Changes in reverse mortgages worry industry

Almost daily, the reverse mortgage industry is changing, and it's worrying plenty of people.

For years, reverse mortgages have been reliable, a way for seniors to live off the equity in their homes as they age. While complicated, these loans have been highly regulated in terms of fees and rate disclosures. Geared to homeowners age 62 and above, they provided peace of mind because rates and fees usually were set when the loan process started.

But now, reverse mortgage veterans like John Smaldone in Maryville, Tenn., are concerned about that some sudden changes by Fannie Mae that allow margins to fluctuate almost daily until the funding process is complete. These adjustments can confuse seniors and cause them to question whether they are getting fair treatment.

Fannie Mae - the largest financier in the U.S. mortgage industry - is trying to attract more money to the reverse mortgage market by increasing the amount lenders can make on selling the loans. But raising fees and allowing rates to change can lower the amount of money senior homeowners can borrow. It also can increase the fraud risk as competition for their business increases.

"Instead of (Fannie Mae) announcing the problem and then pitch in to help find an alternative, what do they do? Like normal, drop a bomb, this time on the reverse mortgage industry and our senior citizen population," Smaldone, senior vice president for reverse mortgages for AAXA Mortgage, said in a letter to U.S. Rep. John J. Duncan, R-Tenn.

Reverse mortgages are becoming more popular, in part because retiree stock accounts have lost so much value. Federal data shows a record 11,261 reverse mortgages were made in March, up from 9,086 the month before. The National Reverse Mortgage Lenders Association expects the number to grow to about 150,000 this year, up 30 percent over last year.

Last month - and without any real warning - Fannie Mae made changes that allow for higher margins for reverse mortgage lenders. Simply put, margins are the interest rate spreads a lender makes on the loan. So, the higher the margin, the higher the interest rate the borrower pays.

Worse still, under the new rules the margin - typically 3.25 to 3.75 percentage points - can change from the time a borrower submits an application and the loan is funded, which can be up to 120 days.

The borrower signs a disclosure form from the lender projecting the maximum amount of money the borrower may receive. But with rates that can change, the senior will not really know how much they can borrow until closing, or days before. That makes the disclosure form practically useless, Smaldone said.

"The reality of the draconian move by Fannie Mae is to create uncertainty in the reverse mortgage market place," real estate attorney and Florida International University law professor Dennis Haber wrote on his blog.

In the current credit crunch, Fannie Mae has been almost alone in buying up reverse mortgages. Now, more buyers will join Fannie Mae in the loan resale arena, lured by bigger profits from the higher margins.

Amy Bonitatibus, a Fannie Mae spokeswoman, said the pricing adjustments are meant to bring more investors and more cash flow into the reverse mortgage industry.

But within the industry, fears are mounting that the higher margins are turning the reverse mortgage industry into the more traditional loan market, creating heavy competition that could lead to over-lending and introduce more predatory lenders.

Further, the suddenness of the changes forced loan officers with clients who have loans waiting to be funded to tell the client that the rate has changed.

A widow with health problems, Lorraine Zickefoose of Alcoa, Tenn., received a foreclosure letter after her son lost his job and they were unable to make mortgage payments.

Zickefoose, who receives $1,100 a month from Social Security, sought a reverse mortgage to help her stay in her house. But, due to changing margins and credit issues, the reverse mortgage is leaving her short by $7,000. Her original lender turned her down, saying the amount she could have received on the reverse mortgage was not enough to cover her traditional mortgage.

"I have nothing. Now I am going to lose my home," said Zickefoose, 71. "I need that reverse mortgage."

Seniors considering reverse mortgages as a foreclosure lifeboat will endure a longer process as they shop around for different rates. And, they face the uncertainty of finding out days before closing that the margin has changed and they will be receiving less than they expected.

Counselors must be able to guide seniors in this situation. There's a learning curve with counselors as well as loan officers who are adjusting on the fly as these and other changes emerge.

"It's much more of a buyer-beware environment now," said Bronwyn Belling, reverse mortgage specialist in the AARP Foundation. "It's clear that things are not as simple as they used to be."

Last week, members of the Reverse Mortgage Association for Loan Officers held a conference call to air their dismay.

