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Friday, 09 July 2010

Reverse Mortgages – Part 3: Finding a Lender

category_bug_journal2.gif First, two EDITORIAL NOTES about reverse mortgages:

Item 1: They are not as complex as some would have you believe, but there are a lot of details and they are not to be taken on lightly. Ninety-five percent of all reverse mortgages are HECMs (Home Equity Conversion Mortgages) - that is, insured by the FHA under regulations of the U.S. Department of Housing and Urban Development (HUD).

Jumbo reverse mortgages, sometimes made by private lenders, are not insured by the FHA or regulated by HUD. These would be reverse mortgages for amounts larger than $625,500, which is the lending limit of a HECM.

Personally, I would consider no other kind and HECMs are the only ones about which I am writing in this series. I cannot answer questions about any other sort of reverse mortgage.

Item 2: You may have seen a short piece about reverse mortgages in the current Time magazine written by Stephen Gandel. Nearly every sentence contains false or misinformation and half-truths including this:

“[A reverse mortgage] gives the homeowner the value of their house minus the cost of the loan in exchange for the right to sell the property when the person or persons die or move out.”

No, you do not get the full value of your home, only a percentage of it, and the bank does not have the right to sell the property when the owner dies or leaves.

You or your heirs have the right to pay back the mortgage and retain ownership if you or they choose to do so - a sort of first refusal before the bank may sell the property. If the bank sale nets more than the mortgage, that amount it returned to the owner or heirs.

So only the part about “minus the cost of the loan” is correct.

AN EXCELLENT RESOURCE
If you are seriously considering a reverse mortgage for yourself, I recommend you download an informative and easy-to-understand booklet recommended to me by Dr. Barbara Stucki, vice president of home equity initiatives at the National Council on Aging.

Researched and produced by the MetLife Mature Market Institute with the National Council on Aging and titled The Essentials: Reverse Mortgages [pdf], the Q&A format clearly answers almost any question about HECMs you can imagine.

QUALIFYING FOR A REVERSE MORTGAGE
There are only two criteria to qualify for a reverse mortgage: you (and all other borrowers who are co-owners) must be at least 62 years old and you must live in your home as your principal residence for at least six months of the year. That's it. There are no employment, credit, income or other requirements common to traditional “forward” mortgages.

Eligible properties include single family homes, town homes, certain condominiums (condominia?) and some mobile homes.

Any existing traditional mortgages and lines of credit must be paid off at closing with funds from the reverse mortgage. So, obviously, if existing liens are larger than the allowed reverse mortgage amount, you will not be eligible for a HECM.

LOAN AMOUNT
The maximum allowed HECM mortgage is $625,500. The amount is based on a formula of age, current interest rates, value of your home and the type of reverse mortgage you select. You can get a general idea of the amount from several anonymous reverse mortgage calculators on the web. Here are a few:

AARP
All Reverse Mortgage Company
Ibis Reverse Calculator

The results may vary slightly from one to another, but are good for a ballpark figure.

WARNING: There are many online reverse mortgage calculators, most from mortgage lenders. Do not use a calculator that requires your name, address, phone number, email, etc. unless you look forward to being spammed from reverse mortgage companies and whomever they sell their lists to for the rest of your life.

FINDING A LENDER
One of my first questions was, how do I find a reputable HECM lender? (Are there disreputable HECM lenders?) Do I just walk into banks and ask about a HECM loan? How do I find banks that makes these loans?

It's the one question none of the reverse mortgage informational websites directly address.

Fortunately, the HUD website maintains a list of HUD-approved reverse mortgage lenders in every state which eliminates the reputation question leaving only competency to be determined on your own.

Fill in the form and you'll get a page with lenders in your area. A couple of clues to make it easier:

Uncheck “title 1” to reduce the number of returns
Be sure to check the HECM box
Ignore the 203k box; it doesn't apply

I limited my search to those in the suburban town where I live. HUD came up with eleven matches each of which included company name and address, date it was approved to handle HECM mortgages, telephone number and email address – the last sometimes a person and sometimes a generic email box.

