Equity Erased- It’s not what you think

Equity erased- and no it’s not always a reverse mortgage

Often critics and media pundits disparage the reverse mortgage loan as erasing a homeowner’s accumulated equity. Do reverse mortgages consume accumulated equity? Certainly, when the homeowner is not making payments. Reverse mortgages are negative amortization loans in which unpaid interest is added to the previous month’s principal balance. However, the equity is not ‘erased’ until a triggering event takes place. This week we look at the ways an older homeowner’s equity can actually be erased with or without a reverse mortgage.


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Strong Words: Comments on Reverse Mortgages Spur Controversy

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This week: Former FHA Commissioner takes aim at reverse mortgages and a clear and present danger to the HECM

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Some industry participants question David Steven’s recent criticisms of the HECM industry

Former FHA Commissioner David Stevens wasn’t merely providing some suggestions on how to improve the Home Equity Conversion Mortgage. He also took aim squarely at the industry, its alleged practices, and those who have made the origination of HECM loans their chosen profession.

Last week we got our first look at the commissioner’s comments on LinkedIn where Mr. Stevens posted a link to a Wall Street Journal article on FHA’s new appraisal rule. The comments were both lively and heated. Stevens accused reverse mortgage lenders of making outrageous profits and engaging in predatory sales. He also slams the use of celebrities and presidential candidates as ‘pitchman’.

Stevens’ proposals to reform the HECM include mandatory credit score guidelines, mandatory set-asides for all borrowers, and the elimination of full-draw HECM loans... 


A Surprise HECM Foreclosure?

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Possible Remedies to Prevent HECM Defaults

reverse mortgage newsThe reverse mortgage industry could lament it’s treatment in the media, in the words of Rodney Dangerfield, “that’s the story of my life…no respect”.

NBC4’s consumer reporter dramatically recounts the tale of a HECM borrower who narrowly avoided foreclosure. The borrower’s power of attorney also serves as her live-in caregiver. The caregiver claims she was surprised by a foreclosure notice received in the mail and attempted to pay the insurance premium but the payment was returned because the auction was already scheduled. *UPDATE* I repeatedly pressed an employee with NBC4’s Consumer Union if the homeowner’s insurance company had in fact sent billing notices to the homeowner. His reply was “They acknowledged that they sent bills not in line with an arranged payment plan which is why the error occurred.”

Reverse mortgage borrowers must pay their property taxes and homeowner’s insurance or risk foreclosure. The same requirement applies to traditional mortgage borrowers.For several years reverse mortgage documents have included a clear statement informing borrowers of these obligations and the risks of non-payment. While the media jumps to expose the plight of seniors being. Here are some other points to consider for HECM borrower’s facing foreclosure for non-payment of property charges.

One advantage traditional mortgage borrowers have is the automatic payment of property taxes and insurance from their escrow account. While such an arrangement is practical for those making monthly principal and interest payments it is highly problematic for HECM borrowers facing a sizable reduction in available funds if a lump sum Lifetime Expectancy Set Aside (LESA) is required. Perhaps a better solution for reverse mortgage borrowers would be the implementation of monthly auto-drafts for insurance and an auto-draft into a HECM escrow account to fund property tax payments every six months. If feasible, such an arrangement could avoid the onerous lump sums required for a LESA.

Download the video transcript here.

Fake Reverse Mortgage ‘News’

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Real estate columnist highlights the need to watch for ‘fake news’

ILU-FI.001Any mortgage or financial product requires good faith on the part of the company and its representative when working with a potential client. Full disclosure and honesty are non-negotiable when working with homeowners. In addition, every reverse mortgage professional should be fully-informed of the common objections and misconceptions about the HECM.

Maureen Hughes is a real estate professional with Keller Williams in West Chester, Pennsylvania. Her recent column entitled “4 reasons to reconsider a reverse mortgage’ warrants further examination. Are the four concerns or risks she outlines fair and accurate? As Hughes states “…there are some serious issues to be aware of and discuss before you jump on the reverse mortgage bandwagon.”

Troublesome Terms & Interest Rates

Reverse mortgages continue to be maligned as ‘high interest rate’ loans. Such inaccurate statements only serve to strike fear in the hearts of older homeowners and unfairly associate HECMs with predatory lending. Nothing could be further from the truth. Hughes states, “Reverse mortgage interest rates and loan fees in general tend to be higher than standard home loans. Often, reverse mortgages are not able to be renegotiated, so being sure this type of mortgage is the absolute best choice for you and your family.” To be fair, reverse mortgage interest rates could be marginally …

Download the video transcript here.