A question often asked is, “Are all Reverse Mortgages FHA insured loans?”

The answer is, yes the vast majority of Reverse Mortgage Loans in the United States are FHA insured loans, backed by the Department of HUD. They are officially named HECM (Home Equity Conversion Mortgage.)

Over 90% of all Reverse Mortgages are FHA insured HECM loans. Before the financial crisis came to a head at the end of 2008, there were reverse mortgages available called, proprietary loans, which were not insured by FHA. Proprietary loans were created by lenders using the lender’s own criteria for qualifying and were underwritten by the lenders themselves or the investors that were ultimately purchasing the proprietary reverse mortgage loans after they were originated.

When the financial markets all but collapsed in 2008/2009, the private investors buying non-FHA insured reverse mortgage paper exited the market. Those investors were no longer interested in taking the risk of purchasing mortgage backed securities without government insurance against future losses.

With virtually no proprietary reverse mortgage products on the market, almost all reverse mortgages originated in the past 3 plus years have been FHA Reverse Mortgages.

To help support the reverse mortgage market and the demand for these unique home equity loans, FHA and HUD have kept the maximum loan amount at the all time high of $625,500. It had been rumored that FHA was going to lower the loan limit back down to pre-recession levels of $417,000 or less at the end of 2011. Fortunately, they did not do that.

Speculation is that the reason FHA/HUD kept the loan limit at $625,500 is due to the fact that there is still very little participation by non-government investors in the reverse mortgage secondary market. Until private investors regain their appetite for investing in reverse mortgage backed securities, there is little chance that proprietary reverse mortgages will be available anytime soon.

Until then, close to 100% of all U.S. Reverse Mortgages will continue to be FHA insured, HECM’s.

It remains to be seen whether the States Attorneys General will accept the Big Bank’s 25 Billion dollar settlement proposal to make the “robo-signing” foreclosure scandal go away.

If it is accepted, it will only apply to privately held mortgages issued between 2008 and 2011, not mortgages held by Fannie Mae or Freddie Mac. Fannie and Freddie own about half of all U.S. mortgages or about 31 million home loans.

Ohio Democrat Senator, Sherrod Brown, said “Wall Street again is trying to pass the buck. Instead of criminal prosecutions, we’re talking about something that’s not more than a slap on the wrist.”

California Attorney General, Kamala D. Harris has been holding out for a settlement that includes her ability to prosecute lenders. California has the greatest number of people who lost their homes to foreclosure since the financial disaster struck. Ms. Harris said on Monday that “her ability to go after potential wrongdoing by mortgage lenders remains a key lens through which she will evaluate any proposal.”

You can read more details about the proposed settlement here:

What happens with a Reverse Mortgage at Death?

This question often comes up when we are discussing the ins and outs of Reverse Mortgage Loans with potential borrowers.

There seems to be a lot confusion surrounding what happens with a home that is secured by a reverse mortgage at death. Here is how it works.

HERE’S WHAT HAPPENS WHEN THE BORROWER DIES?

If the borrower/homeowner left the home to heirs as part of an overall estate, the heirs have the choice to either keep the home or sell the home.

Having a reverse mortgage in this situation, is no different than if the homeowner had a traditional “forward” mortgage on the home at the time of death. In either scenario, the heirs would have to decide how to pay off the existing mortgage.

They could either refinance the existing mortgage with a new mortgage in their own name and keep the home. Or if they have their own assets and don’t need a new mortgage, they can simply pay off the existing mortgage with their own money and keep the home.

If the heirs do not want to keep the home, they can sell it and pay off the existing mortgage with the proceeds from the sale.

If the home sells for more than what is owed on the mortgage the heirs keep the excess proceeds from the sale.

Now, here is the part where a reverse mortgage is different than a traditional “forward” mortgage:

Let’s assume that due to the decline in home values of late, the home is “underwater” at the time of death, meaning that the reverse mortgage balance is higher than the market value of the home.

