This year the Reverse Mortgage celebrates its 50^th birthday, but it is unlikely there will be any public celebrations on its behalf and that’s a real shame.

What is a reverse mortgage?

A reverse mortgage also known as a HECM (Home Equity Conversion Mortgage) plain and simple is a loan that allows senior homeowners 62 or older to borrow or gain access to a portion of the equity in their home.  When the homeowner passes away or moves his/her estate sells the property the loan is repaid.  Any remaining equity goes back to the borrower or his/her estate.  There are no income or credit qualifications and during the term of the loan the borrower is not required to make any monthly payments to principal and interest.  Borrowers can choose to receive funds in a lump sum, monthly payments or they can access funds on an as needed basis through a line of credit.

Why the bad press?

Reverse mortgages have long suffered from bad press that in most cases has nothing to do with the reverse mortgage itself.  If a teen steals his parent’s car and totals it we don’t look at the CAR LOAN as the root of the problem but that is exactly how the press treats reverse mortgages.  That is a real shame because many seniors who could really benefit from reverse mortgage financing are afraid of them and they don’t know why other than that they “heard they were bad”.  In a world where everyone has enough cash to write a check for everything mortgages of all kinds are not necessary.  In the world we live in… most of us do not have the resources to pay cash.  Borrowing is a necessity.

Why not just refinance or get a home equity loan?

A traditional mortgage or Home Equity Loan is thought to be less costly but requires borrowers to prove they have sufficient income to manage monthly payments.  Qualifying for a traditional loan can be difficult for many seniors.  All traditional loans also have monthly payments associated with them which ultimately will hurt, rather than help cash flow.  As far as costs are concerned, there are many more lower cost options today such as the HECM Saver, than there were just a few years ago and since rates on Reverse mortgages are often lower than you would see on traditional loans, long-term costs can be much lower.

What makes the Reverse Mortgage unique is not only the lack of a monthly payments but the ease in which seniors can qualify.  Since the Reverse Mortgage does not have monthly payments, borrowers with limited income or with some credit problems, even bankruptcy will still qualify for the HECM program.

What can it be used for?

There are no limits on what a reverse mortgage can be used for, most common uses are:

• Pay off existing mortgages and other debts to improve cash flow
• Pay for health care expenses such as in home health care to help seniors remain at home.
• Pay for needed home renovations and modifications that will allow a senior to more comfortably age in place
• Purchase a new home or condominium.

The Vast Majority are very happy

Over the last 20 years I have worked with thousands of homeowners and homebuyers with dozens of different programs.  No other program comes anywhere close to making the positive impact on a homeowner’s life than the Reverse Mortgage.  In 2007 AARP published a study showing the vast majority of seniors with reverse mortgages (93%) were happy with them and there have been many improvements to the program since this study was completed.

Seniors, Families, caregivers and professional advisors would be well served to look with an open mind at what this program can do for those they care for and about.   More on this topic in future posts.

HECM / Reverse mortgage limits will also remain at $625,500 for the remainder of the calendar year.

The full text of the mortgagee letter is available here:  http://portal.hud.gov/hudportal/documents/huddoc?id=11-29ml.pdf

In Maryland the loan limit for the remainder of 2011 will remain $500,000 in Anne Arundel, Baltimore County, Baltimore City, Carroll, Harford, Howard and Queen Anne counties.  The limit in Calvert, Charles, Frederick, Montgomery and Prince Georges counties will remain $818,000.

The announcement from VA can be found here:  http://www.benefits.va.gov/homeloans/docs/2011_Oct_thru_Dec_Max_Guaranty.pdf

The 2011 Loan Limits can be found here:  http://www.benefits.va.gov/homeloans/docs/2011_county_loan_limits.pdf

A recent study by home site Zillow found that homeowners who purchased homes in 2007 or later are on average overpricing their homes by 14%.    Those would be sellers are basing the asking price on what they paid rather than current market.  Other sellers are also overpricing homes but not by as wide a margin.   Read the press release HERE (will open new window).

