Reverse Mortgage Problems Raising Red Flags

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richardbrown633 of CA 7:42AM May 29, 2012

I am looking into a RM with some relatives of mine right now. The scenario is they can live off the equity in the home or lose the home to foreclosure. I would prefer them to live off the equity for as long as they can. Decisions early in life impact the future. So would I say they were poor decision makers in their youth or just say stuff happens. By the way, I have seen families walk off from property, houses and all sorts of stuff after the death of a parent paid off or not. RM's are not the culprit, lacking of decision making skills are.

Patricia of TX 9:46AM April 02, 2012

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Suellen Dale of LA 1:42AM December 15, 2011

I like that comment, "no one wants to force seniors to move out of thier homes".
My best friend is being displace from her home because of a reverse mortgage.
Her husband died, her name was not on the loan, so HUD and FHA are foreclosing and taking her home that she has lived in for 35 years. HUD, FHA, the lenders the servicers, everyone involved with these loans does not care about what may happen to seniors. Wrote letters to all of the above including Obama, nothing, no action to help this tax paying senior citizen.
So stop the BS and just do away with this horrible loan product that does more to hurt than help!!!

FEDUP of CA 11:59AM November 20, 2011

Some of you have already mentioned the issue of the property ending up "underwater" after a period of time.
This same issue applies if the borrower dies (or becomes incapacitated & must move out), and the house is worth less than it was when the RM was taken out. The lender expects payment in full within one year of the date of death. The Feds insure the loan against an eventual loss, but if the property ends up tied up in probate for a while, the timing could get messy...
A lot of heirs in this situation just end up filing a "Disclaimer of Rights" (drawn up by a highly experienced estate attorney) and basically walk away & let the property go into foreclosure.
It's sad, really... Especially if the borrower hoped the house would stay in the family.

CincyCat of OH 11:26AM June 28, 2011

It seems to me that reverse mortgages, which are ultimately guaranteed by the taxpayers, are based on the suspect assumption that property values always go up. If they don't, the homeowner can eventually die with substantial "negative equity", which comes back on the lender and ultimately the taxpayer.
Somebody explain to me where I'm wrong.

Jeff Miller of CO 4:55PM June 24, 2011

Mr. Sias seems to be upset that he is not paid as much for a HECM Saver as the HECM Standard. This has nothing to do with HUD; it is a problem with investor perception. The Saver is an unproven product and investors are reluctant to pay as much for it as they will for the Standard. That is a secondary market problem lenders are working hard on.
Most of us believe the investors are wrong but there is a chance their outlook is warranted to some degree. Those are secondary market issues that have nothing to do with the performance of the product but rather how much lenders can sell it for. If lenders get less money for a product so do the employees who originate those products. Yes, Mr. Sias loses something. Is that the fault of HUD or a prudent borrower?
Savers are a great product. They were not intended to save the program. They were intended to save borrowers 99.5% of the upfront cost of FHA insurance. That is not bad.
HUD can reduce that cost because it has less risk on a loan offering lower proceeds. So the trade off for a lower upfront cost is less proceeds. That is logical and fair.
HUD gets nothing for Mr. Sias getting less compensation. He is making a very convoluted claim over his displeasure. As an originator and officer of a mortgage lender, I wish investors saw the Saver differently but they do not. That is our loss and there is nothing that HUD can do about that.

