Why Reverse Mortgage Lenders Want Qualified Mortgage Rule for Proprietary Reverse Mortgages

NRMLA is asking the Consumer Financial Protection Bureau (CFPB) to create a rule that holds proprietary reverse mortgages to the same guidelines as HECMs.  CFPB is currently working on a qualified mortgage rule that will dictate how lenders must determine seniors’ ability to pay their insurance and property taxes after getting an HECM.  NRMLA is only asking that proprietary reverse mortgages get some attention from the agency as well.

According to Peter Bell, President of NRMLA, defining the terms of these loans “will help bring back the proprietary reverse mortgage market.”  Increasing the popularity of the proprietary product should also take some of the stress off FHA.  This doesn’t just benefit FHA, but it will also give seniors more options when it comes to choosing a loan product that meets their needs.

The Difference Between FHA-Insured and Proprietary Reverse Mortgages

In 2007, consumers purchased almost $1 billion in proprietary reverse mortgage securities.  Today, HECMs currently dominate the reverse mortgage market.  Even if more reverse mortgage lenders begin offering private reverse mortgages, HECMs will undoubtedly continue their reign for years to come.

The primary difference between proprietary and FHA-insured reverse mortgages is the maximum claim amount.  HECMs limit claims to $625,500.  Proprietary reverse mortgages do not hold seniors to this limit.  If these loans become more popular, seniors looking for jumbo reverse mortgages will have more options.  As with most financial products, having a number of different options is the key to getting a loan that meets all of your needs.

Since the cap was set in 2006, FHA has insured significantly more reverse mortgages than allowed under Congress’s limit.  Recent statistics show that over 730,000 seniors have taken advantage of FHA’s reverse mortgage programs since their inception.  To continue to insure these loans, FHA is forced to request a suspension of the cap each year.  While their requests have been granted, AARP wants congress to amend their policy and lift the cap permanently.

Why AARP Wants the FHA Reverse Mortgage Lifted

During the hearing that took place this week, Lori Trawinski, AARP’s Senior Strategic Policy Advisor of the Public Policy Institute, stated that the cap should be lifted “to guarantee continuity of the HECM program.”  According to Trawinski, Congress capped the number of insurable loans back when HECMs were first introduced as a pilot program.  Since the cap was put into law, it has been raised numerous times, sometimes greatly inconveniencing lenders and seniors by forcing lenders to stop originating loans once FHA has reached their limit.

Trawinski adds that “lifting the statutory loan limit would be helpful in encouraging lenders to offer reverse mortgages and remain committed to this market.”  Basically, removing the cap would prove the permanence of FHA’s HECM program.  If the cap stands, lenders can never be completely confident that they will be allowed to continue originating FHA reverse mortgages in the future.  This doesn’t just keep lenders away from the product, but it leaves adult consumers questioning the stability of a program that might be necessary to their financial security in the future.

For more information on reverse mortgages, contact us at (877) 267-0274 to speak to one of our loan specialists today.

Due to its importance, the Department of Housing and Urban Development (HUD) works hard to ensure that seniors receive quality counseling.  Counselors are to provide impartial information, and lenders must give seniors their choice of counselor.  To protect seniors, HUD forbids lenders from guiding seniors to one particular counseling agency. Reverse home mortgage counseling agencies are also forbidden from recommending a specific lender or loan product.

Reverse Home Mortgage Counseling Agencies Receive Warning from HUD

In the recent past, HUD has noticed that several agencies have been employing prohibited marketing tactics.  Certain agencies have been advertising directly to lenders and asking that their company be placed at the top of the list of counselors that lenders give to their borrowers.  By placing the agency’s name first, borrowers are more likely to contact that specific agency.

This practice was directly prohibited in HUD’s Mortgage Letter 2011-26. In this document, HUD clearly states that lenders are forbidden from guiding potential borrowers to specific counseling agencies.  Currently, HUD has not penalized any specific agencies.  However, several counseling agencies have been contacted by HUD and warned against this kind of marketing.  If these practices continue, HUD will likely take more serious action.

Why Reverse Home Mortgage Counseling Must Be Kept Impartial and Pressure Free

There are a number of reasons why HUD does not want lenders and counseling agencies to forge business relationships.  For one, there is always the chance that these companies may work together to convince or pressure seniors to get loans they do not necessarily need or understand.

HUD has also found that the agencies who market directly to lenders do not provide seniors with adequate counseling.  According to HUD, these agencies offer shorter counseling sessions, and the quality of the counseling suffers.  Not only are seniors not receiving the counseling they paid for, but they might not walk away with the information they need to make an educated decision.  As always, HUD is working to keep the reverse mortgage process safe for seniors.

Why Some Seniors Who Apply for a Reverse Mortgage Are Denied

To qualify for a reverse mortgage, seniors must be at least 62 years of age, own their home and have enough equity in their home that they will be able to repay their existing mortgage balance with the proceeds of their reverse mortgage.  While this might seem straightforward, reverse mortgages do not let seniors withdraw all of their home equity.  The percentage of equity that can be withdrawn typically falls between 30 and 80 percent and primarily depends on the borrower’s age and interest rate.

