Getting a Reverse Mortgage
What you need to know and do to determine if a Reverse Mortgage is
the right financial option for YOU.
PURPOSE OF THE HECM REVERSE MORTGAGE PROGRAM
The Reverse Mortgage program was created to fulfill the promise consumers hear in the TV
commercials: “A reverse mortgage is a safe government insured loan that allows the
borrower to access part of the equity in their home, remain in their home for life without making
a house payment, provide financial security, provide additional income, a better quality of life in
retirement and meet the borrowers wishes for their estate.”
As you hear on the commercials "A Reverse Mortgage is not for everyone". Don't assume it is
right for you because it sounds good. Make absolutely sure it is right for you! It's your
responsibility to determine if and how any of these promises apply to your circumstances.
This is called "Suitability".
The one question you must ask and answer realistically " Is a Reverse Mortgage right for me
or wrong for me?
If you don't take the time to determine if a Reverse Mortgage is suitable for you there is a great
risk you will find yourself in a wrongful foreclosure at some point.
WHAT YOU NEED TO KNOW:
When you are getting a reverse mortgage the job of the Salesperson and the HUD Certified
Counselor is to inform you of the reverse mortgage process and different reverse mortgage
programs available to you.
1. The Lender's role is to provide you information and education about reverse mortgage
products they sell, the amount of funds you can get from your equity, funding options - lump
sum, monthly income, line of credit or a combination of these options. They educate you on
the reverse mortgage process. The lender is not permitted to give you any advice and is not
qualified to give you any legal and/or financial advice to determine if a reverse mortgage is right
or harmful for your circumstance. The Lender has no responsibility or fiduciary duty to the
2. The HUD Counselor's role is education and information on the reverse mortgage
process. The counselor's use of the new Financial Interview Tool (FIT)gives the borrower the
illusion they are receiving necessary financial and legal advice because the counselor asks
you financial and legal questions such as income, expenses, assets. They tell you alternatives
to a reverse mortgage such as refinance, sell, line of credit. BUT legally the HUD Counselor
cannot give any advice (including financial and legal). The HUD Counselor has no
responsibility or fiduciary duty to the Borrower.
Generally speaking, when you get a reverse mortgage the Loan Servicer takes charge of your
property and life as it relates to the reverse mortgage. This is because the Servicer is acting
on regulations and laws you have no knowledge of.
HECM Reverse Mortgages have a maximum claim amount of $625,000. This does not mean
you will get $625,000.
PROPRIETARY Reverse Mortgages generally have a maximum claim amount of 40% of the
property value and are often used when the property value is $700,000 or more.
If you get a HECM loan you will not have monthly mortgage payments. All pre-existing liens on
your property must be paid by the reverse mortgage funds. Originating costs can be up to
$25,000. Payoff of existing liens, origination costs, and any reverse mortgage proceeds taken
at origination will be the initial loan balance on day 1. Reverse Mortgages have compounding
interest on the loan balance. The maximum claim amount on a HECM reverse mortgage is
$625,000. An Algorithm based on the age of the youngest borrower, property value and interest
rate determine how much of your home equity you will be able to access.
You can take the funds in a variety of ways - a lump sum payment, a line of credit, or a monthly
income or a combination of these options.
There is only ONE REASON to get a reverse mortgage: For use as part of your financial
strategy, to meet your health and personal needs (long term), to meet your financial goals
(long term), provide financial security through your retirement, and meet your wishes for your
If a reverse mortgage does not meet this purpose do not get it.
REASONS NOT TO GET A REVERSE MORTGAGE:
A short term solution to a financial problem.
Never remove a spouse from title
Do not get a reverse mortgage at 62
If you are in your 80's or 90's do not get a fixed rate reverse mortgage
TIP: Explore all your homeowner options before making a decision:
Lease you Home
Sell your Home
Refinance your current mortgage
Get a Line of Credit
Family Loan/Peer to Peer Loan
Rent a portion of your Home
Once you explore all your options choose the one that makes the best financial sense for your
situation. Be open to making the best decision for your financial wellbeing.
