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 * Learn how Seniors are able to Eliminate Home Mortgage Payments
* Learn how Seniors Qualify with No Credit scoring or Income requirements
* Learn how Reverse Mortgages can be used for funding In-Home Health Care
* How the Reverse Mortgage can help Seniors Live a more Comfortable Lifestyle

A balanced report on reverse mortgages by AARP

November 1, 4:26 PM Chicago Reverse Mortgage Examiner Mark Schmidt

Despite a spate of negatively biased (and often inaccurate) news articles about reverse mortgages in recent months, AARP released an Inside E Street webcast entitled “Reverse Mortgage: Rescue or Trap?” that presents a fair, balanced, and informative discussion of this unique loan.

Contrary to most newspaper articles or television segments which try to cover this many faceted loan in two columns or two minutes, AARP dedicates a full 26 minutes to the key questions of consumer protection and avoiding abuses.

The interview style report includes a diverse group of people including two U.S. representatives (one Republican and one Democrat), a reverse mortgage industry insider, a consumer advocate, and a member of the media.

An AARP survey showed that 93% of those who have a reverse mortgage are glad they got one. However, it remains important to ensure older adults are protected when getting this type of loan.

Barney Frank, chairman of House Financial Services, is a “strong supporter of reverse mortgages” and his committee “improved it…(and) did some protection against people being defrauded” as part of the Housing and Economic Recovery Act of 2008.

Peter Bell, president of the National Reverse Mortgage Lenders Association noted that one of the industry’s challenges is that “newcomers coming into the business who don’t always understand the nuances” of the reverse mortgage. It is usually one of these newcomers who use the aggressive marketing or misleading sales tactics mentioned by the media.

Every profession has bad eggs and reverse mortgages are no different. There are unscrupulous lawyers, plumbers, financial advisors (Madoff, anyone?), politicians, teachers, CPAs, police officers, etc.
While no industry is immune to having some unethical salespeople, consumer advocate Suzanna Montezemolo of the Center for Responsible Lending, noted that “in a reverse mortgage…the loan itself often is not the problem.”

Unscrupulous people are the problem. They prey on older adults who are financially strapped and desperate for help. Sometimes convincing seniors to use their reverse mortgage proceeds to buy an annuity or other inappropriate financial product.

Due to the recent decline in the stock market, Mary Beth Franklin, Senior Editor of Kiplinger Financial Magazine, observed that some retirees are “using reverse mortgages as a bridge…for five to ten years until their investments recover”

And her advice to “read all the information out there, look at other alternatives” is wise not matter what you are buying – a reverse mortgage or anything else. “You have to go into this with your eyes wide open”.

With this in mind, AARP’s webcast should be recommended viewing for anyone exploring a reverse mortgage. It can be found at the following link

AARP Inside E Street “Reverse Mortgage: Rescue or Trap?

What is the purpose of the program? The program was designed to allow seniors aged 62 or older to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. The program was also designed to enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs, i.e., handrails, one level properties, ramps, wider doorways, etc.

ACTIVITIES
Could lenders refer clients, who are interested in a HECM (reverse mortgage) for purchase transaction, to a HUD-approved housing counseling agency before January 1, 2009? No. Counseling on HECM for purchase transactions did not become available January 1, 2009.

PROCESSING: Is the fixed interest rate eligible in a HECM for purchase loan? Yes. Should the lender obtain a credit report for non-borrowering spouses? Yes. Although one spouse will become the HECM mortgagor, the lender must obtain the credit report for a review of financial obligations, monetary judgments and liens that could jeopardize the HECM lien status/clear and marketable title.

What documentation should be used to document the 60-day physical requirement to occupy the property after closing? The HECM security instrument requires the HECM mortgagor to establish a legitimate principal residence in the home. Lenders are encouraged to ensure the HECM mortgagor lives in the home prior to submitting the case binder for endorsement. Reverse Mortgage lenders may, but are not required to, obtain a letter from the HECM mortgagor stating he/she lives in the home.

Are reverse mortgage lenders required to submit form HUD 92541, Building Certification of Plans, Specifications & Site and 10-year warranties or other Certificate of Occupancy in the case binder? No. Newly constructed properties must be 100% complete at the time of inspection and initial application.