Due to the depressed housing market, many seniors have less equity than they assume.  If a senior’s home has depreciated significantly, he or she may not have enough to qualify for a reverse mortgage.

Equity is not the only problem that seniors run into.  Tax liens, structural issues and certain property types can also disqualify seniors.  While a tax lien is not necessarily a deal breaker, it must be paid with the proceeds of the reverse mortgage.  Seniors who are unable to repay all existing liens on their property will not be approved for a reverse mortgage.

What Seniors Need to Know Before They Apply for a Reverse Mortgage

Before applying for a reverse mortgage, seniors should know that age, homeownership and equity are not the only qualifying factors.  To get a reverse mortgage, seniors must own a single family home, two to four unit property, a condominium built after 1976 or a manufactured home built after 1976.  The home must also pass the Federal Housing Administration’s (FHA) minimum property guidelines.  Major structural damage to the home might result in a denial.  While reverse mortgages still carry very lenient qualification requirements when compared to forward loans, these guidelines are important for seniors to remember.

To discover whether you might qualify for a reverse mortgage, contact our specialists at (877) 267-0274 for more information.

When Seniors Should Not Get a Reverse Mortgage for Home

One of the biggest risks associated with getting a reverse mortgage is that these loans deplete borrowers’ home equity.  For many seniors, the equity in their home is their most substantial asset.  By withdrawing that equity early in retirement, younger borrowers run the risk of depleting their equity too soon and outliving their assets.  Tapping into one’s equity also limits an individual’s options should he or she run into financial trouble down the road.

To avoid using one’s equity too soon, some experts recommend downsizing first and then withdrawing equity through a reverse mortgage later when other assets have dwindled.  Seniors who wish to downsize and get a reverse mortgage simultaneously can even do so through the Home Equity Conversion Mortgage (HECM) for Purchase program.  While most retirees would prefer to stay in their homes, moving to a smaller, more affordable property is an option worth considering.

To Get or Not to Get a Reverse Mortgage for Home: How to Choose

With a reverse mortgage, timing is everything.  For some seniors, waiting to get a reverse mortgage is the most beneficial option.  The older you are, the more money you will be allowed to withdraw from your home equity.  This can make it advantageous to wait to get a reverse mortgage until you really need the additional cash.

Some seniors, however, approach reverse mortgages differently.  Seniors can use a reverse mortgage to avoid filing for Social Security and increase their total benefits.  Many seniors also use their home equity before tapping into faster-growing investments.  There is no perfect age to get a reverse mortgage.  The key to benefiting from these loans is to carefully consider your situation and apply for a loan when it makes the most sense for you.

This week, the industry saw several new changes.  One of these changes should improve the industry for both lenders and borrowers, and one that no one saw coming.

What FinCEN Wants Potential Borrowers to Know About Reverse Mortgages

Between 2010 and 2011, cases of suspicious mortgage activity have increased by a shocking 31%.  Forward loans are not the only products subject to fraud, reverse mortgage-related cases have also been on the rise.

This week, representatives of the Mortgage Bankers Association and the U.S. Financial Crimes Enforcement Network (FinCEN) attended a conference in Phoenix, Arizona, that discussed the rising problem.  James Freis, Jr., director of FinCen, reported cases of fraud that were investigated and prosecuted in the past year.  One such case included the reverse mortgage scam that took place in Georgia and robbed both seniors and lenders of approximately $2.5 million.

To thwart potential scammers, law enforcement agencies plan to investigate fraud more aggressively and punish fraudsters with heavy fees and long prison terms.  The Georgia scammers, for instance, are currently serving sentences of 2.5 to 12.5 years.  Future perpetrators will also be punished to the fullest extent of the law.

The Media Is Buzzing with Breaking News About Reverse Mortgages

This week, the industry saw the exit of reverse mortgage heavyweight MetLife.  When a large lender exits the business, the media and public tend to worry.  Consumers automatically assume that reverse mortgages are suffering or will become extinct in the future.

When examining MetLife’s decision, seniors will want to remember that MetLife is an insurance company first and reverse mortgage lender second.  In fact, only 2% of their profits came from their reverse mortgage division.  All is still right with the industry.  MetLife’s portfolio has already been sold, and business will continue as usual.

For more information about reverse mortgages, contact one of our loan specialists at (877) 267-0274 for additional information.

Thanks to the Mini-bus, the Department of Housing of Urban Development (HUD) was granted $45 million with which to support HECM counseling agencies through September 30, 2012.  While funding was partially restored, HUD had to fight for the funds.  Fortunately, things are already looking up for fiscal year 2013.

 The Reverse Mortgage Already Receives Support for the Upcoming Fiscal Year

Last week, the Senate Appropriations Committee passed their $53.4 billion Transportation, Housing and Urban Development (THUD) appropriations bill for 2013.  The bill promises to set aside $55 million dollars for housing counseling, some of which will be distributed to HECM counseling agencies.  Still, before being passed into law, the THUD appropriations bill will be voted on by the entire Senate.  The House will also develop and submit an appropriations bill.  While the bill will likely see some changes in upcoming months, the current THUD bill is very encouraging.

