Beth's Reverse Mortgage Blog

You’ve Decided To Do A Reverse Mortgage… Should You Do The HECM Standard or The HECM Saver?

Beth Paterson, NMLS #342859 — Mon, 11 Mar 2013 22:12:27 +0000

Deciding between the different options of the reverse mortgage can be challenging and certainly depends on your situation. The Home Equity Conversion Mortgage, or HECM, is the most common reverse mortgage and only one available in Minnesota. Before looking at the difference between the HECM Standard and HECM Saver, let’s look at the similarities.

A mortgage just like any other mortgage, the reverse mortgage offers special terms for seniors home owners 62 and older. Advantages for seniors are with the reverse mortgage there are no income or credit score requirements to qualify and no monthly payment requirements.

The Principal Limit or maximum loan amount is determined by the home value or FHA Lending Limit, the age of the youngest borrower (the older one is the more they can receive), the Expected Interest Rate, and the program chosen.

The funds available can be received in a lump sum, monthly payments, or a line of credit. The monthly payments can be structured as one needs or for life as long as the home is the primary residence. Funds in the line of credit grow so more funds can be available in the future.

The borrowers keep the title to the home and are responsible for property taxes, insurance, and maintaining the home. Unlike a conventional loan the interest accrues, increasing the balance with no mortgage payments due until the home is no longer the primary residence of the borrower(s). The repayment amount is the lesser of the loan balance or fair market value of the home. As a non-recourse loan there is no personal liability to the borrowers or their estate for repayment,. If there is remaining equity, it goes to the borrowers or their heirs.

One can have a trust, life estate, or receive Medicaid (Medical Assistance in Minnesota), Elderly Waiver or other public benefits. In the case of a couple even if one of the borrowers goes into the nursing home or passes away, the other one can stay in the home and the loan isn’t due until both borrowers are no longer in the home as their primary residence. Not considered income, Social Security and Medicare are not affected.

With no limitations on how the funds can be used, through the years hundreds of thousands of seniors have benefitted from the reverse mortgage allowing them to stay in their home and have security, independence and control.

Because the closing costs are up-front, they are often perceived as high and often scare people away. However, as with a conventional loan, there are traditional closing costs including an origination fee, appraisal, title fees, title insurance and recording fees. As a FHA insured loan, with the HECM borrowers also pay the FHA Mortgage Insurance Premium (MIP).

The HECM Standard is the original HECM reverse mortgage, first insured by FHA in 1988. In 2010 the Saver was introduced. The Saver has a reduced up-front FHA MIP of 0.01% compared to 2.00% for the Standard. But it also reduces the Principal Limit available to borrowers. While the Saver may be appealing because of the lower up-front MIP, in the long run it may not be the best option.

Initially Karen liked the idea about the reduced closing costs of the HECM Saver. As we compared the HECM Standard and HECM Saver she has a different perspective.

With the HECM Standard Adjustable Rate she would receive over $13,000 more than the HECM Saver Adjustable Rate and $12,000 over the Saver Fixed Rate based on her home value of $170,000. The Fixed Rate requires that all funds be drawn as a lump sum at closing vs having the flexibility of monthly payments, line of credit, lump sum or a combination of these with the Adjustable Rate.

Because she didn’t have any mortgages to pay off or other needs for all funds initially, pulling all the funds out in a lump sum with the HECM Standard Fixed Rate or Saver Fixed Rate (the only fixed rate option available as of April 1, 2013) is not the best option for her situation. So it came down to deciding which of the two Adjustable Rates would best fit her situation.

Being Karen plans on staying in her home for many years to come, when looking at the estimated Amortization Schedules, the HECM Standard Adjustable Rate option is more advantageous for her. With the higher funds available initially with the HECM Standard, she could leave funds in the line of credit to use as she needs. The line of credit grows so more funds become available over time meaning she can access more over time.

Or with the tenure monthly payment option she would be able to receive more in her monthly payments as long as she remains in the home as her primary residence.

If the interest rate is higher on the HECM Saver, the increased costs of the MIP up-ftont MIP for the HECM Standard is diminished over time when compared to the HECM Saver by the lower interest rate it has versus the HECM Saver. But even if the interest rate is the same on the two adjustable rate programs, less funds are available up front which would mean if in the future she needed more funds she would need to refinance, paying closings costs a 2nd time. Being she plans to stay in the home for many years to come, the HECM Standard providing more available funds initially will best suit her situation.

