You Need To Know Reverse Mortgage Borrowers Are Highly Protected!

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

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

Protected MN Reverse Mortgage Borrowers

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

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

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

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

This material may be re-posted provided it is re-posted in its entirety without modifications and includes the contact information, copyright information and the following link:

Related articles:

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

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

37 thoughts on “You Need To Know Reverse Mortgage Borrowers Are Highly Protected!

  1. Pingback: Beware Of Reverse Mortgage Misstatements – The Fact Is Reverse Mortgage Lenders Do NOT Own The Home! « Beth's Reverse Mortgage Blog

  2. Pingback: Beware Of Reverse Mortgage Misstatements – The Fact Is Reverse Mortgage Lenders Do NOT Own The Home! « Beth's Reverse Mortgage Blog

  3. Pingback: Reverse Mortgage Helps Minnesota Senior To Be Prepared for Future « Beth's Reverse Mortgage Blog

  4. Pingback: Reverse Mortgage Helps Minnesota Senior To Be Prepared for Future « Beth's Reverse Mortgage Blog

  5. Pingback: Do You Know The Best Kept Reverse Mortgage Secret in Minnesota? « Beth's Reverse Mortgage Blog

  6. Pingback: Down To The Wire… The MN Reverse Mortgage Amendment Was Sneaked In and Likely To Have Negative Consequences For Seniors And Reverse Mortgage Businesses « Beth's Reverse Mortgage Blog

  7. Pingback: A Letter to Minnesota Governor Tim Pawlenty Regarding Reverse Mortgages « Beth's Reverse Mortgage Blog

  8. Pingback: Do You Understand The Reverse Mortgage Closing Costs? « Beth's Reverse Mortgage Blog

  9. Pingback: Reverse Mortgage Borrowers’ Responsibilities… or Consequences « Beth's Reverse Mortgage Blog

  10. Pingback: My Reverse Mortgage Funds Are Used… Now What? « Beth's Reverse Mortgage Blog

  11. Pingback: Should One Refinance Their Reverse Mortgage? « Beth's Reverse Mortgage Blog

  12. Pingback: A Reverse Mortgage Or…? Other Options To Consider « Beth's Reverse Mortgage Blog

  13. Pingback: How Do Reverse Mortgages Compare to Conventional Mortgages? « Beth's Reverse Mortgage Blog

  14. Pingback: Seventeen Facts About Reverse Mortgages You May Not Know. « Beth's Reverse Mortgage Blog

  15. Pingback: Reverse Mortgages Are Expensive… Compared To What? « Beth's Reverse Mortgage Blog

  16. Pingback: Minnesota 7-Day Cooling Off Period Law is Disservice to Seniors « Beth's Reverse Mortgage Blog

  17. Pingback: Live in & cash Out, too – Thanks, MN Good Age « Beth's Reverse Mortgage Blog

  18. Pingback: Facts Are Needed About The 101 year-old woman Who Did A HECM Reverse Mortgage And Was Evicted « Beth's Reverse Mortgage Blog

  19. Pingback: Are you afraid to do a reverse mortgage? Twelve Reasons You Shouldn’t Be. « Beth's Reverse Mortgage Blog

  20. Pingback: A Reverse Mortgage Doesn’t Leave An Inheritance. But How Are You Going To Meet Mom’s Needs Today? « Beth's Reverse Mortgage Blog

  21. Pingback: Are “Hefty Fees” Really A Drawback of the Reverse Mortgage? « Beth's Reverse Mortgage Blog

  22. Pingback: Reverse Mortgages Provide Independence « Beth's Reverse Mortgage Blog

  23. Pingback: America’s Freedoms and Independence Represented in Fireworks « Beth's Reverse Mortgage Blog

  24. Pingback: A Reverse Mortgage Can Really Be Compared To Your Smart Phone « Beth's Reverse Mortgage Blog

  25. Pingback: Be Cautious on Reverse Mortgages « Beth's Reverse Mortgage Blog

  26. Pingback: Do You Go To A Plumber For Health Issues? Then Why Would You Receive Advice on Reverse Mortgages From A Politician? « Beth's Reverse Mortgage Blog

  27. Pingback: Are Reverse Mortgage Property Tax Defaults Really Due To The Reverse Mortgage? …They Are Not The Only Reason Seniors Lose Their Home « Beth's Reverse Mortgage Blog

  28. Pingback: Have Senior Homeowners With Reverse Mortgages And Tax Defaults Really Gone Into Foreclosure and Lost Their Homes? You Are In For A Surprise! « Beth's Reverse Mortgage Blog

  29. Pingback: Reverse Mortgage Features and Terms Summary « Beth's Reverse Mortgage Blog

  30. Pingback: Let Me Educate You On Adjustable Rate Reverse Mortgages « Beth's Reverse Mortgage Blog

  31. Pingback: Reverse Mortgage Protects Retirement Funds « Beth's Reverse Mortgage Blog

  32. Pingback: Reverse Mortgage Protects Retirement Plan « Beth's Reverse Mortgage Blog

  33. Pingback: The answer to the common reverse mortgage tax question « Beth's Reverse Mortgage Blog

  34. Pingback: Seniors, want to purchase your new home with no monthly mortgage payments? Use A Reverse Mortgage. | Beth's Reverse Mortgage Blog

  35. Pingback: Think you don’t need a reverse mortgage? Think again… Maybe you’ll WANT one. | Beth's Reverse Mortgage Blog

  36. Pingback: Reverse Mortgage Borrowers Remain in Control | Beth's Reverse Mortgage Blog

  37. Pingback: Reverse Mortgages Offer New Products for Better Options for Borrowers | Minnesota Reverse Mortgages SIDAC

Leave a Reply

Your email address will not be published. Required fields are marked *