HECM Limits Extended Through December 31, 2011

Posted on August 19, 2011 by Josh Borba

Today, HUD issued Mortgagee Letter 2011-29 which extends the existing reverse mortgage loan limits of $625,500 through December 31, 2011. In an earlier blog post, we spoke about a possible reduction in reverse mortgage loan limits. A reduction is still a possibility. So, for those homeowners with higher home values who are on the fence should seriously consider either starting a reverse mortgage or understand that if limits to decrease, the amount of proceeds available will decrease as well.

The letter states that FHA-insured HECMs will remain at $625,500 through 12/31/11. However, if legislation is enacted to extend the current FHA-insured loan limits, the Department will publish a Mortgagee Letter which defines the most recent loan limits for both FHA-insured forward mortgages and HECMs.

Again, we always advice using our reverse mortgage calculator to determine the amount of proceeds available to you. Please check back periodically as we will update our blog as we learn more information.

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Title Bout: HECM vs. HELOC

Posted on August 18, 2011 by Josh Borba

Ever since the first day our company started originating reverse mortgages, we’ve been asked the question; why not just get a HELOC instead of a reverse mortgage? In this article we explore benefits and drawbacks of reverse mortgages and HELOCs to help guide the consumer to make an educated decision about which loan type, if any is right for them.

The Players:

HECM or Home Equity Conversion Mortgage is a Government insured reverse mortgage program that allows senior homeowners aged 62 or older to convert the equity in their homes into cash flow, either by a line of credit, monthly draws, lump sum of cash or a combination of the options. With a HECM, there are no credit or income requirements.

HELOC or Home Equity Line Of Credit is a mortgage that allows the borrower to draw on a line up to a limit approved by the bank. There are no age restrictions; however, this loan does require that the borrower meet certain credit and income requirements.

Round 1: Qualifying For the Loan

HECM: Qualifying is simple. All borrowers on title must be 62 or older. The property should be in good repair, although repairs can be made after closing. The home must be the primary residence. Borrowers must undergo an independent HUD counseling session that lasts about 45 minutes. Currently there is no income or credit qualifying.

HELOC: Qualifying for a HELOC requires an analysis of income, assets and home value. The lender will look at current debt to income to determine if the borrower can afford to make payments on the new loan.

Round 1 goes to HECM reverse mortgage for minimal credit and income qualifying requirements.

Round 2: Cost of Reverse Mortgage vs. HELOC

HECM: The costs involved in a reverse mortgage include an origination fee, an upfront Mortgage Insurance Premium (MIP) and other costs such as title, escrow and appraisal. The maximum origination fee on a HECM is $6,000, however borrowers have the option to choose a rate that may lower these fees. The upfront MIP on the HECM Standard is equal to 2% of the maximum claim amount (lesser of the sales price, appraised value, or FHA mortgage limit of $625,500). The upfront MIP on the HECM Saver is equal to 0.01% of the maximum claim amount. Other fees vary based on property value and location but are in line with what one would expect on a typical “forward” mortgage.

HELOC: The costs involved with a HELOC are minimal. Typical fees run around $500 and are often times waived. Many HELOCs will have an early closure fee which is designed to recoup any upfront costs the bank may have paid on the borrowers behalf to originate the loan.

Round 2 goes to HELOC for lower costs.

Round 3: Amount of Money That Can be Borrowed

HECM: Proceeds for a reverse mortgage are based on age, property values and existing interest rates. The factor currently ranges between 62% loan to value (LTV) for a 62 year old to 77% LTV for a 90 year old when utilizing a 5.0% interest rate. Our reverse mortgage calculator will give more specifics.

HELOC: Most current HELOCs will not lend beyond 80% of the value of the home. However, borrowers will need to qualify using income and debt, so many will not qualify for an LTV that high.

Round 3 is a tie.

Round 4: Loan Terms

HECM: A reverse mortgage has no set “due date.” The loan is payable at a maturity event such as the passing of the last surviving spouse, if the home is sold or if the home is no longer the borrowers primary residence.

HELOC: A HELOC is typically due at the end of 10 years, after which the loan needs to be repaid or refinanced.

Round 4 unanimously goes to HECM.