The HECM Saver could be beneficial to those who don’t want to pay as much in the up-front closing costs but also don’t want to use as much equity from their home. It can be ideal if one plans on moving in a shorter period of time or has a higher home value and wants to preserve more of the equity.

Mark and Margaret are considering moving to a one-floor home in two to three years but needs some extra cash flow now. The HECM Saver with the lower up-front MIP is more advantageous for their situation. This would preserve some of their equity for when they sell. And at that time they could use the HECM for Purchase program to purchase their new home without having monthly mortgage payments.

Before assuming the lower up-front MIP of the HECM Saver is the best option, consider your long-term goals and needs, look at the calculations and Amortization Schedules to determine which is going to the most advantageous for your situation. While we can’t predict the future, reviewing the options can help you make better plans for your future.

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Seniors, want to purchase your new home with no monthly mortgage payments? Use A Reverse Mortgage.

Beth Paterson, NMLS #342859 — Sun, 03 Mar 2013 22:14:01 +0000

Are you over 62 and want to downsize? Move to a townhome so you don’t have to do the yard work? Move to a one-level home? Move closer to your children? Move to a larger home to have space for when the family comes to visit? Do you want to move to your new home but don’t want to have monthly mortgage payments? The HECM for Purchase program may be your financing option.

The FHA insured reverse mortgage program that allows those 62 and older to purchase their new home and then not have monthly mortgage payments is called HECM (Home Equity Conversion Mortgage) for Purchase. The features and terms as well as the of steps for the HECM for Purchase are the same as with the regular reverse mortgage. However, because it is a unique process, there are a few points you and all parties involved need to be aware of to make it a smooth transaction.

The properties that qualify for the HECM Home Purchase include single family, 1 to 4 family dwelling units if the borrower/owner resides in one unit, FHA approved condos, manufactured homes that meet HUD’s standards.
To run our calculations we use the lessor of the final appraised value, sales price, or FHA mortgage limit for a one-family residence.
- If the purchase price is $190,000 and the appraised value is $200,000, we would use the $190,000. Or if the purchase price is $210,000 and the appraised value is $200,000, we use the $200,000.
The proceeds available to the borrower are calculated the same way as with any reverse mortgage, having all the closing costs (origination and FHA MIP, reports, title and escrow/settlement fees) included in the loan so there are no out of pocket expenses other than the appraisal and potentially any inspections. The Net Principal Limit is the amount available to the borrower.
- Note: When I’m working with those exploring homes, I run several calculations at various possible home values so when the borrower and their real estate agent are looking for a home, they will have an idea of the home value and the cash the borrower will need at close.
The borrower will need to have the difference between the Net Principal Limit (loan amount) and the purchase price available. For example:
- If the purchase price and the appraised value is $200,000, the Net Principal limit is $124,000, the borrower will need $76,000* to purchase the $200,000 home.
- If a borrower has $100,000 in funds they want to use to purchase the same $200,000 home, they could combine their $100,000 with the $100,000 from the reverse mortgage proceeds to purchase the home and then have $24,000 in their reverse mortgage line of credit when using the adjustable rate, LIBOR, program. (The fixed rate requires you to pull all available funds at close.)
  - Borrowers must use cash on hand, cash from the sale, liquidation of assets or Gift funds (must meet HUD’s approved funding sources and source of funds needs to be documented).
    - The additional funds cannot come from Builder incentives, Seller financing, Seller contributions or concessions, any person or entity that financially benefits from the transaction or third party that is directly or indirectly reimbursed by any of the parties benefitting in the transaction or Credit Card advances, sweat equity, trade equity, rent credit. Cannot use loan discount points, interest rate buy downs, closing cost down payment assistance, gifts or personal property given by the seller or any other party involved in the transaction. Seller can pay their share of taxes and Home Owner Association fees if applicable.
The borrower may choose any of the 3 options/interest rate options:
- HECM LIBOR Standard
- HECM Fixed Saver, or
- HECM LIBOR Saver.
  - For calculation purposes our rates change every week. The rate cannot be confirmed until the week of closing. However, we have a Principal Limit Rate Lock (on the index of the LIBOR which means we can use the rate at the time of application or closing, whichever is the most favorable to the borrower, to determine the loan amount available.) For the process of planning how much will be available to the borrower, I initially use the rate and amount of the program chosen at the time of application.
Rather than using all reverse mortgage funds, more personal funds can be used for the purchase so the reverse mortgage can be set up with a Line Of Credit Option (HECM LIBOR option only)
Seller has to be the owner of record for 90 days prior to the date of the sales contract (based on when recorded). (This is to protect against property flipping.)
Prior to completing an application HUD requires the Certification of Occupancy.
The Original Purchase Contract or Certified Copy of the Purchase Contract is needed for underwriting.
Counseling must be completed by a HUD approved HECM counseling agency that has been approved to provide reverse mortgage counseling. Minnesota requires that the counselor be located in Minnesota. We will provide a you a list of HUD approved counselors.
The property must be livable at the time of closing. Any required repairs must be completed prior to closing by the seller – no repairs or repair set asides are allowed.
Funds are provided at closing, as there is no rescission period.
The new property has to be the primary residence and occupancy must happen within 60 days of closing.
One’s existing home may be retained as rental property or if purchasing current home prior to the sale of existing home income verification will be required to document the ability to maintain both properties. (This is prevent the practice of “buy and bail.”)

