The Reverse Mortgage Blog - by Dennis Haber Esq.

Establishing Reverse Mortgage Trust

It seems that everyone has an opinion on this topic. Whether one is knowledgeable or not, it does not seem to matter. Too many individuals freely give advice bordering on trumpery. The sad news is that prospective borrowers have a tendency to listen to "know it all" friends and family. Or is it "know nothing" friends and family.

I suppose that part of the problem is that the word "mortgage" as in "conventional", or "reverse" or any other kind, has become a pejorative. What has transpired over the last 6 months is  truly a national disgrace. There is  a lot of blame to spread around.

The bottom line result is that family and friends will by necessity become the linchpin where TRUST resides-- EVEN THOUGH THEIR  WELL INTENDED IGNORANT ADVICE is sometimes destructive.

In oder to be successful in the reverse mortgage industry the speed of trust...the speed in which you can establish that trusting relationship with the client, the family and the professional becomes quite important.

Stephen MR Covey in his seminal book, THE SPEED OF TRUST THE ONE THING THAT CHANGES EVERYTHING is a must read for everyone in the reverse mortgage industry. The advice, when put into practice could change your life on many levels.

If you are thinking that you can not embrace a new approach...let me raise a question that is raised in the book. If you have been working in this field for 6 years, do you have six years of experience or are you repeating one years worth of experience 6 times?

In order for this industry to be successful we have to recapture this trust mechanism NOW. Tomorrow will be too late.

Get the book.

REVERSE MORTGAGE AGE- what you need to know

There are strict age requirements. The FHA/HECM (Home Equity Conversion Mortgage) program requires that each homeowner/borrower be at least 62 years of age. The question becomes, what happens if one party is 62 or older and the other is not of reverse mortgage age? The RIGHT answer to this question depends upon the knowledge of your loan officer.  One answer you may get is that it CAN NOT be done. (This is a correct answer) Another answer you may receive is that it CAN be done providing the individual that is not 62 is taken off the title. (This is also a correct answer). So you say, “OK let’s do it”.

I say “not so fast”. While both answers are correct, we need to explore this issue further to determine which answer is RIGHT for our couple. You will discover how important this is as we unravel the consequences that can impact our surviving individual.

Assume for a moment that the younger individual was taken off title and imagine that this individual passes away first. This is a fortunate result. Since this person was not an owner of the property, the death of that person will not affect the reverse mortgage.

However, if the person who was the owner/reverse mortgage borrower passes first, then the loan becomes due. (The loan becomes due upon sale, death of the surviving borrower, or when the home is no longer the primary residence of each borrower). In this case, when our borrower passes, the loan has to be paid in full.
Usually, when a maturity event occurs, the home is sold. The lender receives the unpaid balance. The heirs receive the difference.

Our non borrowing individual could be placed in a precarious position if their desire was to remain in the home after the death of their partner/spouse.

Therefore it is critical to explore the financial wherewithal of the parties. It is necessary to examine the various scenarios with the concomitant options. And it is important that the parties understand the consequences of their actions.

Being correct is not enough.

THE REVERSE MORTGAGE "MISCONCEPTION PROBLEM"

Many reverse mortgage “experts” will tell you that the amount of people obtaining reverse mortgages will continue to grow at an extraordinary pace.  Conflating the industry’s claim of 100 per cent growth in prior years, with the fact that the oldest baby boomers will reach their 62nd birthday at a rate of 10,000 per day, provides all the proof needed to suggest that this industry will continue to enjoy exponential future growth.   Those of us that love this industry must continue to fight this complacency to think this way.

It is time to wake up somnambulant reverse mortgage companies that believe incredible growth will continue as a matter of right. The sophomoric reasons proffered ignore the "misconception" barrier that needs to be overcome. Those of us that love this industry must continue to support and get involved with the colossal efforts of the NRMLA (National Reverse Mortgage Lenders Association - the industry trade group).

It has been 19 years since the first  FHA/HECM reverse mortgage closed. Yet there still remains an aggregation of misconceptions that continue to be repeated as if they were concrete facts. I have heard these statements from clients, prospective clients, family members and professionals. The power of the internet provides the Petri dish for spreading & cultivating these falsehoods.

As a student of this loan program, I confess that I am dismayed by this constant stream of misconceptions that, like the proverbial stop sign, halts seniors dead in their tracks. Sadly it is often this program that provides the solution (too often ignored) that solves the seniors’ problems.

All of us in this industry must work together to give our elders the best information available. This means telling the client who has better options, to pursue those options. It means telling the client that you do not know the answer, instead of making one up. It means abiding by the industry’s code of conduct. It means caring a lot about honesty and integrity. And it means challenging yourself each and every day to be a little bit smarter and better than you were the day before. This partly means being an ambassador for the industry. If you haven’t published an article-start writing. If you do not have public speaking experience, do it. A Chinese proverb says, “The best time to plant a tree was 20 years ago. The second best time is TODAY”.

Bull's-Eye: The HECM Advisor Program unwittingly TARGETS Seniors

It is a bromide to say that the reverse mortgage industry is exploding. The safe and secure features of the program was one reason. Another reason was the entry into this nascent industry of  a core group of individuals and companies who sought  to make the lives of seniors better.

Things are different today. Too many companies are looking at the senior market in a malefic way. Congress has already held hearings on the deceptive practices that some companies are using to lure seniors into buying financial products with the proceeds from their reverse mortgage.

