Do You Understand The Reverse Mortgage Closing Costs?

Posted on May 24, 2010 by Beth Paterson, CRMP

Signing Reverse Mortgage Application As with a conventional mortgage, there are costs associated with a reverse mortgage. While perceived as high, once understood you’ll see the reverse mortgage costs are comparable to a conventional loan. Most people don’t understand the fees, what they cover or why they have to be paid with a conventional loan either, they just accept them as part of doing a loan.

One difference is that with the HUD insured reverse mortgage, the Home Equity Conversion Mortgage (HECM), HUD regulates the fees and does not allow marked up or “junk fees,” borrowers only pay the actual costs.

To get clear, let’s understand what the Minnesota fees are and what they cover.

Fee	Explanation	Cost/Charge
Origination Fee	Covers the lender’s time and costs associated with originating the loan including: loan officer’s and staff’s salary, administrative costs, business overhead (computers, office space, utilities, health insurance, office supplies, marketing, processing, underwriting, etc.) (Note processing and underwriting fees are generally additional fees on conventional loans but have to be included in the origination fee on FHA reverse mortgages loans.)	HUD sets guidelines for the origination fee: Maximum of 2% of the first $200,000 of the home value or lending limit, 1% on the balance thereafter with a cap of $6,000 or a minimum of $2,500.
FHA Mortgage Insurance Premium	A required charge from FHA because they are insuring the loan. Keeps the interest rate lower, allows more to be borrowed, guarantee funds are available, and covers risk so borrower or heirs are not personally liable.	2% of the property value or mortgage lending limit, whichever is less.
Appraisal	Fee for FHA licensed appraiser to determine the market value of the property. Includes a management fee for an independent company to order the appraisal.	$450 – $500
Repair Administration Fee	All loans with repairs are charged an administration fee for overseeing that the repairs are completed, ordering inspection, processing payments, etc.	1.5% of the repair bid
Credit Report Fee	This is to check if there are any liens or judgements against the property or person that would need to be paid or other contradictory information.	$18 – $20
Flood Certification Fee	For verifying whether flood insurance is required or not.	$15 – $20
Courier Fee	To send pay offs to a current lender if there are any.	Approximately $30 each
Counseling by Third-party HUD approved counselor	A fee may be charged to the borrower for counseling services as long as it does not create a hardship. The counselors must make a determination about the borrowers ability to pay which may include factors such as income and debt obligations – HUD recommends a written procedure for this. Counselors must inform borrowers of the fee structure in advance of services and cannot be turned away, nor the counseling certificate be withheld based on failure to pay. The Counseling fee may become part of the costs at closing.	Up to $125 allowed by HUD
Document Preparation Fee	Charge for preparing the loan documents for closing. A specialized company prepares the loan package.	$100-$125
Escrow, Settlement or Closing Fee	Charged by the title company for handling the title work and closing of the loan.- – – – – – – – – – – – – – – – – – – – – – – – – – – – – -Sometimes there is an additional signing/notary fee or an additional fee for going to a borrower’s home.	Generally $250 – $350- – – – – – – – – – – – – – – $125-$200 signing/ notary fee
Abstract or Title Search	This charge is for searching the county records.	$150-$185
Title Examination	This is for the examiner to review the title and put the commitment together.	$135-$150
Title Insurance	Title company’s insurance on the property guaranteeing clear ownership and protect lender if there is a defect in the title. Different than owner’s title insurance policy.	Based on property value.
Recording Fees	Fees for recording documents with the county such as mortgage, deeds, county taxes, bankruptcy, name change due to divorce or loss of spouse	$46 each + a $5 conservation fee
County Tax	Mortgage Registration Tax required in Minnesota and collected by the county.	Based on Principal Limit
Survey/Plat Drawing; Name & Assessment Search	Fee for obtaining and reviewing the plat drawing; Fee for searching names and assessments on title	$60; $30; $30 = $120 combined (higher for some counties)
Fees Paid by Lender to Broker such as Yield Spread Premium; Service Release Premium; Lender Paid Broker Compensation	Brokers/originating lenders are paid in two ways, one by you (the origination fee) the other by the lenders. Lenders pay brokers/originating lenders compensation for submitting loans to their company. This compensation also covers the broker’s/originating lender’s time and costs associated with their running their business.It does need to be disclosed on the Good Faith Estimate. Note that federally chartered banks do not have to disclose this information to borrowers even though the same compensation is paid.	This is NOT A BORROWER EXPENSE!To disclose this to you, on the GFE it will be shown as a fee then credited back so it is not actually charged to you.

As the RESPA (Real Estate Settlement and Procedures Act) changes effective January 1, 2010 a Good Faith Estimate (GFE) can ONLY be provided with an actual application. It is no longer allowed for the informational or quote package to include a GFE.