Using the reverse mortgage to finance the purchase of your new home may be your solution to meeting your goals without having a monthly mortgage payment.

*You may also need funds for property taxes, initial hazard insurance premium, home owner association dues, etc.

The answer to the common reverse mortgage tax question

Beth Paterson, NMLS #342859 — Sun, 17 Feb 2013 03:40:38 +0000

As people are preparing their taxes, I’ve been receiving the question, “Is the interest on my reverse mortgage deductible?” So let me answer this question for you.

For interest to be a tax deduction for individual taxpayers, it must first be paid. Being one is not making payments on their reverse mortgage, the interest is not being paid but accruing on the loan along with the FHA Mortgage Insurance Premiums (MIP) and servicing fees (applicable on some reverse mortgages). Therefore the interest is not a tax deduction until it’s actually paid.

For FHA Mortgage Insurance Premiums IRS states, “You can treat amounts you paid during 2012 for qualified mortgage insurance as home mortgage interest. The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006.” However, as with the interest on a reverse mortgage, the MIP amount must first be paid.

There is a way to receive the tax deduction during the term of the reverse mortgage loan. While payments are not required with the reverse mortgage, borrowers may choose to make payments. There are no penalties for making these pre-payments and the borrower has the option on when and how much they may choose to pay.

Payments reduce the Unpaid Principal Loan Balance. The loan balance is made up of the following categories: MIP, Servicing fee, interest, and principal amount (sum of amount borrowers obtain for their use, i.e. paying off previous loans and liens, other closing fees, and other personal uses). When borrowers make payments to reduce the loan balance they are first applied to the MIP, then the servicing fees, then the interest followed by the principal balance.

Once the borrower has paid enough to cover the accrued MIP, service fees, then additional payment amounts are applied to the interest on the loan. When interest paid in a calendar year exceeds $600 the lender will send you a 1098 int tax form for the amount of interest paid.

Since the payments have to cover the initial MIP of 2% of the Maximum Claim Amount, then the on-going MIP that has accrued along with any servicing fees before they are applied to the interest, most borrowers don’t find it feasible to take the deduction. The loss of a tax deduction may be considered a negative of the reverse mortgage for some people but the pros and cons need to be weighed.

Making pre-payments on one’s reverse mortgage may still be beneficial in reducing the Principal Loan Balance. And if one has an adjustable rate, having access to the funds in the future.

If one has the adjustable rate HECM the full payment amount can:

be applied to create or increase the line of credit in which these payments can be borrowed in the future;
or applied to their monthly payment to increase the amount they receive monthly or the length time they receive the monthly payments.
If not specified, the payment amount will be applied to or create a line of credit.

If one has a fixed rate reverse mortgage the payment reduces your loan balance as outlined above but the funds do not become available to re-borrow in the future.

Keep in mind that payment in full will terminate the loan and eliminate any available term/tenure payments and/or line of credit.

When the loan is paid in full the interest will have been paid and could become a deduction at that time to the borrower or their estate.

Most seniors who do a reverse mortgage do not have a significant income tax burden therefore a tax deduction is not a large concern for them. Many borrowers feel that receiving funds for one’s needs and desires with no required monthly mortgage payments outweigh the loss of the tax deduction. They want to live comfortably, have some “elbow room,” and be independent with security, independence, dignity and control.

I am a reverse mortgage expert, not a tax expert or advisor. Check with your tax advisor or IRS regarding tax deductions for your individual situation.