If the home cannot be sold for at least the balance of the reverse mortgage, the FHA Mortgage Insurance Fund pays the lender whatever the shortfall amount is at the time of sale. In this situation, the heirs would not really have the option to keep the home if they needed to get a new mortgage on it, because there wouldn’t be a lender that would give the heirs a loan that is greater than the value of the home.

A couple of questions that usually come up at this point in the discussion are; who is responsible for selling the home, and who owns the home, especially if the home is worth less than the reverse mortgage balance?

A lot of people are under the misconception that when a borrower passes away and has a reverse mortgage on their home, that the bank owns their home.

THIS IS NOT THE CASE. The bank does NOT own the home, the heirs/estate of the deceased, own the home. At the time of death, the bank usually gets an appraisal for the property so they know what to expect in the way of a loan pay off from the sale or refinance proceeds.

If the heirs do not actively attempt to either refinance the existing mortgage or sell the property, the lender has the right to foreclose, re-market the property and satisfy their mortgage from the foreclosure sale proceeds.

The lender has no ability to file a deficiency judgement against the heirs if the foreclosure proceeds are less than the existing loan balance.

FHA Reverse Mortgage Loans (HECM) are Non-Recourse loans, meaning that the home stands alone for the debt….not the estate, not the heirs…. just the home.

Since HECM loans are non-recourse, sometimes we get questions about selling the home to family or friends for less than the market value. This isn’t really possible, because as mentioned earlier, the lender will have an appraisal for the home and will require that the house is marketed at the present value or close to the current market value. Otherwise the lender still has the option to foreclose to recover as much as possible of the loan balance through a foreclosure sale.

President Obama used his Executive power to recess-appoint Richard Cordray to head the Consumer Financial Protection Bureau, two long years after the CFPB was initially established as part of the Dodd-Frank Financial Reform Bill.

The CFPB is charged with enforcing a variety of financial consumer protection laws. However, the bureau cannot fully enforce its authority unless it has an acting director. Without a director, the bureau only has authority over bank entities and no authority over non-bank entities such as, mortgage originators, mortgage servicers, payday lenders, private student lenders, and other firms that compete with banks.

Republicans have fiercely opposed the bureau from day one and have blocked all efforts made by the Administration to confirm a permanent director.

You may recall Elizabeth Warren was the temporary acting director of the CFPB for more than a year. Knowing she would not pass Congressional confirmation, President Obama then nominated Richard Cordray in July, 2011.

Once again, the Republicans stone-walled his confirmation. The Republicans “say” they would prefer a five-member commission to oversee the CFPB, rather than a one-person director.

Once again, we are witness to an impotent Congress where nothing gets done and the interests of mainstream Americans (their electorate BTW) fall by the wayside, while they make a career out of bashing the other side.

Jon Stewart hits it out of the park as usual, with his spot-on commentary of the “unprecedented power-grab” made by President Obama in his decision to appoint Mr. Cordray while Congress was in recess. Way to go Jon!

Getting a Reverse Mortgage Requires Substantial Equity

On a daily basis we get inquiries from folks that want and need to get a reverse mortgage. However, many people do not know what the first…and most important ingredient is in qualifying for a reverse mortgage loan.

That “secret sauce” ingredient is…HOME EQUITY!

Many people are confused because they hear commercials on radio and television or see ads in their local newspaper encouraging people 62 or older to get a reverse mortgage. Somewhere along the line, the only part of the commercial or ad that sticks in people’s minds is the age 62 or older part. People are not hearing the rest of the message regarding how to qualify for a reverse mortgage.

It’s heartbreaking to have folks call and email saying things like: “I thought this was a government program to help senior citizens.” or “If the government can bail out the banks, why aren’t they helping senior citizens at risk of losing their homes?”

Although we completely empathize with those sentiments, the fact of the matter is, reverse mortgage eligibility has always required A LOT OF HOME EQUITY….in fact depending on your age, anywhere from 40 to 60% equity is needed to qualify.

A Reverse Mortgage is a Deferred Interest Loan

This means that the money you borrow using a reverse mortgage will accumulate interest over the number of years that you are alive and continue to live in your home. If your life expectancy is 20+ years from the time you take out a reverse mortgage, the amount of interest that will build up over 20+ years will be substantial.