Information (in addition to the name, birthday, property information, current loan details,) that will trigger the application include the Social Security Number, Monthly Income, assets, debts, any other pertinent information. This information should NOT be provided until lender is chosen and ready to proceed with an application. Once lenders have this information they may start processing the loan.

Note that the fees, other than the Appraisal and possibly the counseling fee, are wrapped into the loan so there are no other out of pocket costs.

Being clear and having an understanding of the reverse mortgage costs helps you make better decisions and takes the fear away from the reverse mortgage.

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-kg

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 Letter to Minnesota Governor Tim Pawlenty Regarding Reverse Mortgages

Posted on May 17, 2010 by Beth Paterson, CRMP

From the time I first heard about the proposed reverse mortgage legislation in 2009, SF489, I have been writing to and in contact with MN Governor Pawlenty’s office. This year even prior to having details of the bill I started contacting Governor Pawlenty’s office, sending emails regarding the suspected legislation. After Friday evening May 14, 2010 when I finally found the details of the bill SF2430 I again sent Governor Pawlenty a message requesting a veto this time outlining with the details of the issues of the bill. Following is the latest letter I sent to him requesting a veto.

Dear Governor Pawlenty,

After having time to review the reverse mortgage amendment to SF2430/HF2699 I want to provide the reasons why this reverse mortgage legislation should be vetoed.

Besides the facts I have pointed out previously:

This bill has not been transparent – the amendment was just added on the afternoon of May 14, 2010 with no prior knowledge of the details to those of us in the reverse mortgage industry.
This reverse mortgage legislation is controversial. Any reverse mortgage legislation should not happen without a full hearing.
While it appears they pulled the language of suitability, this bill still contains some of the same language as the 2009 SF489/HF528 which was vetoed last year which would mean increased costs to reveres mortgage borrowers and/or cause some lenders to refrain from offering reverse mortgages in Minnesota.

The main issues include:

1. Why should a lender receive a civil penalty an dhave to pay $1,000 for something a counselor does or doesn’t do? Who and how is this going to be overseen?

The language of this is subjective setting up an opportunity for litigation and lenders may decide not to lend in the state if there is a risk of civil penalty for something they have no control over.

Implementing state laws that are different than the HUD requirements will make it more difficult for prospective borrowers to receive counseling.
- Some of the counseling opportunities currently available to our Minnesota borrowers will no longer be an option as some of the counseling agencies may decide that with different regulations they will not provide counseling in the state.
Having the state oversee counseling different than the HUD requirements is likely to be costly for the state in seeing that these regulations are followed by counselors in the state as well as across the country.

2. Adding the language for Lender default and forfeiture may mean lenders will choose not to loan with this requirement and HUD may choose not to insure the loans with these requirements.

3. Seven-day cooling off period; right of rescission will mean the loans will be more expensive for seniors and without the opportunity to waive the provision under certain circumstances such as foreclosure may mean that seniors could lose their home because the reverse mortgage could not be done timely.

It appears they changed the 10-day rescission period language to a seven-day cooling off period but it would have the same negative consequences as the 10-day rescission period.
Language is vague and subjective, i.e. “written commitment to make the reverse mortgage loan. “ What does “written commitment” mean? This makes it more likely for litigation.

4. This law would be additional costs to the state. While the bill may not be showing as a having a budget expenditure, there would be additional costs to the state in overseeing that state laws are followed versus the difference from the federal regulations. If the loan becomes more expensive to seniors and/or lenders choose not to loan in the state more seniors are likely to lose their homes without the reverse mortgage option. Consequently the foreclosures would increase and more housing would be needed for seniors and much of this would be born as state expense.

5. All lenders do not have to abide by the state rules. Federal chartered banks do not have to abide by the state rules because they are federal chartered yet brokers and non-federal chartered banks and lenders would have to follow any state laws. This would be a monopolistic-like advantage for the FDIC banks over other lenders. This obviously does not foster fair competition between all lenders and small business.

6. Seniors can apply for and if they qualify can receive a conventional or home equity loan to refinance without all the regulations that are done with a reverse mortgage. Sometimes they may feel it is easier and less invasive to do so. Unfortunately many who have taken a conventional or home equity loan run into problems making the required monthly payments then inquire about a reverse mortgage. With the lower home values many times these seniors do not qualify for the reverse mortgage and then often face foreclosure and lose their homes. Or they may just use credit cards to finance their retirement expenses then run into problems when they can’t make the payments. There aren’t additional requirements for seniors to qualify for credit cards. And there aren’t additional requirements for seniors to take out a car loan. So why have such tight regulations on reverse mortgages when seniors can make other choices that could be more detrimental to them.

7. Implementing this legislation is insulting to our seniors who have worked hard all of their lives – they are not children, they have lots of experience and knowledge – some that we could and should learn from – so why are we treating them like children? They have the right to be educated on their options then decide what is right for their situation, not have legislators, counselors, or lenders make decisions for them.

