July 2009

Reverse Loan Counseling for Free

I mentioned in a previous post that Money Management International, MMI was offering free counseling to seniors who are interested in applying for a Reverse mortgage and most likely, all of the sessions would be quickly taken.

At the time that I provided this information, I knew that the offer would quickly be used up but surprisingly, they are offering it again.  This is ideal for those (Including the adult children of seniors) who want to know more about the loan and if it would make sense for them to apply for the FHA insured Home Equity Conversion Mortgage (HECM).

HUD requires seniors to complete counseling in order to apply for the federal government sponsored loan and the purpose of this, is to be sure that they are educated about it, how it works and understand the ramifications and benefits of a Reverse mortgage.

The loan cannot be originated without proof that the senior has completed the counseling.   And when they do, they receive three certificates verifying that they have done so.   One is given to the Loan officer to be placed in the loan application package, as which point a HUD case # is ordered and the appraisal, Title and credit reports are ordered as well.

Without this certificate, nothing can be done on a loan that would incur any expense to the senior, thereby protecting them against any potential financial abuse.   Counseling is crucial component in their decision process and it is very important and reassures them that the loan is well regulated, insured and safe for them to use.

MMI is offering 3500 sessions of free counseling that typically costs $125.   This offer will end in Sept. or whenever all of the sessions have been used up and I’m suggesting that if someone is in the stages of investigating Reverse loans for their personal use, they should contact MMI right-way for an appointment.  The counseling can be done over the telephone and typically will take about an hour to complete.  If you want to take advantage of this, here is their phone number:

Money Management International:  877-908-2227

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The Loan of “Last Resort”

What?   Compared to being lined up for an execution?  Why is a Reverse loan considered to be something so dire, awful, terrible, “don’t doooooooooo it”!   I thought that “resorts” were a place where you went to have fun, eat, drink swim, golf maybe play tennis?

I love these well intentioned people that feel a Reverse loan is a terrible decision.   Quite often these individuals that make these irresponsible comments are attorneys, CPA’s and financial planners.   As though “they’re ” well informed, they know little or next to nothing about Reverse loans but somehow, they feel qualified to discuss them with their clients and typically give them incorrect information.

“How could you do that to your kids?   They won’t receive anything when you die”.   Okay but what are the “kids” doing for their parents to help them out when they don’t have enough money to meet their expenses every month?   Nothing.  You mean that it’s okay to have your Grandmother babysitting  & house cleaning at 80 or renting out rooms to strangers for the extra money she needs?

Of course not!   That would be deplorable, but that’s what is happening.   The adult children can’t afford to help their parents and that’s why they look the other way when Mom & Dad are struggling.  And they don’t want them to do a Reverse loan, either.

After all, their inheritance in on the line, folks.   Don’t want to jeopardize that!

Recently Vishall Bhuyana ( That’s his real name) the founder of V.B. Bhuyan & Comapny mentioned that Reverse loans will be meeting a huge financial need of the Boomer generation.   The Boomers are going to be out of money and bearing a lot of financial debt due to the current economic environment and a Reverse loan will take that burden off of them.

Until people get past the “they’re too expensive” (compared to what?), “the bank takes the house back” (They do?), wrong again and of course…the kids won’t get anything.   Not true again.   They will inherit their parents home along with all the other belongings from their lifetimes.

So back to my original statement.   A loan of last resort?   Not hardly.   It’s the loan to regain your life, sanity and peace of mind.

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Consumer Credit Counseling Service of Greater Atlanta

Recently they conducted a survey regarding how more people  are tapping into their retirement accounts even though in some cases, doing so could be a bad financial decision.  And the results were interesting.

With the meltdown of the financial markets and the high unemployment rates, more people are starting to pull money from their accounts to pay their mortgage payments and other bills that they are obligated to met each month.  And if they are younger than 59 and a half, taking an early distribution could result in a 10% penalty that would be very painful to swallow.

The survey had 378 foreclosure prevention clients respond to it and they answered questions about how the current economic crisis was affecting their lives.   Here is what they found:

“Nearly half of foreclosure prevention clients are “very worried” that they will not have enough assets to retire on and 15% say they assume they will not be able to afford to retire.