Michael Flanders said he's had to go back to a client and break the news that their rate changed.

"You have to in many cases rebuild the trust the senior had in you all over again," said Flanders, district manager of California Mortgage Resources in San Dimas, Calif.

Industry insiders fear that the margin increases will lead to higher instances of fraud, with lenders quoting a low margin to get clients interested, then disclosing a margin increase later in the process in a "bait-and-switch" strategy.

At least one heavy hitter in Washington seems concerned.

Duncan, the Congressman from Tennessee, told The Associated Press he is awaiting a reply to a letter he sent to James Lockhart - director of the government agency that controls Fannie Mae - "asking that he review the rate increases and other changes and their effect on seniors."

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Advice To Seniors Considering The Reverse Mortgage

Leading Expert Offers Tips On What You Need To Know

ONTARIO, Calif., April 21 /PRNewswire/ -- Today's senior citizens have spent their lives building a family nest egg to ensure they can pay the bills after they retire. Despite the diversification in their portfolios, losing nearly half of their life savings has put older Americans in a panic about their financial futures.

(Photo: http://www.newscom.com/cgi-bin/prnh/20070717/NYFNSC02)

Although seniors live robust lives, well into their nineties, many are worried they do not have 20-30 years to recover their lost savings. With talk of deflation and predicted hyperinflation it is prudent for our parents and grandparents to consider the next steps to remain financially independent through the coming years, says Frank N. Darras, the nation's leading disability and long-term care insurance lawyer. See www.darrasnews.com.

"The increasingly popular reverse mortgage has been shopped by lenders and targeted to homeowners over 62. This is a special mortgage that lets seniors convert equity in their homes into cash," says Darras. "This may be a viable option but it is not without risk."

Here is how it works:

Today's reverse mortgages are called Home Equity Conversion Mortgages (HECMs) and are insured by the Federal Housing Administration. HECMs allow senior citizens to tap home equity and not have to make monthly payments. According to HUD, the HECM is considered a safe plan that helps senior citizens have greater financial security. See http://tinyurl.com/q4o97.

"It pays to be very careful," warns Darras. "Even when the government is promising a reverse mortgage is a safe bet, there is a lot to know and it is important for folks to examine the fine print."

There are costs associated with an HECM. The lender can charge up to $2500 in origination fees and although capped at $6000, that is a lot of cash to come up with on a fixed income. Rolling that fee into the reverse mortgage can be painfully expensive. In addition, you will be charged closing costs, Mortgage Insurance Premiums, servicing fees and interest, says Darras.

"Make sure you crunch all numbers and after you see the upfront costs and remember, you are still responsible for property tax and hazard insurance. Work with a trusted advisor to uncover all potential expenses and the trappings of a reverse mortgage," says Darras.

Most importantly, don't let fear and the lure of an easy solution drive your decision. Even though new legislation and lower interest rates promise to make it less expensive to borrow, it can cost you in the long run, if you are not careful, says Darras.

"No matter what, the loan will have to be repaid somehow, in full. Usually that occurs when the homeowner dies. Understand other restrictions could cause premature payback of the loan so make absolutely sure you know what you are signing," says Darras.

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Beware reverse mortgages

Question: We have read your column for years and would like to know if there have been any changes in reverse mortgages. My husband and I applied for a reverse mortgage in January but never followed through. We thought we needed the money to be available because we lost 80 percent of our stock assets since last fall. Then we decided not to go through with it. Now we decided we need the money, and the broker told us to use the old one. What is going on here?

Answer: Throughout the past year of credit crisis, the reverse-mortgage world has changed. Before to the credit crisis, reverse mortgages and the interest rates used were set mainly by the Constant Maturity Treasury index (CMT). Therefore, folks considering reverse mortgages would be given a printout called the HECM (Home Equity Conversion Mortgage) CMT 200. This printout would tell them that the interest rate would be based on the CMT and the margin (profit) that the lender would make (then not more than 2 percent).

These rates were generally set each Thursday and would remain in place for the following week. This was a stable and secure environment in which reverse mortgages earned a good reputation as a safe product.

