Working with A Knowledgeable Professional

I saw an interview on a Texas television news station that shared a situation about a senior couple who had started the reverse mortgage process incurring thousands of dollars in home repair costs to find that they still can’t qualify for a reverse mortgage. It is becoming a legal nightmare.

Though I don’t know the details about this unique situation, it does raise some concerns about the reverse mortgage industry, not from a fraudulant standpoint (though that is always a concern for me), but more so in the area of discernment and professionalism in the minds of the reverse mortgage consultants involved. In watching the news story, it appeared that there was some sort of “promise” in regards to attaining a reverse mortgage as soon as the home was brought up to FHA standards. I hate to think that anyone would promise any sort of loan as loans always fall through due to the fault of no one, simply underwriting standards. Additionally, the process in which repairs are completed in the midst of the application process is critical. Without being proficient in the process the homeowner can be left with promises unfulfilled.

Here are some helpful hints:

1. As in most real estate transactions, be sure to work with people who have experience with your unique situation. It is true that every loan application is unique in themselves, but there are a lot of similarities. Experience can prevent a lot of stress on all parties.

2. Don’t do any repairs or changes to your property unless it is directly required by FHA or the lender. Unnecessary repairs could be costly and a simple opinion from a “senior consultant” doesn’t hold any weight. The FHA appraiser or FHA inspector may be able to tell you what is needed to meet FHA guidelines. These are professionals who understand and are experienced, and are held liable for meeting FHA’s requirements.

3. The only expense that may occur depending on your lender/broker is the up front appraisal fee. Though this is typically paid for at closing, periodically it is required up front. There shouldn’t be other up front costs. I always feel that if there were a lot of up front costs (paid in cash to lender), the reverse mortgage programs wouldn’t be so attractive. Most seniors looking into a reverse mortgage are asset rich and cash poor.

Feel free to contact me if there are other concerns that you may have. Each state operates a little different. I am aware of how Oregon and Washington operate.

Grandparents Survey on Spending

I read an interesting survey today that Liberty Reverse Mortgage completed recently. The survey was done on grandparents and the purpose was to examine the amount of money grandparents spend n their grandchildren, what it is they spend these funds to purchase, and whether they feel they are spending all they are spending all they want or can on their grandchildren.

Now this blog entry is not an endorsement for grandparents to spend, spend, spend. Please don’t misunderstand my intentions here. I personally think we probably spend too much on grandchildren as a country, but that is a whole other topic.

Here are some of the results of what they found:

• Grandparents who have mortgages spend a lot less than those that do not on their grandchildren.
• Grandparents who have borrowed or taken out a loan (since they became grandparents) spend less than those who have not on their grandchildren.
• The highest percent (92.4%) spend on presents, and the lowest percent (10.4%) spend on travel and vacations.
• The great majority of respondents (91.6%) own their homes.

For the entire report, please click on the following link: http://www.libertyreverse.com/images/upload/gci2007_executive_summary.pdf.

Fixed Rate Reverse Mortgages, Cont’d

I wanted to follow up on yesterday’s blog as it relates to Fixed Rate Reverse Mortgages. Within the blog, I implied that those who payoff an existing mortgage typically wouldn’t get the benefit of a monthly income (in general since most of the proceeds would be used to payoff the mortgage). However, the reality is that by paying off the current mortgage, one is actually left without a mortgage payment.  Just by not having to make a payment would provide the homeowner with additional discretionary money. This would only be the scenario if the payoff of the current mortgage is substantial.

Fixed Rate Reverse Mortgages

Many lenders are now coming out with their own version of  the Fixed Rate reverse mortgage. This is a pretty new concept among reverse mortgages as most, up until now, have been a variable rate. Though this sounds like a great idea, the reality is that I think the variable rate HECM (Home Equity Conversion Mortgage) is going to provide the greatest cash benefit to the borrower, in most cases. The rate typically (in current programs) is based on the Unpaid Principal Balance. This is the balance that the loan initially starts at. It includes all paid off liens, closing costs, and cash withdrawn upfront. The higher the UPB, the lower the interest rate. So, if someone starts with a $150k UPB, it will receive a better rate than a $20k UPB. Think about it . . . . the lender will earn more over time with a $150k UPB, than the $20k.