Why the Senate Appropriations Committee Will Fund the Reverse Mortgage in 2013

According to data compiled by the Federal Housing Administration (FHA), FHA loan volume is expected to decline over the next two years.  HECM volume, however, should remain fairly constant.  As forward volume decreases, the HECM program will comparatively increase in volume.

It is also important to consider that, while other FHA programs are operating on a deficit, HECM programs are procuring a profit.  HECMs are not only presently profitable, but they should continue to perform in the future.  As the 2013 appropriations bill develops, funding should reflect the HECM programs’ current and projected performance.

What Borrowers Have to Say About Reverse Mortgage Counseling

To determine whether counseling is truly helping seniors, HUD will be surveying seniors who have completed counseling in the recent past.  Seniors can expect to receive these surveys fairly soon and will receive their questionnaire either by email or regular mail.  According to recent information posted in the Federal Register, the “Daily Journal of the United States Government,” seniors will be asked to return their surveys by June 18th.   Seniors are welcome to email their comments to HUD or send their feedback via regular mail.

The Future of Reverse Mortgage Counseling

According to HUD, the upcoming survey will ask seniors about the customer service they received during counseling and whether they believe they received a useful service. Seniors’ feedback will be used two different ways.  HUD will use seniors’ comments to evaluate different counseling agencies and ensure that all approved agencies are offering quality services.  HUD will also use the results of their survey to determine if changes need to be made to current counseling policies or procedures.

This is not the first time that HUD has reviewed reverse mortgage counseling.  In 2010, HUD made a few procedural changes to counseling by implementing the Benefits Check-Up and Financial Interview Tool.  Depending on the results of the new survey, additional changes might be implemented in the future.  HUD’s continued efforts to understand and improve counseling are just another example of the government’s commitment to the success of their Home Equity Conversion Mortgage (HECM) programs.

To learn more about the reverse mortgage process, contact us at (877) 267-0274 to speak to one of our loan specialists.

Reverse Mortgage Information: Recent Updates to the HECM for Purchase

Many mortgage professionals believe that one issue facing the HECM for Purchase program is the restriction placed on seller concessions.  In February, the Federal Housing Administration (FHA) released new guidelines regarding the seller concessions allowed on insured loans.  These guidelines limited concessions to 3% on most FHA-insured loans.  Although limited, these concessions make it much easier for many borrowers to pay their closing costs.

The problem is that, when purchasing a home with an HECM, seller concessions are prohibited.  The reason for this is not entirely clear.  While HUD has already reduced closing costs by combining an HECM and purchase into one loan, more seniors might take advantage of the program if seller concessions were allowed.

Reverse Mortgage Information for Seniors Hoping to Relocate in the Future

Recently, Steve Irwin, vice president of the National Reverse Mortgage Lenders Association (NRMLA), asked HUD to begin considering a 3% seller concession on HECM purchases.  Currently, seller concessions are included in almost all forward purchase contracts.  Since the costs of HECMs are sometimes higher than forward mortgages, it is only fair that these loans would also allow such incentives.  Allowing a 3% concession would turn the HECM for Purchase program into a more competitive loan product.

HUD has not yet responded to Irwin’s request.  Still, many experts are in agreement that Irwin’s proposal would greatly benefit the HECM for Purchase program.  Seniors hoping to use a reverse mortgage to relocate in the future may want to keep an eye out for future news regarding FHA seller concessions.

Adjustable interest rates offer much more flexibility.  Borrowers who would prefer an adjustable rate can choose to receive their loan proceeds in monthly installments, as a line of credit or in one lump sum payment.  At this time, adjustable reverse mortgage rates are extremely low, even more so than fixed rates.  Still, since these rates can increase in the future, they do not offer the same security as fixed rate loans.

Fixed Vs. Variable Reverse Mortgage Rates

At this time, 65% of all reverse mortgage borrowers choose fixed interest rates.  For seniors who are using their proceeds to repay an existing mortgage loan, the lump sum payment option makes the most sense.  However, if representatives of the National Reverse Mortgage Lenders Association (NRMLA) get their way, seniors may have another loan product to choose from in the future.

This product, which was first introduced to HUD by NRMLA a few short weeks ago, is the FHA hybrid.  If it comes to fruition, the hybrid will provide seniors with an upfront advance at a fixed interest rate and subsequent advances at an adjustable rate.

Will a New FHA Hybrid Take Over the Industry?

When the HECM Saver was first released, very few borrowers chose this loan product.  While the HECM Standard still dominates the market, more seniors are beginning to opt for the Saver in order to lower their upfront mortgage insurance premiums.  If the hybrid becomes available, the Standard may have serious competition.

Many industry experts are excited by the prospect of a new hybrid product.  This loan would combine the security of a fixed interest rate with the flexibility of an adjustable rate.   Some experts are going so far as to say that the hybrid would be a “game changer.”  Just how significantly this loan could change the game is yet to be seen.

To learn more about your current loan options, contact one of our loan specialists at (877) 267-0274 for additional information.