In my previous post, I discussed the negative image of the Reverse loan and where it came from and how we in the industry, are still plagued by this perception that is no longer true.
In spite of the amount of television ads and the many qualified resources for accurate information about the FHA loan program, there are still many people that continue to believe that they are a terrible option for a senior to use to access their equity.
And I have to wonder how many seniors chose not to take advantage of the HECM program when it would clearly benefit them, due to their fear and lack of credible information.
I do not work for a BIG Lender, I am employed by a Broker and I work independently from my home office and I always, always meet potential clients personally in-their-homes.
I do not advertise and neither does my Broker and I conduct my business 100% referral based. From former clients, Bankers, Trust and Elder Law attorneys and Financial Advisors. I have built relationships with them over the course of many years and they know that they can trust me to take excellent care of their clients.
That is how I transform mistrust and lack of credibility. And most importantly, I do not pester them to apply for the loan. It takes time to make a decision and it has to be the best one for the client. Not me.
However, an excellent resource for information that is accurate and correct is to chose one of the HUD Counseling agencies and request a telephone appointment for Reverse loan counseling. They generally charge between $125 to $150 for an hour session, but it’s worth it and will give a person a better grasp of the loan and how it may or may not benefit them.
Here is a link to HUD for a list of approved counseling agencies.
So “whatever you have heard”, don’t believe your neighbor, friend, hairdresser, financial advisor or anyone that is not qualified or knowledgeable about Reverse mortgages.
Because they simply do not know anything.
Only “what they have heard”.
I have been a Reverse Loan Consultant for almost 17 years and until the last five or so of them, most articles that discussed reverse loans and media pieces were not only incorrect but very negative and certainly created the wrong impression and more than likely, turned off a number of seniors who could have benefited from using it to provide additional income.
However, we in the reverse loan industry have seen quite an “about face” in the last few years and more and more positive and encouraging articles and media news are promoting the benefits of the FHA HECM reverse loans to the public.
After taking a “beating” for too many years, each day seems to have another article or something on the news that not only is more often correct than it was in the past, but is seriously letting people know that a reverse loan is a good option to use in lieu of drawing down on a retirement fund.
In particular, the Boston College Center for Retirement Research has published a number of studies over the last few years, pointing out the reasons why seniors should not rule out using a reverse mortgage as part of their retirement plan.
And just recently they published a new report addressing the reasons why some seniors are resistant to the idea of using their equity in their home to sustain their lifestyle and to pay for any unplanned medical expenses and that their reasons are not “rational”.
I’m going to share a summary of their findings in the next few posts.
LESA is a bit easier and less “tongue twisting” to say rather then the entire term in the title of this post.
In my previous post, I explained the changes that have taken place two years ago in Underwriting a Reverse loan and what the Lender is reviewing to determine whether or not the client can be relied upon to continue to pay their property tax payments, Homeowners Insurance and any other housing obligations they are responsible for in relationship to their home.
If they have been late on any of these items the previous 24 months, the Lender may elect to create a LESA for the borrower. They will set aside funds in an impound account from the Reverse loan to cover all of these expenses for the rest of the borrower’s lifetime.
And it can be a big figure depending on the age of the borrower.
And if the borrower is using the loan to payoff an existing mortgage along with the costs associated with doing the new mortgage, there is the possibility that there will not be enough funds to include a LESA and the loan will end up being cancelled.
The reason for the change in Underwriting was due to the fact, that in the past there were some borrowers who lost their homes in foreclosures to their County Tax Assessor due to non-payment of their property taxes and of course the Lender wants to be sure that this isn’t a risk in the future for the new borrower.
Using the current Underwriting standards that is referred to as the Financial Assessment, they will determine if there is any risk or not for the possibility of non-payment in the future due to the borrower’s inability or unwillingness to be financially responsible for these on-going obligations.
Therefor if it appears that the borrower is capable of paying all housing expenses but was unwilling to do so, they might have to have a LESA put into place to make sure that in the future, these obligations will be met and there will be no risk for a foreclosure on the secured property.
The post following this one will discuss a bit more in detail what you need to know.