• FHA Case Numbers: For each FHA loan, we are required to order a FHA case number. This number is generated before an appraisal can even be ordered. With a shutdown, we may not be able to order case numbers. Because of this, it is critical to let us know if there is a contract executed on any loan, so that our office can go ahead and order a case number without risking the loan being on hold during a shutdown. Note: with the new FHA guidelines, a contract must be executed before a case number can be ordered.
  The ability to close FHA loans is questionable, depending if HUD keeps its website running to obtain FHA case numbers and CAIVRS (During the November 1995 shutdown, case numbers could not be obtained, but this was prior to the internet and was a manual process). The shutdown in 1995 mainly caused a delay rather than a drop in FHA loan origination, but if lenders decide to stop accepting FHA applications, it could be a problem. I think we will see delays but not a complete shutdown of the FHA.
• 4506 IRS Transcripts: Each loan (not including reverse mortgages) requires the verification of at least one tax return by the IRS to verify the numbers that each customer presents us on their tax returns. During a shutdown, this process would be delayed as the IRS wouldn’t be at work to verify the transcripts.
• Verifying Employment of a Government Employee: We are required to verify the employment of each customer. If the customer is a federal government employee, we would be unable to verify his or her employment during a shutdown.
• FEMA: Homes in a Flood Zone: Homes that are determined to be in a flood zone would not be able to close as flood insurance could not be obtained.
• USDA: During a shutdown, the USDA office would be closed because they have government underwriters that insure behind the lender.  With a shutdown, we would see delays with all USDA loans.
• VA: Like the FHA, the disruption is possible — but not absolute — during a shutdown. This would all depend on if they continued to allow their website to function. A disruption would cause delays in VA appraisals and the issuing of certificates of eligibility.  If the website was closed during a shutdown, we would see delays in all VA loans.

Hopefully, our representatives in Washington will come to terms and a shutdown will be avoided.  In case they don’t, you know what to expect.

Application information is available from the NeighborWorks America website: http://ehlp.nw.org/

Read the SmartMoney.com story here: http://www.smartmoney.com/spend/real-estate/more-money-for-struggling-homeowners-1309312646029/

The HomePath property buyer must meet the following qualifications to be eligible:

• Buyers and/or selling agents (the agent representing the buyer) must request the incentive upon submission of initial offer in order to be eligible.
• The initial offer must be submitted on or after April 11, 2011 and close by June 30, 2011. If an initial offer was made prior to the effective date, the offer is not eligible for the incentive.
• The sale must close on or before June 30, 2011. No exceptions will be made to this deadline.
• Only buyers purchasing a HomePath property as their primary residence may receive up to 3.5% in closing cost assistance. Second homes and investment properties are excluded from the incentive.
• Buyer must sign the Owner Occupant Certification Rider to the Real Estate Purchase Addendum.
• If a buyer’s total closing costs are under 3.5%, the difference will not be available as a credit to the buyer.

The full story is here: http://www.housingwire.com/2011/01/25/hud-to-release-1-billion-in-mortgage-help-to-unemployed-this-spring

Origination News – Relocating Seniors Worrying About Financing New Home.

For $25 to $100, your name and certain specifics about your credit report, including your address, phone number, mortgage history, and even your FICO score range, are sold to mortgage companies which then blindly solicit your business. This results in numerous unwanted phone calls and junk mail offers which are in no way associated with your real estate agent or loan professional.

Unfortunately, no legislation presently exists to prevent the credit bureaus from profiting at your expense. As a trigger lead, you are simply at the mercy of any number of too-good-to-be-true offers designed specifically to try and discredit the mortgage professionals you know and trust.

Don’t be fooled! Ultimately, there are only a limited number of sources where lenders may turn to obtain mortgage money, and it’s unlikely that you will find an unbelievably low rate without an unbelievably high cost. That’s why, prior to taking an application for any loan program, I always encourage my clients to opt−out of credit bureau solicitations by visiting www.optoutprescreen.com. For new home buyers, this is the simplest way to avoid the problem altogether.

As you embark on what could be the largest financial transaction of your life, it is very important to have a professional mortgage specialist on your team who has your best interests at heart.

Please call me with any questions.