Reverse Mortgage Protects Retirement Plan

Beth Paterson, NMLS #342859 — Sun, 10 Feb 2013 21:02:23 +0000

Have you seen the sign, “Too much month at the end of the money?” That applied to Pat and Mary’s situation. In their mid 70′s, Pat and Mary planned for their retirement and have a good plan in place. But as their life changed they found there wasn’t enough money to last through the end of the month. Creating the needed additional funds for each month from their retirement plan would impact their resources for their future. Therefore their financial planner suggested they look into using their home equity and explore a reverse mortgage.

A mortgage just like any other mortgage, the reverse mortgage offers special terms for senior home owners 62 and older. With the FHA insured reverse mortgage, Home Equity Conversion Mortgage (HECM), the most popular and only one available in Minnesota, there are no income or credit score requirements to impact the interest rate and no monthly mortgage payment requirements.

The funds available can be received in a lump sum, monthly payments, a line of credit, or a combination of these. The monthly payments can be structured as tenure payments (for life) or as one needs as long as the home is the primary residence of at least one of the borrowers. Funds in the line of credit grow so more funds can be available in the future.

The loan is due and payable when the home is no longer the primary residence of the borrower(s) such as they move, sell or die, or on their 150th birthday. As a non-recourse loan, if the loan balance is higher than what the home can be sold for, the borrower(s) or their estate don’t have to pay with the difference, the FHA Mortgage Insurance Premium (MIP) covers the difference. And if the home is sold for more than the loan balance, the borrower(s) or their estate receive the difference.

After being educated about the reverse mortgage including the positives and negatives, rather than using their retirement funds so they could be protected for their future needs, Pat and Mary decided to do a reverse mortgage.

Doing the Standard Adjustable Rate HECM, they set up the proceeds available to receive a portion in monthly payments, with the balance in a line of credit that they can use if and when they need it.

Receiving the monthly payments allows them to live comfortably, meeting their living expenses without running out of funds before the end of each month.

The line of credit grows at the rate on the reverse mortgage plus 1.25, i.e. if the rate is 2.5% the growth rate will be 3.75%. If the interest rate goes up, the growth rate does also. This means that more funds will be available in their unused portion of their line of credit. They can use these funds for an emergency such as car repairs, a new furnace, medical expenses or for other needs and desires such as making a trip for a family reunion or out of town wedding.

With the reverse mortgage in place providing monthly cash flow and a line of credit for other needs, Pat and Mary’s retirement funds can be protected for their future. They are living their retirement years with a good plan along with funds for their current needs. Now they have more money at the end of the month – what a way to live in retirement!

Let Me Educate You On Adjustable Rate Reverse Mortgages

Beth Paterson, NMLS #342859 — Sun, 03 Feb 2013 03:33:49 +0000

With the April 1st elimination of the FHA Home Equity Conversion Mortgage (HECM) Standard Fixed Rate, the Adjustable Rate will once again be the most common choice of reverse mortgage borrowers. While adjustable rates mortgages have gotten a bad rap they should be understood and considered with reverse mortgages. Let me educate you.

A mortgage just like any other mortgage, the reverse mortgage offers special terms for senior home owners 62 and older. Advantages for seniors, are with the reverse mortgage there are no income or credit score requirements to impact the interest rate and no monthly mortgage payment requirements. The non-recourse loan is due and payable when the home is no longer the primary residence of the borrower(s) or on their 150th birthday.

To understand the programs and interest rate options, first you need to know how the loan amount is determined. With the reverse mortgage the Principal Limit or maximum loan amount at the time of origination is determined by the home appraised value or FHA’s Lending Limit ($625,500 through 2013), the age of the borrower (the older one is the more they can receive), and the Expected Interest Rate of the program chosen. The Expected Interest Rate is only used to determine the loan amount it is not necessarily the same as the interest rate on the loan.

The funds available can be received in a lump sum, monthly payments, a line of credit, or a combination of these. The monthly payments can be structured as one needs or as tenure payments (for life) as long as the home is the primary residence of at least one of the borrowers. Funds in the line of credit grow so more funds can be available in the future.

Prior to 2008 the only reverse mortgage option was an adjustable rate. In 2008 HUD introduced the HECM Fixed Rate. And in October 2010 the HECM Saver was introduced which reduces the up-front Mortgage Insurance Premium (MIP) but also has a lower Principal Limit or loan amount; generally the HECM Saver has a higher interest rate as well. The HECM Saver is available as an adjustable rate option and a fixed rate option. The programs that have the full up-front 2% FHA MIP are called Standard, and are available in the adjustable and fixed rate programs (through April 1, 2013 when the Fixed Standard will be eliminated).