Keep in mind that: A reverse mortgage is a mortgage just like any other loan but has special terms for seniors 62 and older. And besides the special terms to benefit them to qualify and improve their life the reverse mortgage borrowers are already highly protected (see attached article)! I would like to educate those making legislative decisions on the facts and terms of reverse mortgages then determine what legislation needs to be implemented for proprietary reverse mortgages.

Again, I ask that you veto the reverse mortgage legislation SF2430/HF2699 to protect Minnesota Seniors and the reverse mortgage businesses.

Thank you,

Beth Paterson
Executive Vice President
Prestige Mortgage LLC
Reverse Mortgages SIDAC
Security, Independence, Dignity and Control
The Experts Excelling In Service
Phone: 651-762-9648
Toll Free: 1-877-590-9648
Fax: 651-653-0878
Be sure to visit our website and
Blog for reverse mortgage facts and details:
www.RMSIDAC.com and
http://BethsReverseMortgageBlog.wordpress.com
Follow on http://Twitter.com/RMSIDAC

While Governor Pawlenty recognizes the issues as he stated in his 2009 veto letter, the unfortunate fact is that this legislation was not a stand alone bill but is attached to a foreclosure bill and without the line-item-veto authority may be signed into law. If this is the case it will be very unfortunate for Minnesota seniors as well as the reverse mortgage industry.

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.

Down To The Wire… The MN Reverse Mortgage Amendment Was Sneaked In and Likely To Have Negative Consequences For Seniors And Reverse Mortgage Businesses

Posted on May 14, 2010 by Beth Paterson, CRMP

Not disclosing any of the details before hand, the reverse mortgage amendment was added to bill SF2430/HF2699. Being passed in Congress we now hope to receive a veto from Governor Pawlenty to protect Minnesota Seniors and the reverse mortgage businesses.
I along with others have concerns about the bill:

This bill has not been transparent. While I have been inquiring and searching for information for months, I did not learn the bill number or the details of the bill until the evening of May 14th – just before the May 17th end of the 2010 legislation session.
This reverse mortgage legislation is controversial. Any reverse mortgage legislation should not happen without a full hearing. And without all of us impacted, especially brokers and lenders who are not federal chartered banks having an opportunity to see and address any proposed legislation.
This law would mean increased costs to reverse mortgage borrowers and/or cause some lenders to refrain from offering reverse mortgages in Minnesota. As with the 2009 SF489/HF528 bill which Governor Pawlenty vetoed last year this bill still contains some of the same language and would have the same impact.
Reverse Mortgage Borrowers are highly protected – why confuse the issue with state laws. Currently the only reverse mortgages available in Minnesota are the FHA insured Home Equity Conversion Mortgages or HECMs and these are highly protected and regulated by HUD. Visit my blog, “You Need To Know Reverse Mortgage Borrowers Are Highly Protected!” for details.
There are so many changes on the Federal level it would be a disservice to Minnesota seniors to implement state laws. The state would have to oversee any differences from federal regulations.
This law would be additional costs to the state. While the bill may not be showing as a having a budget expenditure, there would be additional costs to the state in overseeing that state laws are followed versus the difference of the federal regulations. More seniors are likely to lose their homes without the reverse mortgage option. Consequently the foreclosures would increase and more housing would be needed for seniors and much of this would be born as state expense.
All lenders do not have to abide by the state rules. Federal chartered banks do not have to abide by the state rules because they are federal chartered yet brokers and non-federal chartered banks and lenders would have to follow any state laws. As I sated in my blog, “Do You Know The Best Kept Reverse Mortgage Secret in Minnesota?,” this would be amonopolistic-like advantage for the FDIC banks over other lenders. This obviously does not foster fair competition between all lenders and small business.

If Govenor Pawlenty signs the SF2430/HF2699 bill into law there will be negative consequences to our Minnesota seniors as well as reverse mortgage brokers and lenders in Minnesota.

While some are claiming the changes made from the 2009 bill now has widespread support, those of us in the reverse mortgage industry have not had an opportunity to review or address this legislation – we are NOT supporting it. Sneaking this legislation on at the last minute when it has not been transpartnet and is so controversial seems to me does not fit into the democratic consitution of our country or state.

I have asked that Governor Pawlenty veto the bill so we in the industry, who are senior advocates and would be directly impacted by the law chances, have the opportunity to review and address as well as write proposed legislation that will be in favor of protecting seniors as well as the reverse mortgage businesses.

Please join me in requesting Governor Pawlenty veto SF2430/HF2699 by sending him an email at tim.pawlenty@state.mn.us. Use my above outlined issues as reasons for your request for a veto.

Thank you for your assistance in protecting Minnesota seniors as well as revesre mortgage borrowers.

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.

