A reverse mortgage, or Home Equity Conversion Mortgage (HECM), can be a  great way to provide a solid financial future for yourself and your family. One thing that can make refinancing your home by doing a reverse home mortgage is if the lending limits in your area have increased. If you have had your reverse mortgage for a couple of years, it may be possible that the current lending limits could enable you to receive a lot more money. A year ago, the lending limit was raised from $417,000 to $625,500. This meant that whatever your home’s value was, you could not have received more than $417,000 for it. Now that it is raised – but only through January 1, 2010, you may be entitled to more money since the limits have been raised.

Interest rates can be a concern with any kind of loan, with a reverse mortgage loan, the higher the interest is the more that the balance will be reduced. When the interest rates on a reverse mortgage decrease, it enables you to have a cash flow longer. With the economy indicating that things might be getting better, the result could mean that your home’s value may be going back up. A higher value means that you will be able to receive more money if you refinance your HECM.

To ensure you are getting a better deal than what you already had. A government form  must be filled out by the reverse mortgage agent, called a “Home Equity Conversion Mortgage Anti-Churning Disclosure.” Its purpose is to actually calculate and record how much of a difference will be gained by the new HECM. The government dictates that you must gain at least three to five times as much as the cost that will be generated from it. There are some exceptions to this rule. If that is not going to happen, you will need to go through counseling for the HECM again

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Latterly I originated a loan for a gentleman, Mr. Smith for the purpose of this article, who at first was terribly evasive about what he owed on his home. When Mr. Smith applied on my internet site he input that his home was free and clear. In our 1st conversation he reiterated that his home was free and clear. Later, he interpreted his statement and said that his home would be free and clear before we closed his new loan. That statement struck me as odd, so in my subsequent conversations I sought to discover exactly what he was talking about. What I discerned was that though Mr Smith had a vast awareness of reverse mortgages from his research, somewhere along the line he was given the wrong info about one aspect of the loan. He was under the misconception that his home needed to be free and clear to get a reverse mortgage

Media coverage of reverse mortgages has grown tremendously in the past few years, yet even with assistance from NRMLA ( national Reverse mortgage corporations organisation ) there are still several misconceptions about the product. Mr. Smith’s plan was to have his boy pay off his existing $162,000 mortgage prior to originating his new reverse mortgage. He was happy to learn that was a pointless step. After it closed, he planned on repaying as much as possible to his child from the loan proceeds.

Mr. Smith didn’t qualify for enough cash with the reverse mortgage to repay his entire loan. He was fortunate that his boy had the money available to gift him the difference of approximately $19,000. Understand that with a reverse mortgage all liens against the property need to be paid first. If there’s money left over then the borrower has the option to use the proceeds however they see fit. If there is a deficit, like the case of Mr. Smith, the borrower will need to cover the difference at closing. That may be done by use of the borrowers own funds or present. With a HECM ( Home Equity Conversion Mortgage ), borrowers can’t attract new debt to obtain their loan.

These misconceptions must be cleared up because plenty of people who should be doing a reverse mortgage won’t be doing one, simply because they had been given fake info at some specific point in their research or talks with pals and family. If Mr. Smith’s son did not have the fiscal wherewithal to pay down his dads loan, I am awfully certain that Mr. Smith would have written off the idea of a reverse mortgage and perhaps would have lost his home. The point learned is to consult a professional reverse mortgage advisor to be certain all is understood about this product.
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Since its inception when HUD started insuring reverse mortgages 20 years ago, anyone considering a reverse mortgage must receive counseling from a 3^rd party HUD approved counselor.  Now effective this October a new protocol has been put into affect.  To remain on HUD’s Counseling Roster, counselors must have passed the National HECM (Home Equity Conversion Mortgage) Counseling Exam.  Only counselors who are employees of HUD-approved housing counseling agencies can take the exam and then be eligible to counsel potential reverse mortgage borrowers.  Additionally they must have completed at least one HECM related training course within the past two years and meet some background check requirements.

