Reverse Mortgage Information: January 2011

Riverside - Did you see the Fox News Segment on Reverse Mortgages?

Folks in Riverside may have seen this Fox News segment on Reverse Mortgages. Watch the latest video at video.foxnews.com  

It's worth listening to... Apparently, Fox got it wrong the first go around - good for them to correct their report.

Here is a link to the organization that they refer to at the end of the segment.  The National Reverse Mortgage Lenders Association.

If you want reliable information about reverse mortgages, NRMLA is a great place to start!

 

 

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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3 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • January 29 2011 01:03AM

Riverside Reverse Mortgage Question? Why is HUD taking over my loan?

Riverside Reverse Mortgage Question?  Why is HUD taking over my reverse mortgage?

Over time, the loan balance on a reverse mortgage increases.  This is due to accrued interest and may also be due to line of credit withdrawals, or payments (loan advances) made to the borrower.  A part of the security built into the product for the benefit of the lender is that when the principal balance of the loan reaches 98% of the maximum claim amount.  The lender can assign* the loan servicing to HUD.  This does not change any of the benefits to the borrower.  If they are receiving monthly payments, they continue to receive them.  If the have a line of credit, those funds are still available to them.  It's just that now they are dealing with HUD and not the bank.

I received a phone call today from an elderly woman who has had a reverse mortgage for years.  She got a letter from the lender saying that they were transferring the servicing of her loan to HUD.  Then she received another letter from the servicing company that due to the fact that her loan balance had grown to over 98% of the maximum claim amount on her loan they were now servicing her loan.  They reminded her that she had to keep the taxes and insurance current.

She was worried that the government was going to take her house away from her. I'm was able to calm her and explain that nothing changes as far as she, the borrower, is concerned, and we set an appointment to meet face to face next week with her daughter to explain it to her.

I wish that when lenders with reverse loans that are going to be assigned to HUD would have their customer service departments give a phone call to the clients along with the letter and explain what is happening.  It would save some sleepless nights.

My explanation above is very simplistic, but I hope it provides peace of mind if you or a loved one has the same question.

*Here is some verbiage from HUD's Handbook on HECM, regarding this subject. HUD Logo

"8-1 PURPOSE.  This chapter explains the procedures for the lender to follow in assigning a mortgage to HUD.  Procedures for processing demand assignments by the local HUD Office are also included.  Refer to HUD Handbook 4330.1 for standard assignment procedures.  This chapter supersedes that handbook only as noted below.

8-2 ASSIGNMENT INSURANCE OPTION.  If the lender has chosen the assignment insurance option at closing,

         A.The mortgage may be assigned to HUD if:

                 1)The outstanding balance, including all payments made to or on behalf of the borrower, MIP and accrued interest, is equal to or greater than 98% of the maximum claim amount as reflected on Form HUD 59100, Mortgage Insurance Certificate,...."

 

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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2 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • January 27 2011 07:36PM

Corona Reverse Mortgage Question - Who Gets My Home When I Die?

Corona Reverse Mortgage Question - Who Gets My Home When I Die?

Your heirs do!  Contrary to the very common myth, the bank does not own your home - you do. A reverse mortgage is just a loan against the home like any other mortgage.  The major difference is that usually on a reverse mortgage the payoff amount is higher than what you originally borrowed because of accrued interest.*    

The loan becomes immediately due and payable upon the death of the last remaining borrower, but the lender cannot start foreclosure proceedings (based upon said death) until 6 months from the date of death.  

If the loan balance is lower than the home value, then the heirs will most likely choose to sell the property, payoff the loan and keep the change.  However, they may also decide to pay the loan off with cash, or refinance the loan.  It’s entirely up to them.

If the loan balance is higher than the value of the home (underwater) then don’t panic.  Reverse mortgage loans are non recourse loans, meaning that if the lender suffers a loss upon foreclosure and sale of the home they do not have any recourse to the estate, borrower, or heirs.  The lenders only option is to sell and take the proceeds as payment in full.  The lender then may qualify for a claim of loss on the FHA Mortgage Insurance that was purchased on the loan.  It’s all good.

Leaving something to your children is an important component to feeling like you’ve lived a successful life, but more important is leaving your children with the tools to be successful in their own lives.  Education, confidence, independence and love.  A reverse mortgage is a financial tool that may help you to live a more financially secure life.

*Balance due will include all upfront fees, loan proceeds, draws plus interest.

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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0 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • January 26 2011 05:04PM

Question for a Financial or Estate Planner - Would a Reverse Mortgage Have Been a Better Choice?