DIFFERENCE BETWEEN A REVERSE MORTGAGE AND A TRADITIONAL MORTGAGE
There are fundamental differences between a traditional forward mortgage and a reverse
mortgage, a few are:
- Reverse Mortgages are sold to those 62 and older
- The contract, terms and consequences have a Lifelong Impact
- You lose most of your traditional Homeowner's Rights.
- The Lender or Counselor have absolutely no responsibility or fiduciary duty,
- Interest is compounding on the fees, costs, loan, and mortgage insurance. It eats up
the remaining equity much faster than regular interest.
- There are no consumer protections, no agencies to get help from, no enforcement or
oversight of the very few regulations designed to protect the consumer interest, and no
recourse once signed. It's almost impossible to get out of a reverse mortgage without
a huge financial loss.
- There can be no other liens on your property so what you get from the reverse
mortgage is all the equity you will be able to access over the term of the loan.
WHAT YOU NEED TO DO: Steps to Determine Your Suitability
Simply put SUITABILITY means "is a reverse mortgage right and beneficial for me and my
circumstances?" The smartest consumers will include trusted advisors (family, financial
advisor, attorney, tax consultant, etc) in making the decision. That way your decision will be
based on the facts, consequences, costs, and benefits for your circumstances.
Create a financial plan 5, 10, 15, and 20 years out based on your current age, financial goals
and needs, personal & health circumstances, and wishes for your estate.
I recommend a TRUST and putting the property in the Trust. A Trustee or Successor Trustee
has automatic legal authority to represent your interest while you are living and represent your
estate when you die. A Power of Attorney will work if signed while you have capacity and
through your life but is invalid upon your death. Even if your property is your only asset it can be
more cost effective to have a Trust rather than go through probate to meet your wishes for your
If you have a will or die intestate the Servicer will not work with your executor or representative
without probate or a court order. This could cost thousands and thousands of dollars and take
a long time to complete. The Servicer will accelerate foreclosure.
Disclaimer: I am not an attorney and not giving legal advice. The suggestion of a Trust is
based on thousands of consumers who have been obstructed from satisfying the reverse
mortgage and lost the home to foreclosure.
Get everything in writing from the Lender. Get a copy of all signed and executed documents at
origination closing. Verbal promises, even well intentioned ones are made all the time and
are not enforceable by law. Verbal promises may violate State or Federal law and you will have
no recourse on a verbal statement.
There is a reason all this sounds so complicated and that's because the Government (HUD)
defines a Reverse Mortgage as a “COMPLEX FINANCIAL TRANSACTION” in the “Important
Notice” (a required disclosure).
As with any complex financial instrument you would get competent, professional, independent
legal/financial and/or tax advice to understand the binding legal documents, the important
financial and legal implications, the terms and their (lifelong) consequences that impact you
and your estate. With help you can make a conscious and informed decision on the suitability
of a reverse mortgage to meet your needs, goals and provide financial security.
Below is the link to the Important Notice in my parents loan application.
IMPORTANT NOTICE SAMPLE
The Important Notice disclosure you receive today only says you should consult with a HUD
certified counselor. Reminder: A HUD Counselor cannot tell you if a reverse mortgage is right
for you or give you any of the financial and/or legal advice necessary to determine suitability.
"Safe Government Insured" actually means the borrower pays the FHA insurance premium that
protects the lender and ensures they will recover 100% of the loan, fees and costs. It does not
protect the borrower in any way and is a significant cost to the borrower.
Failing to determine suitability puts you at risk of losing your property, equity, retirement, quality
of life and everything you worked for all your life - at the time in life you can least afford to make
a financially devastating mistake and are least able to recover.
Most of the problems/issues Borrowers or family members experience happen a few years
after the loan was originated or sooner if the Borrower dies. For that reason if you have a
reverse mortgage read on the following pages.
If you want more detail on what you need to know and
do when considering a Reverse Mortgage please
email or call for a free consultation.
|"Reverse Mortgages are Increasing Debt, Falling Equity Loans"