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Monday, 23 August 2010

Reverse Mortgage Part 7: Lender Conditions

category_bug_journal2.gif When last we left off my tale of pursuing a HECM – an FHA-insured reverse mortgage - the appraiser had visited and I was awaiting his valuation of my home.

It is a nerve-wracking period. My broker and I had used the purchase price I paid in May to calculate an estimate of the loan amount and its costs. If the appraisal came in too low – a not unreasonable result in our volatile housing market - I might want to re-evaluate the terms of the loan I had selected and we would need to re-do the numbers.

The appraisal arrived ten days ago: almost to the dollar what I paid for it. They are so close, it is hardly worth noticing the difference. (Old woman wipes brow and issues a sigh of relief.)

My broker sent the papers I needed to read and sign here, initial there – a lot of them – and then he assembled the package for submission to the mortgage lender. A few days later, he emailed to say that the bank had approved the loan. (“Whew,” again.) Two giant hurdles leapt within one week's time.

But wait.

It's not as easy as it sounds. Nothing ever is with large bureaucracies whose goal sometimes appears to be to fell an entire forest for one transaction.

There are conditions to the approval - a couple that are, to me, arbitrarily niggling; others are just how banks spend their time; and one that is flat out unreasonable.

Certified closing statement from the sale of my Maine property. In other words, they want to know where I got the money to buy my new home. My copy won't do; it must be sent from the title company.

Certified closing statement from the purchase of my Oregon property. I have no quibble with this one.

Proof of residence in the Oregon apartment. I assume this means they suspect I'm lying about living here. They wanted the three most recent utility bills: fine.

Flood certification. This was investigated when I bought the property, but now the bank is balking because the apartment designation in the legal description is a number and the identifier used by the postal service and condominium is a letter. Again, more paper.

Condominium data. The bank wants to know how many apartment owners are delinquent in homeowner's association dues and what percentage of apartments are rented versus owner-occupied.

The condo management company charged $56 for this information. If they can't answer those two questions with three or four clicks of their keyboard, they aren't worth the money the condo is paying them. You can bet I will have something to say about that fee at the next condo meeting.

Paper trail of where I got the money to purchase my apartment in Oregon. The settlement statement from my Maine sale covers the largest part of the purchase price, but not all. I'm unwilling to send copies of my (so-called) investment account to show the source the remaining funds, so we are working out a method that doesn't reveal my entire financial life which I'm unwilling to do.

Letter from me explaining why I moved. This is intrusive and I don't think this is any of the bank's business, nor do they need it to approve a loan. I resent the question, but sent them a short, two sentence letter to move this process along.

These items together with the nearly one-inch thick application, including the 20-page appraiser's report, plus various checks of public records the lender itself orders seem excessive for what amounts to, in the world of too-big-to-fail banks, a loan the size of a flea secured by an apartment in an established condominium already approved for HECMs by the FHA. But one can also look at it this way:

Given the country-wide housing debacle and the bank's past history of handing out sub-prime mortgages without checking even applicant's income, the bank is being ultra-conservative now in its due diligence. I wonder why I think that's not really it. I don't recall anything near this complex in applications for past mortgages – pre-housing bubble.

The point you should take away from this, if you are pursuing a reverse mortgage, is to have all your paper ducks in a neat an tidy row for the lender. It's a pain in the ass tracking it all down.

And I still can't figure out what possible use it is to the bank to know the reason I moved. Nor what would be a negative answer that would sink the mortgage application. If there is no possible negative answer, there is no reason for the question.

The TGB Reverse Mortgage Series
Part 1: One Reason For a Reverse Mortgage
Part 2: The Basics
Part 3: Finding a Lender
Part 4: Do Not Fear HECMs
Part 5: The Mandatory Counseling Session
Part 6: The Home Appraisal


At The Elder Storytelling Place today, Ralph Lymburner: The Widower and the Worm Farm


Posted by Ronni Bennett at 05:31 AM | Permalink | Email this post

Comments

I've noticed that banks are asking a lot of questions lately that are required by the Homeland Security department. I wonder if this thing about the reason for moving is coming from that direction.

I guess the question about why you moved for some applicants might be that they couldn't afford their old abode? Or that it was foreclosed upon?

Who knows what evil lurks in the heart of man....


Ta-da-da-daaaaa


Da Shadow do!

Banks always want to know from where sums of cash come and it's mostly the federal government, I think. Now it's probably terrorism but in the past it was fear of laundering drug money. When we gave our son money for a down payment on his home that he would be repaying when he got the money from his previous home being sold, we had to sign that it came from us etc etc.

Most condo management companies, charge fees to prepare information and submit to whatever agency, in an acceptable format. When I sold my condo I had to give the buyer a packet of information, the cost at that time was $150. Probably double that now.

Tell the bank you moved so they could ask stupid questions.

Aaaarrrrgggghhhh! I just decided selling and buying smaller is easier.

I also see this question as none of their business. Thanks for this series, Ruth. I'm sure it is helpful to a lot of us and will be remembered as the years pass.

Naysayers about reverse mortgages often cite the high cost of the loans. They seem to have a point. Without an obligation to keep ownership in a home for tax reasons or as something of value to leave to loved ones when I leave, I'd be more inclined to sell out and lease a place of my dreams. Of course, I would use the excess funds living it up with wine and song (women no longer are a major part of the equation; darn it).

Living it up with wine and song?

Gimme your address Gabby...

Could be Carol and her thoughts about Homeland Security are right but I also imagine the compulsive info gathering on the part of corporations is involved too. I also had to sign a note saying I had gifted my son $$ for his house purchase and that it was not loan. Hope you aren't pulling out your hair Ronni, argh!