For those who are doing a reverse mortgage for the purpose of supplemental income (known as the Tenure payment), then the fixed rate may not be acceptable to them. However, it does provide some guarantees, and people like guarantees. It will continue to be a hot topic for many of the major lenders.

What are Reverse Mortgages Used for?

I often get questions about why someone would take out a reverse mortgage. I think I am asked this question because they simply don’t understand the details of the program. Remember, a reverse mortgage is not a wealth creating financial tool. In fact, it is what we refer to as an “Equity-Consuming” product.

Think about it . . . . fixed income combined with increased taxes, gas, bills, food, medical expenses, family . . .  the list goes on. When financial obligations increase, it leaves less and less discretionary money for other things. This is when an equity consuming loan combined with low risk becomes a great tool.

Financial Freedom,  the largest reverse mortgage provider in the U.S. and a subsidiary of IndyMac Bank, has gathered some information as to what people typically use a reverse mortgage for. You will find the results below:

Hospital/Health Care Costs – 67%
Payoff Existing Mortgage – 55%
Reduce Burden on Children – 50%
Home Improvement/Repair – 50%
Pay Property Taxes – 38%
Daily Expenses – 29%
Travel/Something Special – 14%
Gifts – 3%

Notice that the majority of the items above are more about “peace-of-mind” than anything else. Have a good day!

Curing Bad Loans . . .

Today I just wanted to share a couples of articles with you that I read taken from the Forbes and CNNMoney website.

 In light of the mortgage industry problems today, I feel like it is important to spread the news about different tools that may assist those facing challenging mortgage rates, etc. Take a look at this article and share it with those you think may benefit from it. You can find the article at http://www.forbes.com/feeds/ap/2007/09/10/ap4101636.html.

The FHASecure Act has been approved as another program that the Federal Government just passed in order to assist those families in the midst of the current mortgage crisis. It is geared toward home buyers and homeowners with weak credit. Lenders are much more willing to lend when their risk is lessened. In this case, they require FHA mortgage insurance. To read more about the FHASecure Act, please follow this link: http://money.cnn.com/2007/09/12/real_estate/refi_rescue_status_check/index.htm?postversion=2007091213 http://www.forbes.com/feeds/ap/2007/09/10/ap4101636.html

Foreclosure News

The Associated Press came out with an article yesterday noting that mortgage foreclosures are setting new records. It referred to the Mortgage Bankers Association reports that mortgage holders that have started the foreclosure procedures reached a new high of .65%. The delinquency rate was also up sharply at 5.12% of all loans. This measure tracks the number of people who are behind in their payments but have not yet entered the foreclosure process.

Our country is indeed in the midst of frightening financial times for many people who are in what is considered “at risk” mortgages. I can’t imagine what some of our seniors are facing in regards to these tough times. It wasn’t long ago that for many, it made sense to them to be in an adjustable rate mortgage; or one that remains fixed for a period, then adjusts after the first 2-3 years as interest rates were very favorable. The article continues: “An estimated 2 million adjustable rate mortgages are scheduled to reset this year as sharply higher interest rates.” For those on a fixed income, this could be devestating.

Reverse mortgages may be a good option for those seniors who are short on cashflow, and have at least 50% equity in their homes. As I have stated earlier, it provides the senior with a peace-of-mind that they will never be squeezed out of their home due to upside-down mortgages. There are guarantees in place that protect the homeowners. In times like these, it may just be the situation that they are looking for.

For any questions about reverse mortgages and questions around a particular situation, please contact me at greg.gulliford@pmrmtg.com or call me at 360-944-6636.