Do You Know The Best Kept Reverse Mortgage Secret in Minnesota?

Posted on May 7, 2010 by Beth Paterson, CRMP

During the 2009 Minnesota Legislation Session a reverse mortgage bill, SF489/HF528 was introduced and then passed by the Senate and House but eventually vetoed by Governor Tim Pawlenty. During this session I was very involved in addressing my concerns as a reverse mortgage originator, processor and senior advocate, testifying against the bills at every hearing, writing to the Attorney General Lori Swanson, the authors of the bills, Senator Tarryl Clark and Representative Jim Davnie as well as Governor Pawlenty explaining the facts of reverse mortgages and the issues with the bill if signed into law. Actually I was the only person who testified during this legislation that has actually originated and processed reverse mortgages. The others who testified were all lobbyists, attorneys or had little knowledge and no experience with the details or originating reverse mortgages.

Some of the issues of the bill included a 10-day rescission period, originators determining suitability and cross-selling prohibition that those who do a reverse mortgage could not purchase insurance products within the 18 months after the reverse mortgage closing.

Governor Pawlenty’s veto letter stated that it is important that reverse mortgages continue to be offered in Minnesota and the legislation could have unintended consequences causing mortgage bankers to refrain from offering reverse mortgages. He stated the suitability clause was poorly written and would cause litigation. Governor Pawlenty encouraged the authors to rewrite legislation that protects seniors but does not limit the availability of reverse mortgages in Minnesota.

Early during the 2010 legislation session I heard through the grapevine that a FDIC bank was supporting and “pushing” a bill modeled after the California reverse mortgage law into this legislation session. For months now I have been researching to find details about this potential legislation but to little avail. While I was so involved during the 2009 legislation, and as an actual originator trying to educate the bill authors and legislators on reverse mortgages, the process and issues with their bill, I was not contacted by any of them to assist with any new legislation.

Last month the National Reverse Mortgage Lenders Association (NRMLA) stated that a senator was expected to add an amendment on reverse mortgages to a bill that was slated to pass. My research has continued and I have learned that, yes, the author of last year’s Senate bill is working on finding a bill to add the reverse mortgage amendment to but with no confirmation of which bill and/or the verbiage of the anticipated amendment.

I have also learned that a FDIC bank is working on verbiage for the reverse mortgage amendment. Not sure if this would be the same bill or two different bills. For some undetermined reason this legislative act has taken on a shroud of secrecy.

My concern with this process and any amendment that may be added to legislation is that this is a very controversial issue that could impact those of us who are brokers or lenders that are not federal chartered banks. We are not on the same playing field – federal chartered banks do not have to abide by the state rules because they are federal chartered yet brokers and non-federal chartered banks and lenders would have to follow any state laws.

What does this mean? If a 10-day rescission is implemented, the FDIC bank would still be working off the 3-day rescission; yet non-federal chartered banks and lenders would have to operate with the 10-day rescission. The same is true for a suitability clause and for cross-selling. This would be a monopolistic-like advantage over other lenders. This obviously does not foster fair competition between all lenders and small business. Is this the purpose of the FDIC Bank in supporting and pushing through legislation that they don’t even have to follow? Is this for their gain rather than for the seniors?

Additionally this legislation has not been transparent. We have not been able to find out exactly what the legislation entails. From what I have heard there is potential that it could be similar to or even worse than last year’s legislation but this is being kept a secret.

I feel that any reverse mortgage legislation should not happen without a full hearing. And without all of us impacted, especially brokers and lenders who are not federal chartered banks having an opportunity to see and address any proposed legislation. Without disclosing the information and keeping this a secret and not consulting those who it will actually be impacting (i.e. the non-federal chartered bank originators who actually work in the field on a daily basis and with the seniors) it appears legislators are not looking at protecting seniors yet looking out for their own political gain.

When we are trying to help homeowners stay in their home, receive help with their mortgages and/or avoid foreclosure it would be a disservice to seniors to pass Minnesota reverse mortgage legislation at this time. Additionally at this time when there are so many changes on the federal level through HUD affecting reverse mortgages, it will be a disservice to Minnesota seniors to pass state legislation adding to the confusion of the product.

Additional suggested reading:

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.

Basics of Reverse Mortgages – On The Radio

Posted on May 1, 2010 by Beth Paterson, CRMP

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

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

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

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

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

Why Be Embarrassed To Do A Reverse Mortgage?

Posted on April 25, 2010 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reverse Mortgage Helps Minnesota Senior To Be Prepared for Future

Posted on April 17, 2010 by Beth Paterson, CRMP

Reverse Mortgage Helped Bob Be Prepared

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted on April 12, 2010 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted on April 4, 2010 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

Why are you so afraid of reverse mortgages?

Posted on March 28, 2010 by Beth Paterson, CRMP

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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: Senior Finances

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