Alexandra: Ruth??? It's the lovely Ronni.

I'm glad we haven't had to do this yet--and hope we don't have to. It seems like a lot more hassle than it should be. Still, it's a good thing to know about HECMs if one is needed. Hope all goes well from this point forward.

The first minute I surfed to the stunning hilarious Yes We Scam! B.S. We Can Believe In! Obama Approval Plummets article my first thought was Time Goes By's web visitors truly have to be able to comment on this! http://hubpages.com/hub/Yes-We-Scam-BS-We-Can-Believe-In-Obama-Approval-Plummets

Cammie . . . the site you find amusing is outrageous, juvenile trash.

Those are standard lender requirements I think.

congratulations! And thanks for these 7 posts. I have placed this post w/its links in my save file on the sidebar. I was thinking of doing this myself however now i think I probably cant as I have little very little income. So even though I will own my house/condo w/no mortgage this reverse deal probably wont work for me.

Great content: Among other saved material I send to interested Seniors, I plan to send parts of this material and refer applicants to the complete TGB series. I've often commented on RM Industry blogs (till I was thrown off for being too critical and profane), that the Application paperwork was a farce: over 50 pages with bogus numbers nobody can understand but the Lawyers who wrote it. Ronni was lucky the Lender didn't cut the Appraiser's value. In this conservative lending era, few Seniors get by without a Lender's value haircut. Don't let the negative comments of Ronni's series, however, keep you from an FHA HECM, if just stopping the mortgage payment would make your last years financially easier. For most Seniors, a RM is a Godsend, believe me.
I've been involved in this business for three years now: Many Seniors are not as financially well off as TGB Bennet obviously is and remember, in the end, she did sign the closing documents.

To be clear: I have signed no closing documents yet - only the application papers.

The bank conditions must be met including some not mentioned in my story. When the bank is satisfied, the closing date will be set. I am leaning toward the reverse mortgage, but nothing has been signed that obligates me.

Excuse me; my apology:One Senior's senility. I hope you follow through; I suspect you will be very pleased. Your series has provided some valuable incite to many others, I am sure. By the way, I don't do a big business in FHA HECMs, but sometimes I receive loveletters that make the job worthwhile: "James, I lost your address (????). I just wanted to thank
you for saving me! Just as my RM came through, my SS was cut off and so was my disabled son's. It took me until February to get it all straightened out. It took ten trips to the SS Office to get it fixed. (Their mistake) If it had not been for you, I would have lost my house. You were a Godsend. I really believe that God put you in my life to save my house. God bless you and your Family and please keep on saving other Senior's homes. Linda. I answered: Thank you, Linda, for your kind words; they may help another Senior overcome his/her fear of making a positive FHA HECM decision. However, the one really responsible for saving your home was the outstanding, ver experienced FHA Certified Appraiser who worked very hard to find homes "comps" to get the maximum home value to make the FHA HECM Formula work with your debt. I'll pass on your kind words to Tom. May God continue to bless you and your Son, Jim

We have had ours for 5 years now - and it is just fine...no issues whatever - so long as taxes and insurance are paid in a timely manner. Too bad the money didn't last longer in the credit line but I can sleep nights, when I sleep, knowing I have a home.

This is a very interesting series and reflects how I feel as a HECM full time originator. The questions the underwriter asks and the documentation they require seem unreasonable but I can assure you that there is a reason for them. HUD requires that the lender PROVE certain things, some UW are just better at it than others. If the bank does not prove their point with documentation, HUD will not insure the loan which leaves the bank holding a loan they can't sell or service. It can be very bad for the bank. Bad for the bank = No loan for you...I have personally fought almost every kind of condition that seems too "off base" with some success. The letter of explanation is required by HUD whenever the UW recognizes a pattern that could possibly indicate impending fraud.....let me explain: There are MANY seniors (I was shocked how many)who are willing to commit fraud to put a reverse mortgage on one house while living in another. This is simply not allowed. Ronni, let me state here that nothing in your story would indicate any fraud! The UW must have been having "one of those days" Your broker should have fought this condition. Even though it is not a big percentage of borrowers, it is a big number of loans that are BAD home loans and the bank and FHA have to eat them. All parties are very hyper-sensitive about dotting the I's and crossing the T's. Hang in there Ronni as soon as the loan funds and you are done with the underwriter, your life will be much, much smoother for YEARS to come. I love this loan and the good it can do...even for all the warts it may have, it is truly the best loan for borrowers 62 and older! Let me know if you have any questions on any aspect of this loan. It is the ONLY loan I do and have been doing it for the past 4 years exclusively! If you work directly with the bank making the loan and not a broker, there is more leeway in waiving conditions...just FYI.

Suki, please remember when considering your reverse mortgage that there is no income requirement at all. This means that any level of income will be approved. The same goes for credit requirements...there are none (except that you are not CURRENTLY in bankruptcy - previous BK is OK) No FICO score or bad FICO score are all OK.

It is not clear to me why in August 2008 I was working with a bank that was bought by another bank in July 2008? Then over a year latter the contract was transfered to the new bank that is most difficult. I cannot find out who my servicer is. I have questions and would like to know if I can do something about the huge amount I spent on Mortgage Insurance now that the requirement has changed. Would like to investigate fixed rate rather then ARM. No one to call in my State because the new Bank has no one at any branch that deals with HECM. When I ask for help, they simply say I must make a call. When I call, I find that there is really no help and so it goes. I have to go back to a mortgage counselor or to one of the organizations set up to help people in my state with their mortgages. I am stupid because I do not understand why the HECM has two liens from the same bank. I worry more with this loan then with my original mortgage and of course, now that I have fixed the house, there is no market to sell.

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