Under what conditions may a senior cancel the purchase transaction? The senior may decide to cancel the purchase transaction at any time prior to the date of closing. If the senior decides to cancel the transaction, he/she must notify all parties in writing. Where earnest money has been provided, the senior should review the sales contract to determine if the earnest money is refundable. The Federal Reserve Board of Governors should be contacted for right of rescission and Truth in Lending Act guidance.

Are the reverse mortgage proceeds paid to the seller through escrow? The title company (settlement agent) is responsible for disbursing funds in accordance with state law.

Is this a HECM for purchase or a traditional HECM? A senior purchases a principal residence using 100% seller financing, signs a HECM loan application the next day or shortly thereafter and meets all eligibility criteria for obtaining a HECM.

Does the Federal Housing Administration (FHA) consider this transaction to be a traditional HECM or a HECM for purchase transaction? This scenario describes a traditional HECM. Consistent with existing policy guidance, the HECM (reverse mortgage) loan proceeds will satisfy a recorded lien that was created from the seller financing. Lenders may request a copy of the executed HUD-1 and warranty deed, or its equivalent, to ensure transfer of title to the prospective HECM mortgagor. Once a principal residence has been purchased using HECM loan proceeds, can the property serve as collateral for another secured loan? Yes, only after the mortgage insurance certificate has been issued. Lenders are responsible for ensuring additional secured liens are subordinate to the HECM first and second liens. Such financing may not occur concurrently with the HECM closing.

What property types are eligible? Existing one-to-four unit properties where construction has been completed and the property is habitable as evidenced by local jurisdiction issuance of certificate of occupancy or its equivalent.

Can a HECM for purchase be used to satisfy outstanding payment obligations associated with a land contract? Yes, if the property will be used as collateral for the HECM and the mortgage will be held in fee simple, or on a leasehold under a lease for not less than 99 years which is renewable, or under a lease having the remaining period of not less than 50 years beyond the date of the 100th birthday of the youngest mortgagor.

Can a reverse mortgage lender take application on a property that is under construction and not habitable? No. The lender may only take application once the Certificate of Occupancy or its equivalent has been issued.

What property types are ineligible? Cooperative units Newly constructed residences where a Certificate of Occupancy or its equivalent has not been issued by the appropriate local authority Boarding houses Bed and breakfast establishments Existing manufactured homes built before June 15, 1976; and Existing manufactured homes built after June 15, 1976 that fail to conform to the Manufactured Home Construction Safety Standards, as evidenced by affixed certification labels (e.g., data plate and HUD certification label) and/or lack a permanent foundation as required in HUD’s Permanent Foundations for Manufactured Housing Guide.

Are set asides for property charges allowed (i.e., ground rent, tax, insurance, Homeowner Association fees, etc.)? Yes. Mortgagors will continue to have the option of electing to have the lender withhold funds from their monthly payments or by charging such funds to the line of credit.

Are set asides for repairs allowed? To be eligible for federal insurance, the property must meet FHA minimum property requirements. The completion of major property deficiencies that threaten the health and safety of the homeowner and/or jeopardize the soundness and security of the property must be completed by the seller prior to closing. The appraisal will be “Subject To” the completion of these repairs. Major repair examples: No running water Leaking roof No primary heating source Inadequate electrical (including lighting) Inoperable doors and windows (inhibited ingress and egress) State or local code violations.

Is the Amendatory Clause required? Yes. An appraisal is required for all HECM (reverse mortgage) transactions, including purchase transactions. The execution of the Amendatory Clause does not negate federal and state mandates on providing a copy of the appraisal to the consumer.

Are there special procedures for foreclosure homes that will serve as collateral for a purchase transaction? No. FHA has sufficient valuation guidelines related to comparable sales and declining markets to address the resale of foreclosed properties. HUD has imposed a standard of accountability to which lenders, sponsor lenders, and loan correspondents will be held is the same as the standard used to impose civil money penalties for program violations, and that standard is one of knowing (actual knowledge) or had reason to know.

If the lender suspects the senior has become involved in a property flipping scam, who should be contacted? If a lender suspects a senior has become a victim to a property flipping scam, contact the Processing and Underwriting Division of the local HOC. Complaints may also be reported to HUD’s Inspector General Hotline at: HUD Office of Inspector General Hotline, GFI, 451 7th Street, SW Washington, DC 20410 Phone: 1 (800) 347-3735 or TDD: (202) 708-2451.