I heard a story last week from a friend of mine who just flew home from vacation. She had a great conversation with her seat mate on the plane and shared with me this story.

Old and Young Hands

The fellow sitting next to her talked about how his 93 year old mother had recently sold an investment property in order to liquidate money to fund home health care. She told her son she wanted to always be at home.  She was fairly well off and owned both her home and the investment property free and clear. When she sold the investment property she got SOCKED with capital gains tax.

My friend told her seatmate that she thought a reverse mortgage might have been something that would have worked even better for his mother and they had some conversation about it. I guess he had had a negative perception of reverse mortgages and I don’t know if their financial or estate planner even talked with them about it as an option.

I was thinking that if mom was 93, she could have gotten a pretty large credit line from a reverse that would have worked great for funding in home health care. Her home was worth more than the current lending limit of $625,500.00 and at 93 she would have qualified for over $430,000 in a line of credit. She wouldn’t have had to sell the investment property and her children would have inherited it free and clear.

The loan proceeds from the reverse mortgage would have been tax free as it is not considered income, but what about the investment property - would the heirs be facing a tax on that if they inherit it? Would it be more than the capital gains tax the elder has to pay now?  My friend on the plane was certain that this son and his mother would have been better served if the elder had obtained the reverse mortgage to fund her home health care and passed on the investment property free and clear. An answers out there from an estate tax pro or financial planner?

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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1 comment • Deborah Nance - Reverse Mortgage Consultant in Southern California • January 18 2011 11:35PM

The Perfect Retirement Loan?

Perfection

 

 

I find one of the most intriguing aspects of the reverse mortgage loan is the line of credit option and it’s growth feature. If a homeowner has a HECM Adjustable Rate Loan, either Standard or Saver, and they choose the line of credit option there are some cool features that could come in very handy as the homeowner ages, one of which is the “growth rate”. 

 

 

So, What is this “Growth Rate”? Depending on the type of reverse mortgage you received, you may experience “loan growth” on your reverse mortgage. This “growth” is simply an increase in the amount of money that you are eligible to withdraw if you elected to have a line of credit* as part of your payment plan option. Because changing interest rates affect the level of growth, it is impossible to know what level of growth your reverse mortgage may or may not have over the life of your loan.

Not only that, but if a borrower were to make prepayments on his reverse mortgage, those funds would also increase the amount of available credit. Due to it’s nature as a “open-ended” loan, funds that are prepaid to the the lender increase the amount of available credit that can be withdrawn.  “A Borrower may specify whether a prepayment is to be credited to that portion of the principal balance representing monthly payments or the line of credit. If Borrower does not designate which portion of the principal balance is to be prepaid, Lender shall apply any partial prepayments to an existing line of credit or create a new line of credit. Any partial payments will be made available to Borrower by increasing the amount of Borrower’s monthly payments and/or increasing the amount available to Borrower for Loan Advances under a line of credit.”

I see a situation where a youngster of 62 could take a reverse mortgage, payoff his current loan, then make payments to his reverse building a line of credit up over time that when he is older, say 82, he could begin to take the funds back out either monthly or as needed. Another option for this borrower would be to take his monthly savings (no more house payment money) and invest it into building up his savings, retirement account or other financial tool to better secure his future or maybe to defer taking his Social Security for awhile increasing that distribution when it comes.

What do you think?

I would love feedback on my ideas above, especially from those of you with financial planning backgrounds!

As always, the thoughts, and opinions expressed in my post here are my own and do not necessarily reflect those of my employer.

*Plan Options

 

  • Line of Credit
  • Lump Sum (All Cash)
  • Tenure - Monthly payments as long as you live in the home.
  • Term - Monthly payments for a specified period of time.
  • Modified - Combination of any or all of the above.

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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2 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • January 11 2011 01:31PM

Riverside - Reverse Mortgage Fine Print - Some things you might want to know.

 

Fine Print
Everyone knows the basics by now - “Senior homeowners and home-buyers over the age of 62 may qualify for a government insured reverse mortgage.  Call now for our free video.”  But what are the nuances and how are they helpful or hurtful?  I’d like to point out some of the fine print that you will find in FHA Reverse Mortgage documents, guidelines and other things that might trip someone up.  I consider myself very knowledgeable on the product and I won't cover it all here.  If you need to know more, dig deeper. There is tons of information out there for you!