With the intention to keep lenders from influencing counselors, lenders are required to provide potential borrowers with a list of 10 counselors, 5 are to be local and the additional 5 are the national counseling agencies.  Also according to HUD’s requirements lenders are prohibited to provide only one or two counselors and/or steering to a particular counselor.

The purpose of the third party counseling is to make sure potential borrowers are familiar with the terms of the loan, the costs, and advise them of other potential options.  The advantages can be if the potential borrowers have not talked with a lender or a lender has not provided the details they are getting the basics of the reverse mortgage.  If they have talked with a lender and the lender has done a good job explaining the reverse mortgage, the counselor will reiterate what the lender has explained.  Counseling sessions should generally take about an hour and HUD allows counselors to charge up to $125 commensurate with the time of the counseling session.

Through the years we, the ethical lenders,  have been amazed how counselors have not followed HUD’s requirements, steered to particular lenders, told borrowers they shouldn’t do the reverse mortgage, how they should take their reverse mortgage funds, charged the full allowable amount of $125 for only 15 minutes of counseling time, and a number of other violations of HUD’s regulations.

When we from Prestige Mortgage, LLC, Reverse Mortgages SIDAC, meet with our prospective borrowers we usually take an hour to two hours going through the details and the calculations, reviewing their situation and discussing options for their situation.  After the counseling session when we ask our borrowers how the counseling session went, we consistently hear, “They covered just what you did.”  This means our borrowers have received enough education to have a good understanding of the loan.

Besides the new protocol to be a counselor, there will be a new protocol for the counseling session.  Prior to the counseling session HUD is requiring that prospective borrowers receive calculation pages comparing programs, the amortization schedules, the Total Annual Loan Cost (TALC)  and a booklet titled, “Use Your Home to Stay at Home” published by the National Council on Aging.

From what we understand counselors will be doing a financial analysis.  Additionally counselors will be asking 10 questions in which borrowers will need to answer at least 5 correctly in order for them to receive the counseling certificate.  If they can’t answer the questions correctly then they will not receive the certificate and will need to wait a minimum of 7 days and then go through another “limited” counseling session to review the topics they didn’t understand.  And if counselors feel the prospective borrowers don’t comprehend the basic reverse mortgage details, they can withhold the counseling certificate.

The intention is to help borrowers assess their situation and whether the reverse mortgage is right for their financial situation.  While on the surface this sounds like a good idea, the concern is whether the counselor will be passing along their opinion and not letting the borrower really make their own decisions and withholding the counseling certificate if they choose based on their opinion.  This has happened in the past with counselors telling borrowers they should cut back on getting their hair done, not using the proceeds for a trip, shutting off their cable TV, etc..  I believe the discussion should be held however, the final decision should still be the borrowers.  And we have to consider what provides seniors their security, independence, dignity, control and choices of their life.  Visit my Blog articles: “Who Are We To Judge How Reverse Mortgage Funds Should be Used?”  and “Is Your Opinion of Reverse Mortgages Denying Seniors?”

I’m proud that we take so much time educating our borrowers and discussing their situation and options so they can make their decision based on the facts of the reverse mortgage.  Also that they have the information and knowledge to be able to answer the questions they will be asked during the counseling session.

With the new protocol of the counselors, I believe (hope) the best counselors will remain and the counseling sessions will provide the education without the opinions of the counselors being shared.  I also hope that the counselors will be following the required protocol knowing that if they don’t HUD is likely to pull their ability to counsel.  Time will tell if the new protocol of the counselors and the counseling session will benefit borrowers or make it more cumbersome and/or discouraging for the borrowers.

The best I can do is continue to educate borrowers on the facts of reverse mortgages, discuss their situation and options and respect them to make the decision best for their own situation and have the information they need when they go through the counseling session.

© 2009 Beth Paterson http://BethsReverseMortgageBlog.wordpress.com 651-762-9648

Almost two months ago monies were being spent in the stimulus package that went to things like tunnels for turtles, guard rails for dried lakes, rehabs for airports that saw very few customers, repairs to train stations that had been closed for decades and much more, but we were appalled that Congress was considering Bills which would make our seniors carry the cost of the HUD reverse mortgage program.