Last Monday evening, I sent this query note, including my name, email address and telephone number:

I obtained your email address from the HECM-approved lender list at the HUD website. I live in Lake Oswego and am looking into the possibility of a reverse mortgage. I am 69, own my home outright and am interested in what you can offer. May we speak on the telephone sometime this week?”

Of the eleven email messages, three were immediately returned as undeliverable due to this or that technical problem. Of the remaining eight, three contacted me within 24 hours. As of today (Thursday afternoon), I have not heard from the other five and am now as disinterested in them as they apparently are in my business.

A lesson from this is that if, in searching for a lender, you want more choices than three, enlarge the search area on the HUD website from, for example, your town to your state. Until or unless a reason appears to talk with more lenders, I am sticking with these three.

They are all friendly, well informed about HECMs and two in particular (let's call them A and B) had as much enthusiasm for helping elders improve their lives via reverse mortgages as I have for the topic of aging in general. All three have years of experience as reverse mortgage originators; they know the issues and facts, and have the answers.

A and B skillfully talked me through the information they needed to help me make choices about a reverse mortgage and on a couple of points, both were perceptive enough to ask questions that gave me valuable, new insight to my notions about money at this stage of my life. This is not to say that C did not ask the right questions, only that the conversation was more superficial than with A and B.

Soon after our conversations, all three emailed me estimates of the mortgage terms with costs spelled out for several types of funds disbursement such as:

  • a lump sum

  • a line of credit

  • monthly payments to me

  • several combinations of two or three of those options

Of course, the numbers are only estimates until my home has been appraised by the FHA. When I have selected a lender to work with, I will try to get a sample “estimate page” to show you online.

WHAT'S NEXT?
All three lenders asked to see me in person to go over the choices, costs, possibilities and to answer all my questions and concerns. I have appointments with each for next week and will report back to you.

The FHA requires all HECM applicants to undergo counseling with an FHA-trained expert in reverse mortgages. The price is $125 which can be paid up front or added onto the loan. After I have met with all three lenders next week, I'll schedule the counseling and when that is finished, I will make my choice about whether to go ahead with a reverse mortgage and if so, with which lender.

Please leave any questions in the comments.

Reverse Mortgage Series
Part 1: One Reason For a Reverse Mortgage
Part 2: The Basics
Part 4: Do Not Fear HECMs
Part 5: The Mandatory Counseling Session
Part 6: The Home Appraisal
Part 7: Lender Conditions


At The Elder Storytelling Place today, Marcia Mayo: Doggie Day Care


Posted by Ronni Bennett at 05:35 AM | Permalink | Email this post

Comments

Your experience is clearly going to be a huge help to many who are considering this financial transaction. I especially appreciate your willingness to write so clearly about your experience.

I tried each link and found them to be useful and, even more important, understandable.

Thanks for sharing your thoughts.

You are providing an valuable service to anyone interested in a reverse mortgage. The time you have saved for the interested is worth it's weight in gold.

Kudos to you, Ronni.

Ronni - you are so wise the way you are going about this...I wish I had been in a better place when we took ours 5 years ago, but I was just 62 and Syd was 66. Needless to say, our closing costs were much more then the $6,000 maximum today. Yet, it is nice knowing that our home is secure.

Thanks for doing this, I will save the links for the future.

Good objective article. A suggestion on the counseling: several agencies are now doing free counseling, so call around.
On closing costs: lenders are paying a yield spread premium to originators for their fixed rate reverse mortgage loans, so depending on the value of your home, you might be able to get a loan with no closing cost and no servicing fee.

A friend of mine obtained a reverse mortgage. It was well suited to her situation. When she relayed the details to me, however, I was told a monthly "service fee" of $30-35 was charged. This struck me as a bit rich - do you agree?

I think it's worth stating explicitly that co-op unit are not eligible for reverse mortgages.

Great post Ronnni! I am curious have you, or do you intend to tell each lender that you are blogging about the experience?
Marion

Very informative series - Thank you

Maybe you can address the following question:

How does a reverse mortgage effect other financial matters such as medicaid and local property taxes?