  1. Even late charges are reversed with a reverse mortgage!  (I love this one.) Sounds kind of backwards doesn’t it?  But it’s true!  If a senior homeowner receiving monthly payments on their reverse, or requesting an advance on a reverse line of credit, does not receive their funds within 5 days of the servicer’s receipt of request, the borrower is entitled to a late charge of 10% of the payment amount.  I spoke with a VP of Servicing at one of my past employers and asked point blank, “Do you ever have to pay that?”   “Yes we do.” Was the answer. “It is one of the ways we measure our efficiency and service levels.”  Good to know don’t you think?
  2. Although it’s true that borrowers with low income and credit scores can qualify for reverse mortgages there are some things that can cause your application to be denied.
    1. If you have a foreclosure on your record, whether your own or one you co-signed for, you are ineligible to obtain a reverse mortgage for 2 years on a refinance or 3 years for a purchase.
    2. If you have a government student loan or co-signed for one that is in default, you’ve got to bring it current.
    3. Federal Debt or Judgements- any Federal debts must be satisfied or a repayment plan approved in writing.
  3. The adjustable rate reverse mortgages allow you to take your funds in the form of monthly payments or a line of credit.  You can choose monthly payments for as long as you live in the home - called “tenure” payments or monthly payments for a specified period of time - called “term” payments.  But did you know that if you have a line of credit on a reverse mortgage that it could grow over time?  Yep! It’s true, so your $100,000 line of credit could become $101,000 or more within a year. Now, don’t think you’re earning interest cause you’re not.  What is happening is that the amount of money you can borrow is going up. I call it “borrowing capacity”.  Basically, your credit limit is going up, and unlike traditional lines of credit, it cannot be “frozen” due to home value or your credit worthiness.
  4. Can the lender foreclose on a reverse mortgage?  You bet they can.  Though the senior homeowners are not required to make monthly mortgage payments, they ARE responsible for keeping property taxes, homeowners insurance and homeowners association fees current.  Not doing so is an acceleration event. (Acceleration is a fancy lending word for “Immediately Due and Payable”)
  5. Seniors may not be able to participate in Property Tax Deferral Programs - Here is some fine print from a typical FHA reverse deed of trust (aka Security Instrument) - ”Borrower shall not participate in a real estate tax deferral program, if any liens created by the tax deferral are not subordinate to this Security Instrument.”
  6. Putting your property into a trust after you get a reverse mortgage requires special attention - Get the lender’s approval first!  Straight from HUD -  “What are servicers expected to do when mortgagors have completed Trust documents on a HECM loan after closing? Once the servicer has either discovered or been advised of the Trust, they are expected to have their legal division review the documents.  If there has been a violation of the covenants of the mortgage due to the Trust, the servicer should take whatever steps are necessary to rectify the violation.  The mortgagor may change the terms of the Trust, or revoke it, to cure the default.   If all attempts to rectify the violation fail, the servicer may request permission from HUD to call the loan due and payable.  HUD will evaluate the circumstances for declaring the mortgage due and payable and will respond in writing to the servicer within 30 days of receipt of the request either approving or denying the request. Until the reason for the default is cured and the loan removed from a due and payable status, the loan is not eligible for the assignment option.”
  7. You must live in the home!  FHA reverse mortgages are for primary residences ONLY.  No exceptions, and yes, the lender or servicer will check.
  8. A Reverse Mortgage is a Non Recourse Loan - Here’s the fine print from an actual Deed of Trust  “Borrower shall have no personal liability for payment of the debt secured by this Security Instrument. Lender may enforce the debt only through sale of the Property. Lender shall not be permitted to obtain a deficiency judgment against Borrower if the Security Instrument is foreclosed. If this Security Instrument is assigned to the Secretary upon demand by the Secretary, Borrower shall not be liable for any difference between the mortgage insurance benefits paid to Lender and the outstanding indebtedness, including accrued interest, owed by Borrower at the time of the assignment.”


I am a huge fan of the reverse mortgage product and, yes, I am a biased loan originator for a large reverse mortgage company, BUT it wasn’t always so.  For years I owned a notary signing service and was also an escrow officer.  I became very skeptical about lenders in general.  I would search out the fine print and make sure the clients knew if there really was a prepayment penalty or when the loan rate would change and how much.... it’s all there in the loan documents.  Ya just gotta read them people...  I hope you enjoyed these examples of the “fine print”.

As always, your feedback and comments are appreciated. And of course, these are my thoughts and opinions and do not necessarily reflect those of HUD, FHA or my employer.

 

  

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Deborah Nance

Your Local Southern California Reverse Mortgage Professional

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3 comments • Deborah Nance - Reverse Mortgage Consultant in Southern California • January 07 2011 07:32PM