As credit became more "plentiful," more lenders came onto the reverse-mortgage scene, and many RMs were "repackaged" and sold off in the secondary market, just like the geniuses who caused the crisis had done with other financial products. Now, that well has also run dry and, for the past year, Fannie Mae has been the sole purchaser of reverse mortgages. We all know what happened to Fannie Mae, which has now been mandated by the Obama administration to clean up its balance sheets.

Fannie Mae decided to "clean up" by dramatically changing reverse mortgages, changes that will force senior homeowners and their adult children to do more rigorous due diligence before doing a reverse mortgage. Fannie Mae is now increasing the "margin" or profit that lenders can receive. Theoretically, the lender can make more money, make the reverse-mortgage product look better in the secondary market, resell the reverse mortgages and make yet another profit on the sell in the secondary market.

As of April 1, all reverse mortgages went to "live pricing," meaning interest rates and margins will be fixed daily, not weekly.

Thus, when seniors are shopping for reverse mortgages, they must be sure to compare apples to apples because originators (salespeople) may try to hoodwink even the sophisticated potential borrowers by backdating their good-faith estimates and quoting products that are not even available on the market any longer. That is why your old application will not work.

When signing applications, there is no longer any kind of "lock" on the interest rate, et cetera, until the lender is ready to close the loan. Thus, neither the lender, the originator or the elder person will know what the final amount available for a loan will be until the loan is "cleared to close" when the originator locks the interest and margin at whatever the market offers at that time.

The basics of reverse mortgages not changed: They are still a non-recourse (no money over the fair-market value of house is paid back), no-payment option for senior homeowners. But the pricing and rates of these products have changed and need greater scrutiny by the proposed borrower.

Jan Warner is a matrimonial, tax and elder-law attorney. His colleague Jan Collins is a writer and editor. Send family-court questions to Flying Solo, P.O. Box 11704, Columbia, SC 29211 or send e-mail to readers@flyingsolocomments.com. Send elder-care questions to Next Steps, P.O. Box 11704, Columbia, SC 29211, or go to nextsteps.net. Editor's note: These columns are written with a national perspective and are for general guidance only. For Florida-specific cases, it's best to consult a local attorney.

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Low Mortgage Rate- Free Helpful Info About Lowest Mortgage Rate

It’s difficult to provide accurate low mortgage rate information, but we have gone through the rigor of putting together as many low mortgage rates related information as possible. Even if you are searching for another information somehow related to mortgage amortization calculators, low score mortgage, refinance rates or low interest rates this article should help a great deal.

There are two types of mortgage insurance. With one, you might not have a choice as to whether you have it. Private mortgage insurance is insurance that will protect your lender should you default on your loan. If your down payment is less than 20 percent of your property’s value, you likely won’t have a choice about whether you have private mortgage insurance; it’s required. However, with mortgage life insurance, you get to decide.

Comparison shopping is the smartest thing you can do in order to make sure you do not overpay for your mortgage. When comparison shopping you need to shop smartly and compare all aspects of the mortgage, not just the interest rate. You must compare all costs including lender fees, down payment, points, and any penalties such as prepayment penalty in order to make a fair assessment of which mortgage is better.

If you have a poor credit rating your options for mortgage lending are somewhat limited. Most traditional mortgage lenders do not have programs for individuals with poor credit ratings. There are, however, many mortgage lenders that specialize in mortgages for people with poor credit ratings.

If as related to low mortgage rate as this article is, and it still doesn’t answer all your needs, then don’t forget that you can conduct more search on any of the major search engines like Google Dot Com to get more helpful low mortgage rate information.

In some state, the mortgage rebate is banned. So, some state may not have no closing cost mortgage refinance. For example, the mortgage rebate is banned on Alaska, New Jersey, Kansas, Oklahoma, Rhode Island, Louisiana, South Carolina, Mississippi, West Virginia, and Missouri. Consult your mortgage lender or broker.

All mortgage leads are good, whether they are California mortgage leads, Michigan mortgage leads or Texas mortgage leads. Today we will delve into the wonders of Florida mortgage leads.

Instead, you may wish to consider disability insurance. Disability insurance would help you pay all your bills not just your mortgage should you become disabled. For about the same amount you’d pay to take care of your mortgage, you could pay an insurance premium to cover more of your expenses.