: Are gifts an acceptable source of funding? No. Prospective mortgagors may only use their own money or money obtained from the sale of assets. FHA prohibits the use of loan discount points, interest rate buy downs, closing cost assistance, builder incentives, gifts or personal property given by the seller that would benefit financially from the transaction.

What would be an “allowable FHA funding source” for gap financing of the equity portion? A withdrawal from the mortgagor’s savings or retirement account would be an acceptable funding source.

How is the maximum claim amount and principal limit calculated? For HECM purchase transactions only, The maximum claim amount will be the lesser of the appraised value, sales price or FHA mortgage limit for a one family residence. The principal limit is determined by multiplying the maximum claim amount by the principal limit factor corresponding to the age of the youngest mortgagor and the expected interest rate. This guidance replaces the policy guidance found in Mortgagee Letter 2008-33.

Can prospective mortgagors apply credit card cash advances towards the required monetary investment or closing costs? No. This would be a violation of 24 Code of Federal Regulations 206.32(a), which requires all outstanding obligations connected to the HECM (reverse mortgage) transaction, purchase or otherwise, to be satisfied prior to or on the date of closing.

Are seller concessions allowed? No. Seller concessions are applicable to forward mortgages only.

Is seller financing permitted? No.

Is the Real Estate Certification required? Yes.

When purchasing a new principal residence, if the HECM (reverse mortgage) proceeds do not cover the sales price, can part or all of the property’s indebtedness be subordinated behind the first and second HECM liens if the existing lien holder is willing to execute a subordinate agreement? No. All existing liens must be satisfied at the HECM closing.

If the source of funds comes from the sale of the homeowner’s principal residence or other owned property, and the sale is occurring the same day as the closing on the HECM, can a copy of the executed HUD-1 and cashier’s or certified check, evidencing the sale, be used to verify the funding source? Yes. In addition to the HUD-1, a copy of the sales contract executed by all parties and a copy of the cashier’s or certified check bearing the name of the seller can be used to verify the funding source.

Can prospective mortgagors obtain a secured or non-secured loan from another asset (i.e., car, home equity line of credit, or investment property or second home) to satisfy the monetary investment or closing costs? No. Consistent with existing policy, bridge loans and other interim financing methods associated with HECM (reverse mortgage) transactions are prohibited, unless the unpaid or outstanding obligation can be satisfied prior to or on the day of closing.

In lieu of providing a Verification of Deposit with the most recent bank statement, what other alternative documentation will FHA accept? Note: Full Doc vs. Alt Doc-one is a compliment for the other. FHA will accept the two most recent, consecutive original bank statement(s), belonging to the borrower, which covers the most recent (three-month period) and previous month’s balance. Bank statements that are more than 120 days old prior to the closing date are not acceptable.

Is the finance transaction of Loan A prohibited in this scenario? Senior currently owns Home A. Senior wishes to purchase Home B. Senior borrows money (with Loan A) and uses Home A as collateral for Loan A, and uses the money from Loan A for a down payment on Home B. The remainder of the Purchase proceeds for Home B, which will be the senior’s principal residence, comes from a HECM for Purchase transaction. Yes. Although Loan A served as a secured loan tied to Home A, the money was applied towards the HECM for purchase transaction and would violate 24 CFR 206.32 (a) which provides that there shall be no outstanding or unpaid obligations incurred by the HECM mortgagor in connection with the HECM transactions.

MISCELLANEOUS: Can the HECM mortgagor participate in a rent back/leaseback agreement with the seller? No. When purchasing a new principal residence, the HECM mortgagor has 60 days to occupy the home. Unlike a forward mortgage, there is an increased risk to FHA when the home is not occupied by the HECM mortgagor. Prior to closing, the HECM mortgagor and seller should agree to a date for physical occupancy of the property and the lender should confirm occupancy prior to their submission of the case binder to the local HOC for endorsement.

Does FHA have special eligibility requirements for first-time homebuyers? No. FHA encourages all first-time homebuyers to meet with a reverse mortgage counselor that offers pre-purchase counseling to educate themselves on the responsibilities of becoming a homeowner. Prior to signing a sales contract, FHA encourages a home inspection of all properties that will serve as collateral for HECM for purchase transactions. The inspection serves two purposes, to determine the magnitude, if any, of repairs and/or rehabilitation the home as well as helps the buyer to negotiate the purchase price in situation where a home requires repair or rehabilitation.