Reverse_Mortgage_Maven of CA 6:07PM June 23, 2011

“The government-insured reverse mortgage program is struggling with a host of serious problems. The loans, available only to homeowners at least 62 years old, are designed to help people use the equity in their home to pay off any mortgage debt, tap a portion of any remaining equity, and live mortgage-free in their home for the rest of their life, should they choose.”
First the mortgage you are describing is first and foremost a mortgage; its name is Home Equity Conversion MORTGAGE (or “HECM”). Seniors do not live mortgage free; that is crazy. It is also a false and misfortunate concept. The reverse mortgage is an option pay, nonrecourse mortgage.
It is designed to be free of any payment of interest and principal for as long as the mortgage has not matured and the borrower chooses not to make such payments. It is also designed to receive payments from borrowers free of any penalty.
A HECM is not an equity loan and is not based on equity; its name is an unfortunate misnomer except that it is a home mortgage. It must be both a first and second lien mortgage. The note owner holds the first lien and HUD, the second. The proceeds of a HECM is based on the value of the home at the time of origination, not its equity. Home equity lines of credit ("HELOCs") can either be a first or second lien mortgage (when based on equity). Once again HECMs must be both the first and second lien; they can never be based on equity.
Is the program struggling or are the lenders struggling with the program? It is clearly the latter. HUD has been far too slow in responding to the defaults on taxes and insurance. In the past, Fannie Mae was responsible for defaults on taxes and insurance when they purchased HECMs. Fannie Mae is no longer purchasing HECMs. Now lenders are responsible on HECMs. Yet HUD has not provided guidance to lenders on how they will be permitted to protect themselves against such losses. Lenders would rather screen out potential problem loans before they make them rather than foreclose on loans where the borrowers were clearly incapable of meeting its tax, insurance, and other payment requirements at the time they got the loan. HUD right now will not permit such screening although they keep promising they will provide a means to do that. All the while lenders are incurring ever greater amounts of contingent liabilities.
Some lenders have decided enough is enough, have cut bait, and are no longer fishing in that pond. That is a business decision not a struggling program. Hopefully, HUD will do what it has been promising before more lenders decide to cut bait.

The_Critic of CA 5:38PM June 23, 2011

It pays to shop around for a mortgage refinance. Mortgage rates have gone down like anything. My brother in law just got a 30-year fixed loan at 3.76% He told me search online for "123 Refinance" for the lowest rate.

harlanlopez123 of CA 3:33AM June 23, 2011

Its time to debunk some myths within the Reverse Mortgage arena. FHA, the media and the blogosphere would have you believe that reverse mortgages are more costly than forward mortgages; the fact is, reverse mortgages are only slightly more expensive because of the higher origination fee - which is specified in the very calculations FHA requires originators to use. What makes them appear to be grossly more costly is the fact that FHA demands an astronomical up front mortgage insurance fee (UFMIP) be paid by the borrower. Under any definition, this is not a loan closing cost as most pundits would have you believe. It is purely an insurance payment to indemnify HUD/FHA against lender demands for repayment of loan deficiencies.
The lauded SAVER program that was to "save" borrowers money is nothing more than a well done shell game. On the one hand, the SAVER program shifts the burden of the UFMIP from the borrower to the originator, therefore lowering the borrowers costs but making the originator an unintended third party participant in the loan. If these shenanigans were not enough, FHA/HUD, in their infinite wisdom, also uses this scheme to reduce the very amount of equity that seniors were supposed to be given access to. When taken in totality, FHA/HUD has used the SAVER to shift the cost of their own insurance premium to a third party and withheld funds from seniors all as a means to reduce its exposure to shifting values.
The numbers differ depending on who's talking but by some accounts, 13,000 reverse mortgages “could be facing foreclosure”, all unbeknown to HUD. The foreclosure of just one senior’s home is a tragedy but the idea that this is happening completely under HUD’s radar stretches credibility. If they are, in deed, in the dark, it is only because loan servicers – whoever it is – have relied on the knowledge it’s no skin of their nose; HUD and the American taxpayer will step up and make them whole no matter what.
The true issue is not foreclosures because of nonpayment of taxes and insurance; the true issue is foreclosure because of non-existent communication and ineffective follow up after the loan closes. Many point to the fact that a HECM refinance loan applications are not means tested. However, since it inception, the reverse PURCHASE program does include that critical step. Borrowers are required to submit all housing costs documentation and evidence of adequate income to handle those responsibilities. Most seniors are capable of understanding the necessity of providing similar income evidence to cover those costs in the refinance scenario.
A simple process requiring services to send notices to homeowners requiring them to send verification of payment of T&I would reduce the threat of tax and insurance defaults. The solution is not rocket science - means test both refinance and purchase transactions and require proof of T&I payments. As an originator, I would have no problem helping seniors to understand this.

Jon Sias of NV 5:32PM June 22, 2011