The Fixed rate is often a favorite option however with the reverse mortgage it requires that all the funds be drawn in a lump sum at closing which isn’t the best option for everyone’s situation.

The bad rap on adjustable rates occurred with conventional mortgages because when the interest went higher so did the monthly mortgage payments. And this impacted many who couldn’t afford the higher monthly mortgage payments. Let’s look at why the reverse mortgage is different and should be considered as a viable option for senior homeowners.

Because monthly mortgage payments are not required with the reverse mortgage, having the rate change doesn’t impact one’s monthly payment and/or cash flow.
The Adjustable Interest Rate is the option that offers receiving funds as monthly payments, a line of credit, lump sum or a combination of these.
Having more flexibility with how the funds are drawn is beneficial to borrowers. If you don’t have a need for all the funds up-front then leaving them in a line of credit, which has a growth rate, or structuring monthly payments to your needs are more favorable options.
- The growth rate on the unused portion in the line of credit is determined by the current interest rate on the loan plus 1.25. For example if the current rate is 2.5%, the growth rate will be 3.75%. If/when the interest on the loan increases so does the growth rate on the line of credit, meaning even more funds become available to the borrower over time.
Because it is a loan against the property, not considered income, if one is receiving or will receive Medicaid (Medical Assistance in Minnesota) in the future, the adjustable rate is also more favorable, allowing you to draw funds as needed rather than as a lump sum which could impact receiving Medicaid.
Taking funds as periodic payments means interest and the on-going MIP is accruing on the loan balance at a slower pace vs taking funds as a lump sum, especially when there isn’t a need or better use for lump sum funds.
Monthly mortgage payments are not required however you have the option of making payments. When the payment is made it reduces the loan balance and with the adjustable rate it is applied to the line of credit and available for future draws.
The adjustable rate is low right now, and yes, it can adjust and be higher in the future, however it only impacts the amount due when the loan is due and payable. And there is a cap of 10 points higher than the initial interest rate at closing. For example, if the interest rate at closing is 2.5%, the cap is 12.5%.
What we don’t know is when the rates will increase or how high they will increase but with the lower rates now, even if the rates do increase substantially the interest expense over the life of the loan will be tempered by the current low interest rates.
And even if the reverse mortgage interest rate does go up, as a non-recourse loan when the loan is due and payable if the loan balance is higher than the home can be sold for, the borrower or the estate will not need to come up with the difference. If the home can be sold for more than the loan balance due, the equity goes to the borrower or their estate.

With an understanding you can see why the reverse mortgage, even with an adjustable rate, can be favorable to senior homeowners.

The HECM Saver is available in the adjustable rate and will remain an option with the fixed rate. So if you really want a fixed rate you will still have the option, just remember less funds will be available and the interest rate is likely to be higher.

When considering a reverse mortgage review all the options, Adjustable Standard, Adjustable Saver or Fixed Saver, and decide which is best for your situation.

Reverse Mortgage Features and Terms Summary

Beth Paterson, NMLS #342859 — Sat, 26 Jan 2013 04:14:11 +0000

There are many loan documents with the reverse mortgage (all mortgages actually) and it’s hard to remember all the details through the life of the loan. To help you have a better understanding initially as well as be a reference in the future, this article summarizes the reverse mortgage features and terms.

A reverse mortgage is a mortgage or lien against your property allowing you to use the equity in your home.
Monthly mortgage payments are not required.
Through FHA, the Home Equity Conversion Mortgage (HECM) is a government insured program and regulated by HUD.
As a loan against your property, the funds are not considered income so Social Security and Medicare are not affected; and generally SSI and other public benefits are not affected; Medicaid can also be received under certain situations – consult with legal services for your situation.
Generally the funds received are considered tax free – consult your tax advisor regarding your situation.

Who Owns Your Home

You retain title and remain a vested owner of your property.
You retain all rights and responsibilities of home ownership, including property maintenance, tax and insurance payments, etc.

Borrower Protection

Should the lender default, FHA will assume the responsibilities of the lender and guarantees funds are available to borrowers according to terms of the loan.
As FHA loan, interest rates are lower than they otherwise would be on a reverse mortgage.
Non-recourse: Borrower/Homeowner or the estate will never be obligated for more than the fair market value of the property.

Adjustable Interest Rate – HECMs

If you have selected an adjustable rate product, your interest rate may change over the life of the loan.
There is a cap of 10 points higher than the initial rate at the time of closing.
The interest rate may adjustable monthly and the current and future rates will be provided on your monthly statement.
The rate is based on the LIBOR index.
Interest is charged against your loan balance only. Unused line of credit and/or unused term/tenure payments will not accrue interest.