Other companies, whose revenues have evaporated with the collapse of the sub-prime and alt-a mortgage market  are using the quick and inconspicuous HECM Adviser tool either as a way to enter this market, or as a way to market their services. Some companies have gone a step further. They are offering this program type to just about anyone who could "refer" them to a senior.

The HECM Adviser program was created in 2000 to stimulate the reverse mortgage market. At that time there were about 6600 loans originated that year. Until that time only brokers and bankers who were licensed by FHA could originate HECM reverse mortgage loans. This program allows all non-FHA entities to advise clients about the program then pass these clients off to an FHA approved lender to originate same.The advising company could receive a fee for the work they provided.

Many questions were raised over how to proceed. Disparate advice was offered by law firms and reverse mortgage wholesalers. By the time anyone had a comfort level ,years had gone by. And the passage of time saw a significant increase in the reverse mortgage volume.

This program really turned out to be a tortured way to give a  non FHA broker or banker a referral fee without calling it that. Section 8 of the Real Estate Settlement Procedure Act prohibits such fees.

The HECM Adviser program should be eliminated because we have inexperienced FHA-reverse mortgage lenders taking on inexperienced reverse mortgage advisers. Wrong information is being given, the seniors are losing confidence in a program that under the right circumstances is a god send.  Its elimination would also signal an end to all like programs.

The modern day reverse mortgage industry is approaching its 20th anniversary since the first HECM was closed. The industry must be the sentinel over the kind of companies and individuals that enter into this market place.

Our elders deserve at least that much.

Why It Is A Good Time To Get A Reverse Mortgage

Contrary to what many people believe, it is a great time to consider getting happily involved with a reverse mortgage.

Often you hear property values are going down. "I will not get as much as I hoped, if I get a reverse mortgage today".

Often one hears that an adjustable rate reverse mortgage is no different than a subprime or alt-a loan. An adjustable rate reverse mortgage loan is light years better than the aforementioned mortgages. Those that seek to conflate  the Alt-a and subprime mess with reverse mortgages clearly lack an understanding of the issues.

So let's dissect the component parts of a reverse mortgage and compare it to those mortgages that caused the melt down in the mortgage industry. I will debunk "the home values are going down so it is not a good time to get a reverse mortgage" issue later in this article.

There is no income, asset or credit requirements with a reverse mortgage. The ability to make monthly mortgage payments to the lender is a non issue because this is NOT REQUIRED with a reverse mortgage.

Some of the Alt-a and subprime mortgages had such loose underwriting guidelines that it appeared that there was no income, asset or credit requirements either. However, the borrower had to make monthly mortgage payments to the lender. AND because interest rates adjusted at a point in time, this affected the amount of the monthly mortgage payments that the borrower had to make. Because the borrower was qualified on the lower teaser rate, (that was the only way they could meet the loose underwriting guidelines) they did not have the money to continue to make mortgage payments at the higher rate.

Let me repeat: MONTHLY MORTGAGE PAYMENTS ARE NOT REQUIRED TO BE MADE TO THE REVERSE MORTGAGE LENDER. IN FACT, IT IS THE LENDER THAT MAKES  PAYMENTS TO THE BORROWER PURSUANT TO THE BORROWERS' WISHES.

The "value" argument as above noted, is a false argument as well for those homes that are valued above the FHA limit for their community. Those homes that have a value above the FHA  limit (in their county) will receive the maximum dollar benefits even though the home has lost some of its value. The reason is that the decreased home value remains above FHA's magic number.

Also it is important to know that reverse mortgage note rates are currently in 3% plus range. The recent Federal Reserve action is partly responsible for these low rates.

Because of the money flocking into the bond market, the yields on the bonds are also at a low level. These yields help determine the benefit amounts. These yields are currently below the FHA floor. This means that benefit amounts are being maximized.

So it is a wonderful time to be CONSIDERING a reverse mortgage. Low interest rates, value's often still remain above, at or just below FHA's limits, and these loans are safe and secure because you do not have to make monthly mortgage payments.

One Consequence If The Reverse Mortgage Did Not Exist

No financial or mortgage product is for everyone. The reverse mortgage is serving our elder population well. It is keeping seniors in their homes. It is helping those that are ill remain in the place they love. This is just one reason why the program is gaining in popularity. It provides a very important option.

If you do not think this is a big deal, read this story.

FORGET SUPER TUESDAY REMEMBER SUPER SENIORS

When I first got into this burgeoning business many years ago, single females were more likely to obtain a reverse mortgage than any other cohort. Today, we see a different trend.

While single females still make up the largest group, as a percentage of all those getting into the program, the numbers in this group have decreased.  Single males and couples are flocking into the program. The percentages in these groups have significantly increased. I believe that the real significance behind these numbers is the fact that seniors are decrying the economic challenges they are facing.

Federal, state and local government have turned their backs on our elders. Congress has made it more difficult for seniors to declare bankruptcy, even though 50 per cent of all bankruptcies are due to health related issues; even though the credit card companies can still entice seniors to obtain more cards with billions- yes that is billions- of unwanted solicitations, knowing that seniors couldn’t make the payments on the additional credit given.

Our elders are now taking matters into their own hands. The weapon of choice, for now is the reverse mortgage. Soon it will also be the ballot box.