Round 5: Line of Credit Behavior and Unused Lines

HECM: Both the reverse mortgage and HELOC will only accrue interest on the money drawn or borrowed. Only the reverse mortgage’s line of credit will allow the unused portion to grow at the same rate the borrower is paying on the used portion of the line.  This will give the borrower greater borrowing power.

HELOC: A HELOC can be drawn on and repaid over the life of the loan. The downside is that with the current housing market, many lenders are closing borrower’s lines of credit so they can no longer access the funds that were once available to them. A HECM line will always remain open as long as the homeowner continues to meet the guidelines.

Round 5 goes to HECM for the credit line growth rate and the fact that the line cannot be closed like a HELOC at the banks discretion.

Round 6: Interest

HECM: Reverse mortgages have the option of a fixed rate or an adjustable rate. Only the adjustable rate will allow for a line of credit. The rate is based on the 1 month LIBOR plus a margin. The loan has a life cap of 10% above the start rate. So, for example, if the starting rate is 2.50%, the max the interest rate can go to is 12.50%. Interest paid on a reverse mortgage is only tax deductible the year it’s been paid, which for most people will not be until the loan is paid off. Consult a tax adviser.

HELOC: HELOCs are typically tied to Prime plus a margin. Many have a life cap like the HECM, however not all HELOCs are created equal. Many offer a lower introductory rate, which will increase shortly after closing. Be sure to read the fine print. Some HELOCs may allow interest rates to climb to 18%. Interest paid on a HELOC may or may not be tax deductible. Your CPA will know that answer.

Round 6 goes to HECM due to more specific terms.

Round 7: Required Loan Payments

HECM: A reverse mortgage requires NO monthly mortgage payments until the loan terminates. This is one of the main reasons seniors will choose a HECM over a HELOC. No payments frees up much needed cash for day to day living expenses.

HELOC: Typical HELOCs will require that at minimum an interest only payment be made. Payments will increase as the loan balance increases.

Round 7 goes to HECM for no monthly payments.

Round 8: Annual Fees to Keep Account Open and Active

HECM: A reverse mortgage will not charge a fee to keep the loan open.

HELOC: Many HELOCs charge an annual fee to keep the line of credit open.

Round 8 goes to HECM for no additional annual fees

Who won the bout in your eyes? Each individual’s situation is unique and can’t be addressed by blanket statements. In general, the main benefit of a HECM reverse mortgage over a HELOC is that reverse mortgages do not require monthly mortgage payments, while a HELOC does. A reverse mortgage need only be paid back at a maturity event such as the death of the last surviving spouse, if the property is no longer the borrowers primary residence, the borrower fails to pay taxes and insurance and/or fails to maintain the property. With a HELOC, the bank has the right to close the line anytime they choose.

The main advantage of a HELOC is the lower upfront costs. Although, the reverse mortgage has evolved to include the HECM Saver, with reduces upfront Mortgage Insurance Premiums (MIP), lowering the overall cost.

When trying to decide between the two loan types, the first question you should ask yourself is if you have the financial capacity to make monthly payments on a HELOC. If the answer is no, then odds are, you may not even qualify for the loan in the first place. Another important question is how long you plan on staying in your home. A short-term solution may be a HELOC. A HECM may be better for homeowners who plan on staying in their home for longer periods of time.

Ultimately, the decision rests in your hands to determine which loan best meets your needs.

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Possible Reduction in Reverse Mortgage Loan Limits

Posted on August 11, 2011 by Josh Borba

The American Recovery and Reinvestment Act (ARRA) of 2009 set our current reverse mortgage lending limits at $625,500. This temporary increase in the HECM loan limits is set to expire September 30, 2011.

The loan limits beginning on October 1, 2011 for HECM loans are currently under review by the Federal Housing Administration (FHA). FHA will provide guidance to the industry and consumers in the near future. We are unsure as to whether or not they will stay the same or will be lowered to previous levels. Currently the limit applies to the entire country. Previously, the limits were based on where the property was located, with higher value areas having a higher limit.

What does this mean to reverse mortgage consumers?

For those seniors who are on the fence and have higher home values and higher mortgage balances should consider starting their reverse mortgage sooner than later. By using our reverse mortgage calculator, you can determine the amount of benefit currently available.

