices and options.

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

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

Facts Are Needed About The 101 year-old Woman Who Did A HECM Reverse Mortgage And Was Evicted

Posted on September 18, 2011 by Beth Paterson, CRMP

This last week headlines across the country talked about the eviction of a 101 year-old Detroit woman with a FHA insured HUD Home Equity Conversion Mortgage (HECM) reverse mortgage. In reading the articles and viewing the TV media pieces I find that facts were missing or misconstrued about this situation and reverse mortgages. While Ms. Texana Hollis is returning home, her story leaves a lot of misinformation about reverse mortgages and the benefits they provide to the many borrowers. Let’s take a look at the misconceptions of Ms. Hollis situation.

Foreclosure/eviction of Ms. Hollis was not due to reverse mortgage but due to lack of payment of taxes, a requirement of the loan (all mortgages as a matter of fact).
Ms. Hollis son and POA facilitated her in getting the reverse mortgage but didn’t follow through on assisting in making sure the terms of the loan were followed, i.e. he or other family members ignored the requirements to pay property taxes, insurance and maintain the home.
I’ve seen statements such as “signed the house over to a reverse mortgage.” A reverse mortgage is a mortgage with special terms for seniors 62 and older. The title remains in the borrower’s name – they are not signing the house over to anyone, they are taking out a mortgage with a lien against the property. My blog article “Beware Of Reverse Mortgage Misstatements – The Fact Is Reverse Mortgage Lenders Do NOT Own The Home!” addresses this fact.
Articles state that the son failed to make payments on the mortgage. Payments are not required on a reverse mortgage. One of the special terms of the reverse mortgage is that the borrower can have access to funds without making monthly mortgage payments. The loan is repaid when the home is no longer the primary residence of the borrower(s). The amount repaid includes the funds received up-front or through monthly payments or draws on the line of credit along with the closing costs, interest and on-going FHA Mortgage Insurance Premiums (MIP).
Ms. Hollis’ reverse mortgage funds were used for home repairs. It appears from several sources that they were also used by the son for his purchase of a car, donations to a church and other things. If this is the case, this is financial exploitation, NOT the fault of the reverse mortgage and NOT reverse mortgage fraud as some articles indicated.
Statements such as, “Ms. Hollis only learned about the eviction when the police arrived and carried out her belongings” are misleading. In reality loss mitigation notices were sent by HUD, however it appears that those who were taking responsibility to “assist” Ms. Hollis ignored these notices. I’ve seen statements that her son who is her POA didn’t tell her about the notices because he “didn’t want to worry her.” In some reports he has admitted to ignoring and throwing the notices away. She personally may not have been informed of the eviction because her family intercepted the notices. Don’t blame HUD or the reverse mortgage for actions of her family. If her family didn’t respond to notices it is neglect on their part (i.e. the son/POA) – not HUD or the reverse mortgage.

And now let’s look at the facts of the misconceptions of reverse mortgages which have been shared along with this story and other media coverage.

The bank does not own the home and the title is not passed to the bank. The title remains in the name of the borrower(s) as long as the home is the primary residence of the borrower. If the borrower does not abide by the terms of the loan (pay property taxes, insurance and maintain the home, the home may go into foreclosure just as with a conventional mortgage.)
One report stated that a danger of the reverse mortgage is if one spouse passes or goes into senior housing, the other may have to pay back the loan. In reality as long as one borrower remains in the home, the loan does not become due and payable until they, the second spouse, is no longer in the home as their primary residence. If a non-borrowing spouse (one that is not on title with the reverse mortgage) is the one remaining in the home, yes, the loan is due and payable because the borrower (the one on title) is no longer in the home as their primary residence – this is the terms of the loan.
HUD Home Equity Conversion Mortgages (HECM) are FHA insured. As with a conventional/forward FHA mortgage, borrowers pay an up-front Mortgage Insurance Premium (MIP) as well as an on-going MIP. The benefits to FHA insuring the reverse mortgage include:
- Guaranteeing the funds are available for you.
- Guaranteeing the lender against default or shortfalls
- Keeping the interest rates lower, the interest rates have historically been lower compared to other mortgages.
- Providing a line of credit growth rate (available only with reverse mortgages).
- Ensuring as a reverse mortgage it is a non-recourse (no personal liability) loan. If the loan balance is higher than what the home can be sold for at fair market value, FHA will cover the difference because one has paid the MIP.
- Requiring counseling by a third party HUD trained and approved counselor.
- The HECMs are highly protected. See my Blog article “You Need To know Reverse Mortgage Borrowers Are Highly Protected.”
“The Government will step in” is another statement I’ve heard. The government doesn’t “step in,” borrowers are paying the FHA Mortgage Insurance to receive the above listed benefits.
And of course we have the all too common statement that reverse mortgages are expensive. Unfortunately, many do not look at the costs of a conventional mortgage, they just make blanket statements without really doing the comparison as I have done. I’ve written blog articles to address this misstatement:

I think it’s important to note that with a forward FHA mortgage, the up-front Mortgage Insurance Premium is 2.25% vs the 2% on the FHA reverse mortgage. So the forward FHA mortgage is more expensive than a reverse mortgage.

Ms. Hollis story has a happy ending, she is being allowed to return to her home of 50+ years according to HUD spoke’s person Brian Sullivan. Unfortunately the story still led to a lot of misinformation and misunderstanding about reverse mortgages giving them a bad name. It would be nice if the media would provide corrections and facts about these valuable and beneficial options for seniors.

Update September 24, 2011: Facts are still needed! The revere mortgage took a hit in the media with misinformation about this viable option for seniors yet we still don’t know if this was a reverse mortgage or a conventional/2nd mortgage that was on Ms. Hollis’ home. However it appears it was NOT a Reverse Mortgage but a 2nd mortgage on the home… or maybe for non-payment of taxes. Earlier in the week another article reported:

“Action News also found out the background on what really happened and why Texana and her son Warren Hollis were evicted from their home.

“At first, it was thought that Texana’s son had signed a reverse mortgage on the house or that maybe it was a back-taxes issue.

“It turns out that Warren took out a second mortgage on the home in return for $32,000. He claims the money was spent on repairs for the house. He also admits to buying a car with the money and donating some of the money to his church.

“He says the remaining $5,000 was used to pay a number of other expenses. Warren Hollis defaulted on the second mortgage and never told his mother what was going on or that he was receiving eviction notices and warnings. The news broke her heart and she had no time to prepare for being evicted.

“The house no longer belonged to Texana Hollis or her son Warren – who had been living with her. It belonged to HUD. The agency had asked for a court order to have the occupants removed from the home.

“One of the judges from the 36th District Court granted that order several weeks ago and the order was carried out on Monday.

Read more: http://www.wxyz.com/dpp/news/region/detroit/hud-will-give-home-back-to-evicted-101-year-old-detroit-woman-texana-hollis#ixzz1Z1RmVafp

And in another story it was reported that it was brought on by HUD due to many years of non-payment of taxes.

I wonder if we will ever know all the details and what type of mortgage it was or if it was for non-payment of taxes…

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

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

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Tag Archives: Reverse Mortgage Facts

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Facts Are Needed About The 101 year-old Woman Who Did A HECM Reverse Mortgage And Was Evicted