Fixed Interest – HECMs

If you have selected a fixed rate product, your interest rate is fixed and will not change over the life of the loan.

Ongoing Costs

Interest accrues only on amounts borrowed.
Monthly charge for FHA Mortgage Insurance Premium (MIP) – 1.25 per year on loan balance (added to loan balance).
All costs, charges, and accrued interest are added to loan balance.
Essentially you are borrowing these funds each month because you are not paying them monthly; this is why the loan balance increases over time.

Line of Credit (if applicable)

Available credit of unused portion of line of credit grows over time at the current applied interest rate plus 1.25. This is not interest, but a growth rate.
Interest is not charged on unused portion of line of credit.
Line of credit funds advances must be requested in writing from the lender/servicer. Lender has 5 business days to process your request.

Term/Tenure Payments (if applicable)

If you have selected monthly Term or Tenure Payments, these monthly advances will be paid to you on the first business day of each month beginning the month after loan closing.
Interest is not charged on un-advanced monthly term/tenure funds.

Prepayment

Although monthly or periodic mortgage payments are not required, you may make full or partial payments at any time.
Please contact the lender/servicer for payment address and information.
Partial payments reduce the loan balance due.
Partial payments on adjustable rate HECM’s will create or increase the line of credit and these payments can be borrowed in the future.
Payments on fixed rate HECM’s are permanent payments.
Payment in full will terminate the loan and eliminate any available term/tenure payments and/or line of credit.

Due and Payable

No payment is required until/unless one of the following occurs:
Borrower(s) no longer occupy the home as a primary residence.
Borrower(s) no longer owns the home.
All borrowers have passed away.
Property taxes are not kept current.
Homeowner’s/Hazard insurance is not kept current.
Flood Insurance (if applicable) is not kept current.
HOA dues (if applicable) are not kept current.
Required repairs are not completed.
Property is not properly maintained.
Title vesting changes are made.

Upon Death of Borrower(s)

If there is a surviving borrower(s) continuing to occupy the home, the reverse mortgage continues without any changes. If a sole borrower dies or there are no surviving borrowers, the reverse mortgage becomes due and payable in full.
Heirs/estate should contact the lender/servicer within 30 days to provide notice of the death.
A reverse mortgage is not transferrable to the heirs or estate.
The loan may be repaid from sale of property.
If heirs wish to keep the home, they may satisfy the debt by paying the lesser of the mortgage balance or 95% of the FHA appraised value of the home at that time.
Most lenders are allowing up to six months for heirs to settle the estate and repay the reverse mortgage. Where justified, HUD, who regulates the HECM, may approve extensions beyond this time up to a total of 12 months.

Your Responsibilities

Pay property taxes.
Maintain homeowners insurance on property.
Maintain flood insurance (if applicable) on property.
Pay HOA dues (if applicable).
Complete required repairs timely.
Maintain property.
Not make changes to title vesting.
Return the annual occupancy certificate to lender.
Provide proof your property taxes have been paid annually.
Provide proof your property insurance has been paid.

When To Notify Your Lender

If you change your insurance provider.
If you change your bank for direct deposits.
If you are putting the property into a Trust.
Any other changes to the property.
If there is a claim from your property insurance.
When a Power of Attorney (POA) is being implemented to make decisions on your behalf.

FHA Lending Limit for Reverse Mortgages Extended

Beth Paterson, NMLS #342859 — Sat, 08 Dec 2012 05:46:55 +0000

We got word today that FHA is extending the Lending Limit of $625,500 for reverse mortgages through December 31, 2013. This is good news for those who have a a higher home value!

To determine the loan amount on the FHA HECM (Home Equity Conversion Mortgage), the lending limit or home value, whichever is lower, is used. For example, the value of one’s home may be $900,000 but FHA will use the Lending Limit of $625,500 to calculate the loan amount for a FHA HECM. For reverse mortgages the age of the borrower and the Expected Interest Rate of the program chosen are also used to determine the Principal Limit or Maximum Loan Amount.

For more information see Mortgagee Letter 12-26.

Have Senior Homeowners With Reverse Mortgages And Tax Defaults Really Gone Into Foreclosure and Lost Their Homes? You Are In For A Surprise!

Beth Paterson, NMLS #342859 — Mon, 29 Oct 2012 04:05:53 +0000

With all the media hype that seniors are losing their homes because they have a reverse mortgage and have tax defaults, the latest data shows the homework wasn’t done before reporting their stories. Trying to paint a negative of reverse mortgages is widespread without the data to back it up.