When we refer to loan limit or lending limit being $625,500, we are referring to the maximum value that we will give a property when determining loan proceeds. For example, if your property appraises for $725,000, we will calculate your benefit using $625,500. Conversely, if your home appraises below $625,500, we will use the lower value. Now, if the loan limits are lowered to $417,000, for example, we will only assign that much value when determining benefit, even if your home does appraise higher than the new limit.

To find out more details or to apply ahead of the change call us toll free at 1-888-888-4834.

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Independence Day Reverse Mortgage

Posted on July 4, 2011 by Josh Borba

It’s rather fitting to talk about financial independence on the day our beautiful country gained its independence. The Fourth of July has become synonymous with fireworks, parades, barbecues, family, friends and more, but we want to use this day to help senior homeowners find a way to achieve financial independence. In 1988 Ronald Reagan signed the bill that authorized the Department of Housing and Urban Development (HUD) to insure Reverse Mortgages through the Federal Housing Administration (FHA). So was born an amazing program to help senior homeowners live day to day independently without concerns of a limited fixed income.

Many of the seniors we talk to day in and day out feel trapped by their fixed incomes. Every expense, such as health care, gas, insurance and food among others seems to be on the rise, while retirement incomes remain flat. Pensions and savings are dwindling at an alarming rate. Social Security has not kept up with the cost of living and perhaps the death of a spouse or significant other has resulted in the loss of income. Financial independence seems unattainable to many.

A reverse mortgage is designed for homeowners age 62 and older to access the dormant equity in their homes. Proceeds can be taken in any manner chosen by the borrower. All liens against the property must be satisfied at the closing of a reverse mortgage. So, if the mortgage payment has become a burden, the reverse loan will pay it off, assuming the homeowner qualifies for enough to satisfy the lien. Once that mortgage is paid off, no monthly payments are required as long as the home is occupied as the primary residence. Taxes, insurance, HOA dues and any other fee associated with the property will need to be kept current, but imagine the relief of no more mortgage payments. That alone is enough to provide financial independence to many.

Many senior homeowners are finding that they are generating enough from their reverse mortgage proceeds to repair their homes, pay for medical expenses, pay off credit card debt and help family. The money has no restrictions on how it can be used. A reverse mortgage is a wonderful tool to help borrowers age in place, in the home they love and feel most comfortable in.

This independence day, while you are enjoying friends and family, take a moment to think how nice it would be for you or a loved one to live truly financially independent. A reverse mortgage may be just the missing ingredient to a well-rounded, holistic approach to retirement and financial independence.

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Wells Fargo Exits Reverse Mortgage Business

Posted on June 16, 2011 by Josh Borba

Wells Fargo, the leading originator of reverse mortgages, announced today that they will discontinue offering Home Equity Conversion Mortgages (HECM). This comes after their March 1, 2011 announcement that they were exiting the wholesale reverse mortgage business.

There is a lot of speculation as to why Wells Fargo reverse mortgage would make this move. In their press release the company stated that “the decision was made based on today’s unpredictable home values along with the restrictions associated with reverse mortgages that make it difficult to determine seniors’ abilities to meet the obligations of homeownership and their reverse mortgage, e.g., payment of property taxes and homeowners’ insurance. The government’s HECM or reverse mortgage program was designed in a different economic time.”

We are going to see some pricing increases as we saw when Bank of America left the reverse mortgage business. If fact, it happened already today. The reason is that the secondary market becomes very uneasy when such a large originator of reverse mortgages decides to stop offering the product.

Here’s an email we received from one of our wholesale lenders today:

“I’m sure you all have seen the pricing drop from all Reverse Mortgage lenders and what I’ve been told by secondary is due to the recent announcement of Wells Fargo exiting the reverse mortgage arena most banks have dropped pricing until they see exactly what the investor community will do here… I think we will be OK, but it is going to take a little time to process and settle into the new landscape. Hopefully, it won’t take too long.”

Many seniors rely of reverse mortgages to improve their every day quality of life. MLS Reverse Mortgage is available to help any seniors who may have began a loan with Wells Fargo or were looking into a loan with them. We offer competitive rates and fees and are very proficient at reverse mortgages.

