There are some occasions when it is necessary for a POA or Power of Attorney to be used when the borrower for the reverse mortgage is no longer physically or mentally competent and unable to manage their personal affairs and they need someone else who can legally represent them when it’s needed.
Generally speaking, if the borrower has a Trust in place, a Durable Power of Attorney is included in the Trust documents for each Trustee and can be used to manage the financial affairs of the named individual on the document.
For the sake of simplicity, I will not discuss all of the details in regards to Underwriting a reverse loan when a POA is being used for the loan application. But I am going to quote directly from a Reverse Loan lender guidelines about what a family needs to know if they intend to use one for their family member if they are unable to represent themselves in the loan process.
- If the borrower is mentally incompetent with a condition such as dementia or Alzheimer’s, he or she must meet the HUD face-to-face requirement at application, the HUD counseling or at the signing of the loan documents.
- A doctor’s letter certifying that the borrower is no longer capable of handling his or her own financial affairs and it must include the date the borrower became incapable of handling financial affairs.
- The date on the doctor’s letter must be AFTER the date the borrower originally signed a Notarized POA.
The above would also apply in those situations where the borrower(s) is competent but physically incapable of signing documents and representing themselves. This could be due to extreme arthritis, blindness or other disabling physical conditions.
I hope that this information makes it a bit easier to understand what the HUD guidelines are to use a POA and also to reassure families that it does not affect their opportunity to be approved for a reverse mortgage. It’s important to know what are the steps that need to be satisfied to be and quickly complete the loan process.
Most of the reverse loans that are originated are the FHA HECM program and over the years has been the “workhorse” for allowing seniors to utilize their home’s equity without having to qualify for a mortgage payment.
And as of this post, that continues to be the most commonly used reverse mortgage, however, in the last few years, another option has become available to seniors, especially those who have expensive properties at one million dollars or more.
The FHA HECM loan has a cap on the value of the subject property ( As of 2018) of $679,650 and the new loan will use that as the maximum appraised value, a percentage of “that” and the youngest borrower’s age to determine the amount of money the senior will receive at the close of escrow.
But what if you want more money than it will provide or you have a large mortgage you want to be paid off, but the funds in the HECM are insufficient to achieve this goal?
A Jumbo proprietary reverse mortgage might be the solution because the loan will consider properties valued as much as 6MM and as low as $700,000 and the interest rates are “fixed”. An additional benefit would be if someone lives in a Condo that is not on the approved FHA Condo list (That means they cannot do a HECM), a proprietary Jumbo reverse loan is the answer to this common problem.
An additional benefit to using this loan is that the Closing Costs are less than the FHA HECM because the borrower is not being charged the MIP insurance premium that all FHA loans require. And some are not charging an Origination fee, making the loan much more inexpensive to the borrower in comparison to the HECM.
As more lenders are offering Jumbo reverse loans and the industry evolves to meet the demand for them, I am sure that there will be new programs and opportunities for seniors to access the equity in their homes into the future making their retirement years more affordable and comfortable.