Bernard

Marion...

Yes, I told all the lenders up front that I am blogging my reverse mortgage search and that I may wish to quote them by name. If I do, I will confirm the quote with them before publishing it.

Bernard...

Good questions and there are several related ones that that I will cover in detail soon. Meanwhile:

1. If you take the reverse mortgage in monthly payments, that can push your income above what is allowed for Medicaid. So that's an important consideration on which to run the numbers for some people when considering a reverse mortgage.

2. The only concern with property taxes is that you must keep them paid up to date or the lender can call in the reverse mortgage.

Ronni,

I must also express my thanks for this series of articles. It gets past the misinformation that is out there in articles like the Time Magazine piece. Good luck with your loan.

One comment about counseling -- it is generally a good idea to do your counseling BEFORE you interview lenders, as part of the counselor's job is to alert you to questions you may want to ask lenders. A good counselor will talk with you in depth about your needs and provide personalized estimates and loan projections that you can then compare to what lenders give you.

Great Series! Thank you for bringing up the Time Magazine article by Stephen Gandel. This has been one of the worst articles written about Reverse Mortgages filled with falsehoods and misconceptions followed closely by the Consumer Reports article.
It just shows how some writers just pump out trash without doing the research. Thank you for doing the research!
Just a few points:
1-HECM's can be done on 1 to 4 family homes (not just single family)
2-The bank does not sell the house if you or your heirs do not want to retain ownership. It is the responsibility of you or your heirs to sell the house. If their is no equity left and the heirs walk away, the bank would have to go through a foreclosure process to sell the house. A Reverse Mortgage is a non recourse loan where you or your heirs are never responsible for more than the value of the home at loan termination.
3- A reader asked about the monthly servicing fee. On a Fixed Rate HECM there is usually no monthly servicing fee since all funds must be taken at closing. On the adjustable rate there is usually a monthly servicing fee since the bank must continually service the loan. The bank must mangage your line of credit, monthly payments or both along with sending monthly statements. There is alot involved in managing your account when all funds are not taken at closing.

In response to Mary:

FHA-HECMS are not currently available on co-ops and non-approved conominiums.

Bank of America does have a proprietary product called Simple Equity that does Reverse Mortgages on both. Although the LTV's are lower.

As a reverse mortgage professional, I would like to commend you for your blog. A point on the medicaid issue; there are 2 considerations, income and liquid assets. Income is not the issue as the reverse mortgage funds are actually proceeds from a loan. The problem comes in on the asset side. If the monthly proceeds were to push the liquid assets over the limit, that is where you have a problem. Make sure you contact your state agency to see what the current limit is. The answer to that is to make sure that you spend the money in the month in which you receive it.

The article you wrote was excellent. How will I know when you have the next one posted?

I truly admire Ronni for her objectivity. Smart lady for asking the questions, shopping and doing the research.
FYI, Wells Fargo does not charge a monthly servicing fee on either the fixed rate HECM or the line of credit. I eagerly await the continuing dialogue.

Ronni, wonderful story, I wish that I had written it. I am on my third reverse mortgage, I refinanced twice as I got older and my home value increased. Refinancing made sense because I was still working and needed the interest and loan fee write-offs. You should also be aware that when refinancing, you get credit for the mortgage insurance and service set aside fees that you will have already paid.

Three Time Reverse Mortgage Borrower

Unfortunately you left off a large portion in connection with HECM's and that is Revocable Trusts, Estates, Estate Planning, Powers of Attorney and lastly incompetency. Please add your apparent professional understanding of these obstacles as it applies to HECM Reverse Mortgages.

Ronni: Thanks for this wonderful series. I have just interviewed my first loan origination person and the mist is beginning to clear. But only just... I will point our readers to your articles. Much appreciated.

Great series! It is nice to see some correct reverse mortgage information to counter the missconceptions that are out there!

Do I live in the wrong place city, state, USA I tried so many X"s to get reverse moartgage to no avail! Yet no true answer! My deseased husband is "off," the deed I have an attorney. My home is paid for!

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