Wells Fargo will continue to service their existing HECM reverse mortgages. For anyone who may have been working with Wells Fargo reverse mortgage, be sure to check out our reverse mortgage calculator to see how much money you could qualify for.

As this is a new story, we will be sure to post more details as we receive them.

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Reverse Mortgage Pros and Cons

Posted on June 15, 2011 by Josh Borba

The last article we wrote about reverse mortgage pros and cons was in February of 2009.  Since then, there have been a lot of changes, both good and bad, that we feel need to be addressed.  2010 was the year of regulation of the mortgage industry coupled by falling home prices.  Now we’re half way through 2011 and have added additional regulations to the mountain of legislation created in 2010, let’s delve into which of the regulations have provided a benefit to borrowers and which have proven to be a hindrance.

Let’s address the pros first:

Wide range of available rates

As I write this article, interest rates on the HECM fixed standard product are ranging from 4.0% – 5.75%. This gives borrowers the ability to choose a rate that best fits their needs. For example, someone who is concerned mainly with the increasing loan balance over time would more than likely choose a rate of 4.0% and pay a higher origination fee. The result is higher costs at closing, but a slower growing loan balance over time.

HECM saver

Reverse mortgages have always been expensive. Granted with the strong secondary market, brokers have been able to cover a lot of costs for their borrowers. Now there’s a new option. In October of 2010, HUD released the HECM Saver. This program dramatically reduces the upfront cost of reverse mortgages, which is why it’s the biggest reverse mortgage pro to come out of 2010.

The HECM Saver is for borrowers who do not require as much money at closing and were turned off by the high closing costs of the Traditional HECM. HUD’s upfront mortgage insurance on a traditional reverse is 2% of the appraised value or HUD’s lending limit ($625,500), which can equate to as much as $12,510. The HECM Saver only charges 0.1%, which means the maximum is $62.55. This is perfect for borrowers who wanted to leave their money in a line of credit or didn’t want all the funds. It is available in both adjustable and fixed rates.

Higher Loan Proceeds

HUD also lowered the interest rate floor, which is one factor in determining the amount of money available under the program. The new floor is at 5.0% and with most lenders offering rates at 4.0% – 5.06%. that’s a pro for borrowers looking to get additional monies from their reverse mortgage. Since the floor is at 5.0%, the amount of benefit will be the same with any rate from 5.06 and lower.

$625,500 Limit Extended for 2011

In 2009, Congress passed the American Recovery and Reinvestment Act. One of the provisions is that it increased the HUD lending limit on reverse mortgages from $417,000, set by the Housing and Economic Recovery Act of 2008, to $625,500. Congress recently voted to extend the temporary increase through 2011. This is a big pro for those will higher home values.

New Counseling Protocol

HUD has made changes to the required counseling protocol that overall is a positive change. Counseling is required as a safeguard for those obtaining a reverse mortgage do to the complex nature of this financial instrument. The idea is to make certain that borrowers completely understand the nuances of reverse loans. The new protocol tests the borrowers knowledge of the product and digs in a little deeper to their personal finances, and delves in further to reverse mortgage alternatives.

Now let’s explore the cons:

Reg Z

The current changes to Regulation Z completely impact the way we do business with fixed rate reverse mortgages. The adjustable rate product isn’t affected by the change since it’s open ended credit. So, what’s negative about the change? The main reason is it makes it difficult for us to negotiate with borrowers in regards to the origination fee. We can no longer give a special deal to one borrower and not offer it to all borrowers. This really hurts those who are short funds to close. In the past, we have closed reverse mortgages with next to zero origination fees in order to help someone who really needed it. Now we can’t offer that anymore.

Falling home values / increased foreclosure rates

A major con for the reverse mortgage industry in 2011 is the fact that many housing markets have not recovered from the mortgage melt down.  Nationwide foreclosures are still high, which directly affects market values and as we all know, the amount of money available from a reverse mortgage is based on the value of the home, the borrowers age and the expected interest rate.  As home values decline, borrowers are limited in the amount of money they can borrow.

This con does not affect those homeowners who have already taken out a reverse mortgage. Reverse mortgages are not affected the same way that Home Equity Lines of Credit (HELOC) have been affected. What I mean is that once a line of credit is established with a reverse mortgage, the amount is guaranteed, even if home values decline. Borrowers must still live in their home.