In contrast, fewer than 15% of bankruptcy clients reported withdrawing money from a retirement plan in the past six months.   Retirement plans are among the assets that can be protected in a bankruptcy, so these clients appear to have chosen to protect their nest egg even though the immediate financial consequences of bankruptcy are painful.”

Funds from a Reverse loan could fill the financial gap and provide a safety net for the future.   My personal feeling is, that if a person still has a retirement account or any investments, leave them alone.   Don’t touch them and possibly be taxed on any withdrawals or pay a hefty 10% penalty.

Funds from a Reverse loan are not taxable, the money can be used for any purpose and if a person finds themself unemployed and stuck with a mortgage payment every month, and they are 62 or older, refinance into a Reverse loan.  An easy answer to scary times.

When the person returns to work (If they do) they can always pay the interest that accrues on the loan each month and keep the loan from growing because there are no prepayment penalties on it.   Just keep the home insured and the property taxes current.   Something a homeowner already does….

Another reason why it’s good to be a senior.   There are some great options to make life easier.

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Reverse Mortgage Counseling

Any individual that has been interested in applying for a Reverse loan has always been required to complete a counseling session with a HUD approved credit counseling agency.

The purpose at that time and still remains, was to protect the applicant against any possible financial abuse and to be certain that the individual understood how a Reverse loan functions, how it effects their equity and most importantly, how would it help them in their lives.

Originally counseling was free, which made it an ideal resource for Seniors to use in their quest to learn about the loan and have all of their questions answered  by someone other than a Loan Officer.  The counseling was and still is very informative and it sorts out the concerns that some seniors have about the title of the house, costs and leaving an estate to their heirs.

Due to the increased demand for the loan in the last two years, the agencies were forced to start charging $125 for the session.   Originally the costs for providing the counseling were covered by government grants but they quickly ran out of money and HUD approved the collection of a fee to cover those costs to the agencies so that the counseling requests could be met.

The fee can be charged to a credit card but some seniors are reluctant to do that if they are not  sure whether or not they would consider using the loan.  I’m sure that many of them in the past, have decided not to do the counseling because of the fee and it’s unfortunate that this may have happened when I know how much of a difference a Reverse loan can make in a senior’s life.

But as of today, Money management International is now offering 3,500 sessions free of charge until the end of September.   Anyone that is reading this and thinking about doing a Reverse loan, should jump on this offer immediately as I’m sure that the free sessions will disappear quickly.

You may call them directly and request an appointment and they will accommodate you as soon as possible.   Counseling is done over the phone and usually takes and hour, making it very easy and doesn’t require any driving to a location to meet with a counselor.   After it’s been completed, they will send 3 counseling certificates to the client that are good for 6 months.

If the senior decides to apply for the loan, they will sign one of them and give it to the Loan Officer.   That allows the lender to order a HUD case #,  order an appraisal and start the loan process.

Money Management International


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Refinancing a Reverse Loan

Up until the free fall on declining values, many seniors who had previously done a Reverse loan, were refinancing them into a new one.   There are several advantages to doing this, because the loan amount is based on the seniors age and the HUD lending limit that recently increased to $625,500.  Plus there is no prepayment penalty to contend with, allowing them to payoff their current loan without any issues.

Obviously if you did a Reverse loan several years ago and with the new increased HUD lending limit, that meant by redoing the loan, the senior could receive a larger line of credit and also have a lower start rate on the new one.  And who wouldn’t want that?

HUD recently published Mortgagee Letter 2009-21 to clarify the guidelines for borrowers who might be thinking of refinancing their existing FHA-Hecm Reverse mortgage.   It’s important to understand what they are in order to complete the transaction because in some situations, it wouldn’t work or make any sense for the borrower.

There has been for some time an “Anti-Churning Disclosure” that must be provided to the borrower.  This document is included within the loan application package, indicating that borrower is not being pressured to redo their loan for the benefit of the lender or anyone else for that matter.   And they must have 5 times the amount of the cost of the refinance remaining in their new line of credit, otherwise a transaction cannot be completed.

But with the drop in property values that we’ve been experiencing these last 18 months, sometimes refinancing a Reverse loan can’t be done and I have a number of clients who are waiting for the market to turn around.  And when it does, then we will be able to move forward on refinancing their current Reverse loan and give them more cash to use to supplement their income.

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Reverse Loan Consultant