Lenders try to estimate what your home will be worth versus the total amount of principal and interest that will accumulate over your expected lifetime. They try to make an educated guess about how much money they can lend you today, factor in the deferred interest accumulation over your expected lifetime, and try not to be “underwater” by the time the loan has to be paid off through the sale or refinance of your home by your heirs at the end of your life.

Future Housing Values

These are treacherous times for sure, not only for all of us citizens but for reverse mortgage lenders too. There is tremendous uncertainty about where housing values are going in the future. Are they still declining, will we ever see the values from 2002-2006 again? Maybe…maybe not.

If you’re interested, here is an article naming the 10 U.S. cities that have the highest number of “underwater” homes, (meaning, more is owed on the homes than the homes are worth.) As you would expect, almost all of these same cities also have higher unemployment rates than the national unemployment rate, which is currently just under 9%.

If you would like to find out if you have enough equity in your home to qualify for a reverse mortgage loan, please request an evaluation today. We are happy to run the numbers for you without any obligation on your part.

Reverse Mortgage

Reverse Mortgage for Home Purchase is not a new concept.  However, HECM for Purchase as they are called, are finally beginning to show up on the radar screens for more financial industry experts, media publishers, builders, realtors and the public in general.

The Washington Post recently said this about Reverse Mortgage for Home Purchase

Reverse mortgages can be good option for seniors
Do you know that if you are 62 years or older you may be able to buy a house or a condominium using a reverse mortgage? A reverse mortgage allows you to get money from a lender, but you do not have to pay it back (or make any monthly payments) until …

www.washingtonpost.com

Read More about how to buy a house with a reverse mortgage. Find out how much money is required from you, how to determine what price home you can afford, and how to think in terms of overall financial planning when considering a Reverse Mortgage for Home Purchase.

AARP is warning seniors about foreclosure scams targeting older homeowners that are behind on mortgage payments and facing foreclosure. DON’T BE ONE OF THEM!

According to the AARP bulletin, during the first six months of this year, more than 40 percent of the reported victims of this type of scam were 51 or older. This is up from the six month period between July 2010 and December 2010 when 36 percent of victims were in this age group.

Opportunists willing to take advantage during tough economic times is nothing new, but preying on senior citizens to this extent is a despicable commentary on our society and lack of values that are all too pervasive today.

Here are some excerpts from the AARP Bulletin, written by Sid Kirchheimer

Foreclosure scam impacts Imogene Hall — Photo by Carl Juste/Miami Herald/MCT via Getty Images

“Ever since the housing market took a dive, foreclosure scams have been spreading like wildfire. And that’s not about to change, what with some 4 million homeowners currently delinquent on their mortgages and another 1.6 million already in the foreclosure process.

What is changing, though, is the age of people being targeted in so-called rescue scams, in which you’re promised help in hanging on to a property threatened with foreclosure.”

The losses for this age group since February of 2010, are in excess of $16 million. The average loss per victim is $3,358.

“Typically, the losses come in the form of upfront fees paid to scammers who get in touch after learning of a foreclosure from newspapers, specialty publications or public records.

Among many other sins, they generally ignore federal rules that forbid foreclosure assistance or loan modification companies to collect fees until the lender has agreed to the relief in writing.”

There are numerous tactics used in this overall scam

The AARP Bulletin details 6 of the most common scams. Here a couple of the most prevalent ones. The others you can read about in more detail in the full AARP Alert.

“1. Rent to buy. Scammers say that if you surrender your home’s title to them, you can remain under your roof as a renter and buy the home back later.

Forget claims that this prevents foreclosure and can improve your credit rating — here’s the real deal: The bad guys raise the rent to evict you, make the buy-back terms so stiff that you can’t reclaim your home; or just let the foreclosure proceed.”

“2. Lawsuit lures. In the latest variation, you receive a letter inviting you to join a class action lawsuit against your mortgage company. This bogus offer is made more believable by the widely publicized “robo-signing” scandal of last year, in which lenders were accused of hiring unqualified people to falsify foreclosure paperwork en masse.”