Appraiser Independence (AMC’s)

Fannie Mae (FNMA) and Freddie Mac (FHLMC) enacted the Home Valuation Code of Conduct (HVCC) in May of 2009 as a result of New York Attorney General, Andrew Cuomo. The idea of HVCC  is to remove the broker from contact with the appraiser. The goal is to provide for appraisals without influence on value from the originator. FHA followed suit and named it Appraiser Independence.

This sounds like a great idea, and in theory it is. The con comes into play when we examine how most Appraisal Management Companies (AMC) pay appraisers. Brokers order their appraisal through an AMC who then assigns the appraisal order to an appraiser. There currently is no regulation on the AMC when it comes to paying appraisers. So, often times, appraisers will be paid half (or even less) of what they would typically earn. As such, the quality of the appraisal is directly affected. In addition, many reverse mortgage appraisers are refusing to take the assignment due to the decrease in income. Often times appraisers will bid for jobs, so the lowest bid wins. For example, if an appraiser bids $100 that’s all he/she will receive from an appraisal where the borrower pays $450. The result is that inexperienced appraisers and appraisers from out of town often earn the jobs. By the way, the AMC keeps the difference for doing nothing more than hiring an appraiser on behalf of the broker.

Reverse mortgage appraisal values are often coming in low and there’s little that brokers can do to refute. Brokers are allowed to send a rebuttal to the AMC, who will then forward the information to the appraiser. More often than not the rebuttal is denied.

New Monthly Insurance Factor

A reverse con is that the new monthly Mortgage Insurance (MI)is now 1.25%. Before October of 2010, it was 0.50%. That’s a huge increase. The impact is seen over time when looking at the amortization schedule since the monthly MI is added to the balance.

Summary

All in all, 2010 and the first half of 2011 has turned out to be a very positive period for reverse mortgages, especially in the area of decreasing reverse mortgage closing costs. So, now is the time for you to explore your low cost reverse mortgage!

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Suze Orman Says Yes to Reverse Mortgages

Posted on June 10, 2011 by Josh Borba

Suze Orman on her CNBC show recently responded to a viewer question by stating that a reverse mortgage is a better option than selling stocks.

During the segment, a caller stated that his 85 year old father had been liquidating stocks over the past few years to pay for larger ticket items, including the upkeep of his home. His question was, “is it better for him right now to continually unload his portfolio and incur capital gains on the stocks he sells or risk borrowing, in a sense, against his kids future during these crazy times?” The father would like his two kids to inherit the home and his investments after he passes.

Suze says that a reverse mortgage would be the better option. Her reasoning is as follows: Continue reading →

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5.49% Fixed Rate, No Service Fees, No Service Fee Set-Aside

Posted on April 2, 2010 by Administrator

We are pleased to now be able to offer the fixed rate HECM at 5.49% without monthly service fees or service fee set-asides. The net benefit to the borrower will be the same as the 5.56% fixed rate at closing, however the lower rate will allow for slower accrual of interest over time. To learn more contact us toll free at 1-888-888-4834. Continue reading →

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Fixed Rate Service Fee is Now $0

Posted on March 18, 2010 by Administrator

In an effort to remain competitive in today’s market, we have eliminated our monthly service fee on the fixed rate reverse mortgage. Traditionally, this fee would range from $25 – $30. Continue reading →

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Congress Extends $625,500 HECM Loan Limit Through 2010

Posted on October 30, 2009 by Administrator

By NRMLA

The continuing resolution (CR) that was passed by Congress yesterday and is now headed for the President’s signature extends the $625,500 national loan limit for HECM through calendar year 2010. Although the CR is a temporary measure providing funding thru 12/18/09 to allow a little more time for the appropriations bills to be completed, Congress was asked to act now to make sure that the marketplace is not disrupted by uncertainty about the continuation of the higher forward mortgage loan limits that were enacted in the President’s economic stimulus package back in February. Continue reading →

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Reverse Mortgages – Does My Home Need to Be Free and Clear?