The fact is rather than foreclose, reverse mortgage servicers made advancements on behalf of borrowers for their insurance and property taxes defaults. And since January 2011 when FHA introduced loss mitigation tools the servicers have been working with the borrowers who were delinquent on their property taxes and insurance. As a result, 20% of those in these situations have been repaid. Another 60% of the defaulted borrowers have begun making repayments.

According to HUD’s Director of Single Family Program Development, Karin Hill, the default rate for the more recent Home Equity Conversion Mortgages (HECMs) is lower than the loans done previously with the worst performing being from 2007 and 2008 which account for just under 40% of all those in default.

The first four years after origination the probability of default increases then slowly declines over time noted Hill. Younger borrowers (62 to 65) are the most likely to default however they are making more repayments than older borrowers.

While we haven’t received data on those who have not made repayments, servicers and HUD remain committed to assist senior homeowners to remain in their home. It shouldn’t be assumed that reverse mortgage borrowers have gone into foreclosure. It’s important to remember that even without a reverse mortgage in place, these homeowners who haven’t paid their property taxes face foreclosure or tax forfeiture through the county. The reverse mortgage is not the reason senior homeowners go into foreclosure.

While the headlines report senior homeowners are losing their homes because of a reverse mortgage and tax defaults, the data shows otherwise; it’s just more myths about reverse mortgages.

Resource: The National Reverse Mortgages Lenders Association (NRMLA); data presented at the 2012 Annual Meeting & Expo by senior HECM managers.

Are Reverse Mortgage Property Tax Defaults Really Due To The Reverse Mortgage? …They Are Not The Only Reason Seniors Lose Their Home

Beth Paterson, NMLS #342859 — Sun, 21 Oct 2012 19:27:33 +0000

There is a lot of talk about the issues of reverse mortgage defaults causing borrowers to go into foreclosure and lose their homes because of not paying their taxes and insurance… claiming that the tax defaults are a reason one should not do a reverse mortgage. The media and so-called senior advocates are pushing this point hard. Are you aware that anyone who doesn’t pay property taxes on one’s property can face foreclosure?

If one has a conventional mortgage and doesn’t pay their taxes, the lender will pay the taxes on behalf of their borrower and increase the homeowners mortgage payments to cover the taxes. If they let their homeowners insurance drop, the lender will place “forced” insurance on the property and pass the costs along to the borrower.

Even if one doesn’t have a mortgage, a reverse or conventional, one can lose their home for not paying their taxes – the counties foreclose on them. Here in Minnesota the county claims the property as a tax forfeiture.

Ann, a 65 year old woman called me inquiring about a reverse mortgage stating she owed over $20,000 in back taxes and was facing tax forfeiture in just a few short months. Ann had no other debt and her home was worth more than $300,000. Based on her situation, she wouldn’t qualify for a conventional or “forward” mortgage. Someone had suggested the reverse mortgage a solution to her situation.

I explained the details of the reverse mortgage: A reverse mortgage is a loan with special terms for those 62 and older. As an FHA insured loan HUD oversees the Home Equity Conversion Mortgage or HECM providing protections like no other financial option. With the HECM there are no income or credit score qualifications* and no monthly payment requirements. The home would remain hers with the title in her name. And the reverse mortgage funds could pay off her tax debt and she could leave the remaining funds in a Line of Credit with a growth rate for future needs including paying her property taxes going forward. Or if she chose she could receive monthly payments, a lump sum or a combination of these options.

The loan would be due and payable when the home was no longer her primary residence or on her 150th birthday. If at the time the loan was due and payable and the home was sold for more than the loan balance she or her estate would receive the difference in funds. Or if the loan balance was higher than what the home could be sold for, as a non-recourse loan she or her estate would not have to come up with the difference, the FHA Mortgage Insurance covers the difference to the lender.

In her situation she would have had a large line of credit that would allow her funds to pay her taxes and insurance going forward… and some other life necessities or a little extra here and there to maintain or improve the quality of her life.

There are many homeowners who lose their home for not paying their property taxes. When one gets behind on their taxes, they also reduce their option of qualifying for a conventional mortgage, especially with the tighter credit and income qualifications.

And think about it, if one doesn’t have insurance on their home and there is a fire or a storm that destroys the home, the homeowner loses their home and they don’t have money to rebuild.