For your knowledge, we found that lots of people that were searching for low mortgage rate also searched online for reverse mortgage calculators, heloc rates, and even telemarketer mortgage leads.

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Senior debt

Here's what to ask if you're considering a reverse mortgage


WASHINGTON (MarketWatch) -- Question: Where can I get more detailed information about reverse mortgages for seniors? We have a house in a "plus 55" community in California for which we paid $315,000 four years ago. We are told now that it, along with all the other houses in the area, would sell for about 20% less than what we paid. Would a reverse mortgage work for us? We are 71 and 64 respectively.


Answer: You have not provided me with nearly enough information with which I need to give you a proper answer. So I took the liberty of running your question by Cyndi Stephenson, who manages the reverse mortgage division at HomeFirst Mortgage Corp., a mortgage brokerage firm in Alexandria, Va.
Stephenson says that if you and she were sitting down together, one-on-one, she would ask you these questions:

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Do you have any liens on the property at this time?
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How much longer would you plan to stay in this home if you do a reverse mortgage?
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Which one of you is 71?
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What is the ZIP code for the property?
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Is it a single family residence, condominium or a townhouse?
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What are your priorities, both long- and short-term?
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Do you plan to leave something to your heirs? To charity?

The reverse mortgage specialist also would ask a question she says keeps her awake at night and that is: Do you have long-term-care insurance?
"I do not worry at all about those who plan to live in the home until they pass away, that is exactly what this product is designed to support," she explains. "What I worry about are those who take out a reverse mortgage, live in their home for maybe three years, then have a stroke or suffer some other disabling illness or injury and need to get moved immediately into an assisted living facility. Especially if they are single."
In those instances -- actually, if you are out of the house for more than 12 consecutive months -- the property will need to be sold to repay the mortgage. And that leads to more questions, says Stephenson: "What funds will you have available to get you into the facility? Who will take care of the sale of the home? Do you have long-term-care insurance or a plan to move into a Medicare/Medicaid facility should something happen to you?"
By the way, Stephenson says she studied reverse mortgages up and down, backwards and forward (no pun intended), "for a very long time" before she entered the field. But she never really "got it" until she ran her own reverse mortgage scenario. And she invites readers to see how a reverse mortgage can work out at HomeFirst's Web site, www.homefirstmortage.com/reverse. Just click on "Scenario for a Reverse Mortgage." Check out the site.
"When properly applied a reverse mortgage can serve to preserve, protect and, quite possibly, enhance a senior's estate," she says. "Although reverse mortgages are not the right answer for all senior homeowners, they are a promising financial tool that all senior homeowners should look into, just as they would any other financial tool available to them."
Q: Do you have any information on who to contact in Southern California for more information about reverse mortgages? Where can I learn more information about this program?
A: I cannot recommend a particular lender. But the National Reverse Mortgage Lenders Association maintains an excellent Web site (www.reversemortgage.org) that not only explains everything you need to know about reverse mortgages but also allows consumers to find lenders who offer these loans in their particular state. Visit the reverse mortgage site.
The AARP also has a information on the product (www.aarp.org/revmort). And so does Uncle Sam. Try both the Federal Housing Administration, which insures lenders who make these loans against loss (www.hud.gov/offices/hsg/shf/hecm/remtopten.cfc) , and the Federal Trade Commission (www.ftc.gov/bcp/edu/pubs/consumer/homes/real3/shtm).

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How to downsize with a reverse mortgage

Couple use funds from one house to buy a smaller place using FHA program

John and Susanne Ferry, both 62, have tried to sell their Mount Shasta home for three years.

Susanne Ferry has rheumatoid arthritis, so the Ferrys want to move to a warmer climate.

The plan was to use the money they made from selling their house, which they own outright, to buy another home.

But the depressed housing market hasn't cooperated.

They initially asked $700,000 for the two-story, 2,400-square-foot house with views of the Shasta Valley. But they've had to reduce the list price to $498,000.

Now, thanks to a new feature in the Federal Housing Administration's reverse mortgage program, the Ferrys have bought their retirement dream home. They closed last week on a house in Tuscany Villas, a 55-and-older community in north Redding.

And they still haven't sold their house in Mount Shasta.

The Ferrys are among the first people in the north state to take advantage of FHA's reverse mortgage purchase option.