Be sure to read the rest of the scam tactics mentioned in the AARP Bulletin. Being aware of these just might save you from becoming the next victim of these ruthless predators.

If you are struggling to stay in your home and still have equity, you should definitely request a free reverse mortgage quote to find out if a government insured reverse mortgage could save you from losing your home. Countless people have benefited in the past and rescued their homes from the brink of foreclosure by using a reverse mortgage.

Reverse Mortgage Loans - Not a Last Resort

Bell touches on another reason reverse mortgage loans are being utilized more recently. That reason is one that has come about as a result of the economic devastation that has been occurring since the Fall of 2008 along with the continued whip-saw behavior of Wall Street investments, retirement accounts and 401-k plans. Many folks that thought they planned well for retirement, suddenly find themselves in untenable situations with regard to retirement assets and their liquidity or lack thereof, for certain of these accounts.

Mr. Bell explains that reverse mortgage loans are NOT just a loan of last resort. For some reason, this mantra has been chanted by critics for the last 20+ years. Frankly, reverse mortgage loans have ALWAYS been much more than just a last resort option, but in today’s environment, they are even less so.

Reverse mortgage loans deserve investigation by anyone 62 or older with substantial home equity. They can be one tool in your overall arsenal for smart financial planning. Yes, they may not fit the bill for everyone, but for those that they do help, they can mean the difference between scrimping just to get by and being able to breathe easy and live a secure retirement life.

How Can I Get a Reverse Mortgage?

How Can I Get a Reverse Mortgage- is a question we get on a daily basis. The inquiries come from folks that want and need this type of financial help. However, many people do not know what the first…and most important ingredient is in order to qualify for a reverse mortgage.

That “Secret Sauce” ingredient is…HOME EQUITY!

Many people are confused because they hear commercials on radio and television or see ads in their local newspaper encouraging people 62 or older to get a reverse mortgage. Somewhere along the line, the only part of the commercial or ad that sticks in people’s minds is the age 62 or older part. People are not hearing the rest of the message regarding how to qualify for a reverse mortgage.

It’s heartbreaking to have folks call and email saying things like: “I thought this was a government program to help senior citizens.” or “If the government can bail out the banks, why aren’t they helping senior citizens at risk of losing their homes?” “How can I get a Reverse Mortgage and save my home?”

Although I completely empathize with those sentiments, the fact of the matter is, qualifying for a reverse mortgage has always required A LOT OF HOME EQUITY….in fact depending on your age, anywhere from 40 to 60% equity is needed to qualify.

What is a Reverse Mortgage?

Reverse mortgages are deferred interest loans. This means that whatever amount of money you borrower from a reverse mortgage will accumulate interest over the number of years that you are alive and continue to live in your home. If your life expectancy is 20+ years from the time you take out a reverse mortgage, the amount of interest that will build up over 20+ years will be substantial.

The lenders try to estimate what your home will be worth in the future, versus the total amount of principal and interest that will accumulate over your expected lifetime. They try to make an educated guess about how much money they can lend you today, allow for the deferred interest accumulation over your lifetime and hopefully, not be “underwater” by the time the loan has to be paid off through the sale or refinance of your home by your heirs.

These are treacherous times for sure, not only for all of us citizens but for reverse mortgage lenders too. There is tremendous uncertainty about where housing values are going in the future. Are they still declining, will we ever see the values from 2002-2006 again? Maybe…maybe not.

If you’re interested, here is an article naming the 10 U.S. cities that have the highest number of “underwater” homes, (meaning, more is owed on the homes than the homes can be sold for.) As you would expect, almost all of these same cities also have higher unemployment rates than the national unemployment rate of 9.1%.

If you would like to find out if you have enough equity in your home to qualify for a reverse mortgage loan, please request an evaluation today. We are happy to run the numbers for you without any obligation on your part.

Find out today, if you still have enough equity left in your home to qualify for a reverse mortgage loan.