Posted on September 29, 2009 by Administrator

Recently I originated a reverse loan for a gentleman, Mr. Smith for the purpose of this article, who at first was very evasive about what he owed on his home. When Mr. Smith applied on my website he input that his home was free and clear. Continue reading →

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HECM Principal Limit To Decline by 10%

Posted on September 23, 2009 by Administrator

Breaking News from Peter Bell, NRMLA President:

I [Peter Bell] just got off a phone call with FHA Commissioner David Stevens and HUD Assistant Secretary for Congressional Relations Peter Kovar, who called to tell me that HUD has posted a Mortgagee Letter implementing the 10% haircut in principal limit factors, effective for all loans on which applications are taken on or after October 1, 2009. Continue reading →

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Death, Reverse Mortgages and Heirs

Posted on July 7, 2009 by Administrator

We all know that there are only two guarantees in life: death and taxes. Seeing as none of us are going to get out of here alive, it seems appropriate to discuss what happens when the last surviving spouse passes away when a reverse mortgage is secured by the property.

Continue reading →

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Treasury Based Reverse Mortgages Going Extinct?

Posted on June 25, 2009 by Administrator

Fannie Mae announced June 1, 2009 that effective September 1, 2009, they will no longer offer reverse mortgages based on the CMT or Constant Maturity Treasury. They will continue to offer the LIBOR (London Interbank Offered Rate) index.

Continue reading →

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Reverse Mortgage Rate Costs

Posted on May 6, 2009 by Administrator

In our previous article, “My Reverse Mortgage Costs How Much,” we explored all the upfront fees involved in a reverse mortgage. Now, of equal importance, we explore continual costs that are accrued during the life of a reverse mortgage. These costs include the interest rate, the ongoing HUD Mortgage Insurance Premium (MIP), and the monthly service fee.

Continue reading →

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My Reverse Mortgage Costs How Much?

Posted on April 6, 2009 by Administrator

As a short term financing tool, reverse mortgages are an expensive proposition. However when used long-term, those expenses are spread throughout the life of the loan, making a reverse mortgage a viable solution to supplement retirement income, pay off a mortgage and have extra cash available to enjoy life to the fullest without the worry of mortgage payments. So, what costs are involved and why do the fees seem so high? Continue reading →

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The Reverse Mortgage Process Explained

Posted on April 1, 2009 by Administrator

Picture this… you’re a senior homeowner and nearly every time you go to your mail box, you get 1-5 solicitations for a reverse mortgage. You keep all the postcards and letters handy in case you decide to make a decision to proceed with a reverse mortgage. You’re starting to learn a lot about the program just from all the direct mail pieces you have received. Your phone is starting to ring almost daily with reverse mortgage telemarketers. You hear the buzz on the news and with your friends that reverse mortgages have created. You see TV commercials with Robert Wagner, James Gardner, and Pat Boone among many others. You now have a stack of solicitations higher than three Los Angeles phone books and your interest has peaked. You know you want to start to look into a reverse mortgage but you don’t know what steps are involved or how to you proceed with a reputable company? Yes you do have hundreds of mail pieces, but what company will truly offer you the best service and best fee structure. Continue reading →

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Misuse of Reverse Mortgage Terminology

Posted on March 4, 2009 by

I recently read an interesting article by James E. Veale of Security One Lending on Reverse Mortgage Daily titled “Are Reverse Mortgages Really Income?” The main thrust behind the article is that several reverse mortgage professionals are misusing the term “income” to describe the proceeds of a reverse mortgage. Continue reading →

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FHA Officially Raises HECM Loan Limit

Posted on February 25, 2009 by Administrator

Mortgagee Letter 2009-07 Raises Limits to $625,500

The U.S. Department of Housing and Urban Development published Mortgagee Letter 2009-07, which officially raises the national limit for Home Equity Conversion Mortgages from $417,000 to $625,500 for the remainder of 2009.

Continue reading →

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With money running out, he cosiders a reverse mortgage

Posted on February 24, 2009 by Administrator

Great article from the Wednesday, February 4, 2009 Sacramento Bee. In the article Rashida Lilani recommends as a way to increase options, that seniors go through a broker when obtaining a reverse mortgage versus a bank. She also advises to “do your homework.” MLS Reverse Mortgage advises the same. A reverse mortgage is a major life changing decision that shouldn’t be taken lightly. Continue reading →

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