Reverse mortgages, which enable seniors to withdraw some of the equity in their home, have been around for years. The purchase option of the federal program started in January.

Using a reverse mortgage purchase, the Ferrys made a $150,000 down payment - money they took out of savings and some investments - and the reverse mortgage paid the $200,000 balance on the $350,000 home.

The Ferrys don't have a mortgage payment. All they pay for is taxes and insurance.

When the home is sold or when the Ferrys die, the $200,000 borrowed must be paid in full plus the interest that has accrued.

How much the buyer can borrow in a reverse mortgage purchase depends on the age of the borrower, current interest rates, and the lesser of the appraised value or the reverse mortgage FHA limit, which is $625,000.

Like a traditional reverse mortgage, the buyer must be at least 62 years old.

"It's just wonderful. We wanted this house so much," Susanne Ferry said of their home in Tuscany Villas.

The Ferrys worked with Chris Lamm of Security 1 Lending in Redding. Security 1 is among several north state lenders that do reverse mortgages.

"Some seniors see the advantage in this program in being able to downsize into a smaller, less maintenance home and one that is more energy efficient," Lamm said. "That is certainly the case with the Ferrys.

"... For a senior who wants to relocate, who wants to be closer to their family, this is a great solution."

One thing to be aware of with a reverse mortgage is that closing costs can be steep compared to a other mortgages. Costs can range between $10,000 and $20,000, Lamm said, adding that they're typically financed into the loan amount.

Joe Rodola, a Housing and Urban Development reverse-mortgage counselor based in Redding, said the older you are, the more money you can take out with a reverse mortgage.

Rodola doesn't know whether there will be a market in Shasta County for the reverse mortgage purchase program.

The median sales price of a home in Shasta County is under $200,000.

"It's really an unknown market," Rodola said. "I couldn't tell you how many seniors are sitting out there with $60,000 or $80,000 that would like to buy and still can't afford to. . . . A lot of it at this point is that nobody really knows it's out there."

That was the case with John and Susanne Ferry. They'd looked at homes in Tuscany Villas a number of times before their real estate agent Richard Martin told them about the reverse mortgage purchase program.

"We could have done it (without the reverse mortgage), but we wouldn't want to put ourselves, with our age, in that position," Susanne Ferry said.

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Reverse mortgages good option for some seniors

That Ralph and Plum Smith bought a house last month in Brookings, Ore., is not terribly remarkable, at least not until you learn that he's 84 and she's 77. But what is even more noteworthy is that the couple didn't pay cash for their new $240,000 home, yet they will have no mortgage payments.

The Smiths are among the first seniors in the country to close on a Home Equity Conversion Mortgage (HECM) for purchase, a form of federally insured reverse mortgage authorized by Congress in the Housing and Economic Recovery Act of 2008. The law took effect Jan. 1. The program is aimed largely at people 62 years or older who want to move down the housing ladder. The idea is to allow them to sell their current residence and use a reverse mortgage to buy a new one, all in a single transaction.

The Smiths don't fit that profile. But then Monte Howard, director of Affinity Marketing for Generation Mortgage, the Smiths' reverse-mortgage lender, believes it will be the nation's burgeoning legion of seniors, not the lending community, "who are going to teach us how this product really works."

That Ralph and Plum Smith bought a house last month in Brookings, Ore., is not terribly remarkable, at least not until you learn that he's 84 and she's 77. But what is even more noteworthy is that the couple didn't pay cash for their new $240,000 home, yet they will have no mortgage payments.

The Smiths are among the first seniors in the country to close on a Home Equity Conversion Mortgage (HECM) for purchase, a form of federally insured reverse mortgage authorized by Congress in the Housing and Economic Recovery Act of 2008. The law took effect Jan. 1. The program is aimed largely at people 62 years or older who want to move down the housing ladder. The idea is to allow them to sell their current residence and use a reverse mortgage to buy a new one, all in a single transaction.

The Smiths don't fit that profile. But then Monte Howard, director of Affinity Marketing for Generation Mortgage, the Smiths' reverse-mortgage lender, believes it will be the nation's burgeoning legion of seniors, not the lending community, "who are going to teach us how this product really works."

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