Visit our other pages for additional information on Reverse Mortgage Purchase Loans and learn more about Ohio reverse mortgages for seniors.

by Peter G. Miller
January 28th

How risky are reverse mortgages?

That’s a question being raised that the Motley Fool, the generally well-regarded financial site. Blogger CubanStockPicker writes and says that “reverse mortgages pay you to live inside the home. Based on the equity of course. But as we have discovered, equity can vanish quickly when there are too many sellers and too few buyers.

“To qualify for a reverse mortgage, you need to be older than 62 Y/O. The government backs this program, and you don’t have to pay anything, just have your insurance policy made payable to the note holder for the amount of the mortgage and you descendants get a home all clean and paid off.

“One issue though, why would an insurance company do anything as stupid and pay the full balance on a house giving an insurance policy to someone who can never live long enough to pay the average 200,000 mortgage/ insurance policy.”

Actually, of course, the FHA reverse mortgage will only finance a portion of a home’s value. As to getting that home free and clear, nope, the property is security for the loan. When the borrower sells, moves or passes on the loan is repaid by the heirs (perhaps with another loan secured by the house) or by the sale of the property. And, borrowers certainly pay up front to make the loan happen and they also have other costs for ownership over time. What they do not have is an obligation to make monthly mortgage payments for principal and interest.

The importance of FHA insurance is that it pays off borrowers if a lender fails — and it pays lenders for any balance not paid by the heirs or the sale of the property.

As to the issue of risk, as home values have fallen it seems likely that lender claims against HUD will rise. Why? Because in many communities there’s less equity to cover the loan amount for FHA reverse mortgages originated in 2006 and 2007.

In the discussion of risk, however, notice that it’s HUD which has the risk and not borrowers or lenders. As a borrower, once you get your money the issue of risk is HUD’s problem.

Will HUD take a beating on it’s reverse mortgage program? To date that has not been the case as there have been relatively few claims. However, claim levels could rise as home values drop. In a year or two we’ll have a better idea of just how risky, or not risky, reverse loans have been.

by Francine Huff

January 23rd, 2009 Related Stories

Senior citizens are among the Americans who are having the toughest time paying their mortgages. Those who live in Washington, D.C., California, Florida, Massachusetts, Nevada, New Jersey, New York, Rhode Island, and Vermont are really struggling, according to the Associated Press (AP).

The AP analyzed U.S. Census data from 2007 and found that about three in 10 seniors with mortgages pay at least 38% of their income on housing expenses. Homeowners who spend more than 38% of pretax income on housing expenses may qualify for help with loans from Frannie Mae and Freddie Mac.

And senior citizens who are minorities may be even more likely to have trouble paying their home loans. About a third of Hispanic homeowners spend at least 38% of their income on housing and about 25% of Asian and black households spend at least that much. About 16% of white households spend at least 38% of income on housing expenses.

While some states have been hit harder than others, homeowner of all ages, races, and income levels are feeling the heat to keep up with mortgage payments and other bills. But because many senior citizens are on a fixed income, they often find themselves facing tough spending decisions, like going without medications in order to pay bills.

Some cities and towns are looking for ways to help seniors with payments related to their mortgages. For instance, the DuPage County treasurer’s office and Illinois Department of Revenue are allowing senior citizens to defer property tax payments until they sell their homes.

“Property taxes have become a struggle for a lot of people, and if we can help, that’s great,” DuPage County Treasurer Gwen Henry told the Addison Press. “If [seniors are] having to give up medicine or something like that to pay their taxes, this is a much better alternative.”

Some other states that allow tax deferments are Washington, Minnesota, and Oregon. But other states and municipalities have similar programs so contact your local government to find out if you might qualify for a tax deferment program to ease some of the pain of paying housing expenses.
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The reverse mortgage is a financial alternative being secured by senior homeowners to offset their growing budget demands.

The FHA insured Home Equity Conversion Program (HECM) has helped many seniors avoid losing their home, or has helped them to enjoy a more comfortable retirement. While the Reverse Mortgage program is inherently good… as with any financial program, it’s not a single best solution for every senior.

The HECM reverse mortgage is a HUD regulated mortgage loan that exclusively serves senior homeowners age 62 and older. A reverse mortgage loan amount is based upon the age of the youngest borrower, the home value and the interest rate. There is no credit scoring or income qualifying and homeowners can eliminate a monthly mortgage payment for as long as they live in the home.