Another consideration regarding reverse mortgage defaults is they are minimal compared to conventional or “forward” mortgage default foreclosures. I’m sure some of the forward foreclosures included seniors who had been sold a mortgage without consideration on whether they would be able to make payments in the future. In fact I know of an 80+ year old woman who did a 30-year mortgage… what was the likelihood she would be able to make mortgage payments for 30 years? A reverse mortgage would have been a better loan choice for her.

When the senior homeowners with forward mortgages have had “life happen” and they couldn’t make the payments, they also didn’t qualify for a reverse mortgage because they owed more than the reverse mortgage proceeds, they went into foreclosure. (We often receive calls from seniors in this situation and have to say we can’t do the reverse mortgage for them.) If these seniors had done the reverse mortgage initially instead of doing the forward mortgage, they would be benefitting from no mortgage payments and having funds to pay their taxes and insurance as well as for their other needs.

Reverse mortgages make a huge positive difference in the life of senior homeowners; the majority of reverse mortgage borrowers are satisfied with their reverse mortgage. Reverse mortgages shouldn’t be discounted because a small percentage are in default.

When reverse mortgage borrowers haven’t paid their taxes the lenders/servicers work with the borrowers to find ways to help them including sending them to counselors who work with borrowers to find a way to assist them address the issue.

Unfortunately, Ann’s brother had told her reverse mortgages are bad and she shouldn’t do one and she listened to him. Consequently the county foreclosed on her. She not only lost her home and a place to live, she lost the $280,000+ in equity. Whereas a reverse mortgage could have saved her home from foreclosure and she would have been able to pay her taxes and remain in her home with funds for other needs or desires including paying her future taxes and insurance.

So you see, reverse mortgage tax defaults are really defaults on taxes with a reverse mortgage in place and are not the only reason seniors can lose their home – they happen with conventional or no mortgages at all as well. The media and politicians should stop attacking the reverse mortgage industry as the bad guys and gals – counties across the country are foreclosing on seniors’ homes too.

*To address the issue of tax and insurance defaults, in the near future we anticipate financial assessments with the reverse mortgage to determine if the borrowers are able to pay property taxes and insurance into the future.

Do You Go To A Plumber For Health Issues? Then Why Would You Receive Advice on Reverse Mortgages From A Politician?

Beth Paterson, NMLS #342859 — Sun, 14 Oct 2012 22:29:14 +0000

In a conversation with a woman the other day when I told her I specialize in reverse mortgages she said, “I’ve talked with a Minnesota politician who said people shouldn’t do a reverse mortgage.” So I asked her the question, “Do you go to a plumber for your health problems?” “Of course not!” was her adamant reply. No we don’t, when we have health issues we go to the health professional who specializes in the area of our problem such as cancer or heart.

I went on to explain to this woman that I know the politician she had talked with and I too have had conversations with them. Their concern is that one should have an understanding of the reverse mortgage, the terms and details, not that one shouldn’t do one. In addition I pointed out that the state of Minnesota in their Own Your Future campaign is suggesting people consider reverse mortgages as a way to pay for their long-term care. Additionally I explained that because the politicians don’t specialize in reverse mortgages they can’t provide all the details and facts about them. Her response was, “Ohhhhh, I see.”

Everyone has their area of specialty, the doctor, the attorney, the politician; mine is reverse mortgages. I can’t advise you on health, legal issues or laws in areas I am unfamiliar, don’t specialize or am not licensed. Just because I grocery shop doesn’t make me a specialist in groceries or the grocery store.

Before deciding that a reverse mortgage shouldn’t be done based on the comment or opinion of a politician, media, friend or relative talk with a reverse mortgage specialist to get the facts and decide whether a reverse mortgage may be right for your circumstances. One who specializes in reverse mortgages can provide details and calculations for your personal situation. Invite your family or other trusted advisors to be involved in the informational meeting so they also receive the facts and details. You can then have a discussion and trust that you are making an informed decision.

Linda did just that, she talked with her financial advisor and with me and has decided that a FHA HUD Home Equity Conversion Mortgage (HECM) reverse mortgage is right for her situation. Doing one to eliminate her current mortgage payments and improve her cash flow (she doesn’t have to make mortgage payments with her reverse mortgage), she feels the relief from stress on figuring out how she would be able to continue to make her mortgage payments.

Do you go to the plumber for your health issues? Then why go to a politician for reverse mortgage details and facts? Explore the related stories linked below and through out this blog; learn how reverse mortgages have made a difference in the lives of those who received the facts and understood the details.