income reverse loans

Reverse Mortgages and Annuities

An annuity should never be purchased using money from a reverse loan, but in the past there were times when a reverse loan borrower would unwisely do just that and sometimes these vulnerable seniors were (for lack of a less sensitive term) “robbed”.

But what has happened since then to protect seniors from this kind of scam?

In 1987 Congress passed the FHA Insurance and Uniform Lending practices and the FHA insurance bill that would insure Reverse mortgages.

The first reverse mortgage to be insured by FHA was in 1989 and they continue to oversee this program very closely as an added protection to seniors and since that time additional oversight has come from Housing & Economic Recovery Act, HUD, Ginnie Mae, the National Reverse Lenders Association and the Consumer Financial Protection Bureau.

Prior to this time, reverse loans were created and offered by other entities  such as insurance companies in exchange for a portion of the equity of the borrower’s home when they passed away and at very high interest rates.

And quite often an annuity was tied to this transaction by obligating the borrower to use the funds from the reverse loan to purchase  this insurance product.

Is this an acceptable suggestion for a senior to utilize in their “later” years?


Continue Reading

Reverse Loans and Divorcing

In my previous post I mentioned that since the 1990’s, “Gray” divorce  ( As senior divorce is often referred to) has increased.   As a matter of fact it has tripled and more seniors are splitting up than in any previous time.

More often than not, the “wife” will want to continue to live in the home but is unable to qualify for a traditional loan due to lack of income and cash reserves.

So what happens if one of them wants to keep the home and continue to live in it?

More than likely they won’t have enough income to qualify for a traditional loan and even if they are going to receive spousal support, a lender will not use it for qualifying purposes because there will be no history of it’s receipt to the spouse who has been awarded support.

And what would be her option?

Depending on her age, the value of the subject property and if there are any mortgages on it, she may be able to qualify for a reverse mortgage, pay off the spouse and continue to live in her home.

Her only responsibilities would be to continue to pay property taxes, home insurance and any HOA fees and keep the home in good repair.

Reverse loans are a financial tool.  A tool to leverage the longevity of a retirement portfolio, purchase a home, provide additional income for on going expenses and other aging concerns.

And it’s also an excellent tool that can help the pain of divorce be just a little bit less and allow one of the divorcing couples to remain living in their home and not be displaced.

My description is quite simplistic in this post and the borrower does need to qualify on their residual income, but overall using a Reverse mortgage as part an option to retain the property in a divorce is a very good suggestion and should be considered in the settlement process.


Continue Reading

Fees or Costs Allowed on a Reverse Loan

In my previous post I discussed the one fee or expense on reverse loans that conventional mortgages do not have.  And that was the FHA insurance premium for MIP.

Conventional mortgages allow what some would call “Lender junk fees”, which typically are for processing, underwriting and other “back office” costs the lender will pass on to the borrower.  And they can add up to additional $1800 to $2000 on a traditional mortgage.

But they are not considered “allowable fees” to a reverse mortgage borrower and cannot be charged and built into the loan.

What are the fees that a reverse loan applicant can expect?

  • Flood Certificate – Pulled by the Appraiser
  • Appraisal fee
  • Credit Report
  • All title settlement, title insurance, transfer fees and recording fees.   These are based on the loan amount, the Title company and county or state.
  • Document preparation fee
  • Notary
  • Payees;  all third party fee and third party providers must be disclosed on the HUD-1 Settlement Statement per RESPA.  List all required loan fees, including fees paid outside of Closing on their worksheets.

All HECM/Home Equity Conversion Mortgage are subject to FHA’s requirements on allowable closing costs.

In my next post I will provide a list of fees that are not allowable and cannot be passed on to the borrower.

Continue Reading

What is MIP and PMI?

In my previous post I described what IMIP is in regards to Reverse mortgages and that it is one of the fees listed as a Closing Cost for all borrowers.

Let’s pick up where I left off in the earlier post.

The other benefit to paying this insurance premium, is that in the event and if for any reason the Lender who is servicing the borrower’s Line of Credit should cease to exist and or are unable to provide funds to the borrower from their Line-of-Credit, the borrower is protected, because their loan and funds in the LOC are insured by FHA.

Any money left in the borrowers account will continue to be available to them regardless of whether or not the company servicing their loan continues to exist.

The IMIP protects the borrower, their funds in the Line-of-Credit and the heirs to the estate and that’s very reassuring and beneficial to everyone who has a reverse loan and to their family.

Sometimes the consumer is confused about what MIP and PMI are and there is a difference between them.   PMI is used in conventional mortgage financing whenever a borrower will have less than 80% in equity.

This is typically seen when someone is buying a home and coming in with a small down payment.   PMI protects the Lender in the event the borrower ceases to make mortgage payments on their loan and there is a foreclosure.   PMI gives the Lender some protection by having the loan insured against this possibility.

PMI is for traditional financing and IMIP is for FHA government insured loans.

And there you have it.

Continue Reading

Senior Dilemma

American seniors retain over 6 trillion dollars in their homes and more of them are beginning to use their equity to extend their retirement funds  (Everyone is worried about out-living their savings) by using a reverse loan to leverage their portfolio’s longevity.

Another reason, might be to eliminate an existing mortgage payment and thus free up some extra money each month to be used for other expenses.

But maybe they decide to sell their home instead and take the remaining equity after Broker fees and expenses related to selling it and possibly rent instead of “own”.

What are the costs to the seller if they opt this route?    I’m going to give a very simple example in this post, but obviously it would depend on the sales price, if they are paying off a mortgage and the Broker fee and other miscellaneous expenses related to the transaction.

  • Sales Price:  $450,000 @ 6% Broker Fees   ( Might be less)  = $27,000;  Paying off existing loan $150,000 = $273,000 remaining equity.
  • Now there are the “other” costs associated with the sale of a home.
  • Escrow Fees and Title Insurance Policies  Approx: $1800
  • Repair and any “staging” fees; approx: $2,000 assuming any repairs are minor, etc.
  • Moving expenses.  Local rates can be $25.00 per “mover” and the average cost is $1000 to $2000.  If the move is out of the state then it’s obviously more expensive and can be between $4000 to $8000.   But again, it depends on the amount of items being packed and moved and the size of the home.
  • Surprise expenses:   There is no way of knowing what could happen in the process of selling one’s home.   But it could be more money out of your pocket.  Such as a Buyer wanting you to pay for some of their loan’s Closing Costs.
  • Hassle and stress factor?   It’s impossible to determine the “costs” of the amount of stress just trying to organize, pack, toss and find a new home to live in.
  • And where?   Going to rent or buy?

So if we deduct the estimated costs associated with our fictitious Seller and deduct it from the equity they have leftover after paying the Broker to List and sell their home, they would have somewhere in the “middle” of $260,000 and $245,000 left over after the entire, frustrating experience ends.

Now what?   Rent until the money runs out or possibly consider buying another home, but this time use a Reverse mortgage to purchase it.

In the next post, let’s discuss why using a Reverse loan to purchase a property can be very beneficial method to qualify for a mortgage on a new residence.



Continue Reading