We felt that if Billions and Trillions of dollars could be used for these and other projects like skate board parks, hundred million dollar court house renovations, scientific grants for laser beams and wetlands preservation, that surely Congress could find the money to help our seniors continue to utilize the HUD Home Equity Conversion Mortgage (HECM or “Heck-um”) program to continue to stay in their homes. Unfortunately, it looks like we were wrong!

Just yesterday a news item came out that we were going to send $36.7Billion in foreign aid to wealthy countries and countries who don’t like us. That’s right, we can find almost $40Billion for countries who are already wealthy or would like to see us fall into the ocean, but we don’t have the money to fund a program that helps our senior homeowners stay in their homes without cutting the benefit amount to those senior homeowners. Our mothers, fathers, grandmothers and grandfathers aren’t as important as the money we will send to North Korea, Cuba, Venezuela, Libya, Bolivia, Russia and others.

It seems that not only do we have money for all these pet projects, but we have money for healthcare reform that by all accounts may further cut benefits to seniors in the form of cuts to Medicare and Medicaid. And just today HUD announced with Mortgagee Letter 2009-34 that Principal Limit Factors are being changed effective October 1, 2009 to “assist with the viability of the program”.

It seems that the HECM program was never intended to operate with a credit subsidy as was explained by the Commissioner, David Stevens, in a call to the Reverse Mortgage Lenders Association (NRMLA). He remained open to re-engineering the mortgage insurance premiums or making other changes but indicated that there was nothing HUD could do since the program needed to operate without need of a subsidy.

According to the notice issued by the NRMLA yesterday, several of the larger reverse mortgage lenders did an analysis on the portfolios of loans they have done year to date and that 10% reduction of benefits under the program (this is the amount HUD intends to lower the benefits) would have left approximately 21% of all the borrowers with too little proceeds to pay off the existing loans on their homes. In other words, more than one fifth of all reverse mortgages done would not have been able to be closed unless the borrowers had additional cash they could bring in to closing!

This means that all the borrowers who barely paid off their liens to keep their homes during these extremely tough financial times would be forced to move or even worse, if they were currently delinquent on their home mortgages may have been foreclosed upon if they didn’t have the extra money to cover the reduced benefit amount.

We did more than two dozen loans at this company alone year to date for senior homeowners who were behind on their current mortgage due to the financial climate who would have not have been able to close and would not have been able to keep their homes under the proposed changes. At least a dozen were currently in foreclosure and definitely would have lost their homes with these changes.

Seniors already pay a large portion of this program since the single largest fee in any reverse mortgage transaction is typically the HUD mortgage insurance at closing. On the largest of transactions, this is over $12,500 per borrower to HUD. Then all borrowers also pay one half of 1% for monthly mortgage insurance on their loans. I have no way of knowing what claims have been paid due to the mortgage market crash, but surely the HECM loans are no worse off than the forward or regular loans that HUD has insured through FHA.

The office of Management and Budget (OMB) came up with the numbers to determine the projected shortfall in the program and I for one do not know how they were derived and maybe would take exception with their figures. But to make our seniors pay yet again while we cover the billions and trillions in costs for superfluous programs and projects while our seniors need our help and support is criminal! This is just one more cut to the senior community while we spend for pet projects and for things few can justify and yes, seems we even the found the money to give Congress a raise.

I ask everyone, even if you are not a senior yourself, to contact your representative at http://www.usa.gov/Contact/Elected.shtml and tell them that you strongly urge them to find a way to fully fund the HUD HECM program and instruct HUD to revert back to the existing benefits so that our seniors do not have to foot the bill by way of reduced benefits.

It’s amazing that HUD or Congress would even consider a change at this time when our seniors need their help more than ever and I hope that the Congress hears from a lot of concerned citizens before it’s too late. How about if we renovate one less useless airport, leave out a few guardrails for dried lakes, build one or two less skateboard parks or just send a little less money to the nations who are already wealthy or want to do us badly anyway in the name of our parents and grandparents so that they can stay in their homes? I for one don’t think that’s asking too much.

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