HECM
The Pandemic
The last 18 months of life for everyone has been very hard and uncertain due to the Covid-19 pandemic. It was particularly frightening for seniors because they were more likely to become ill with it and possibly die.
No one was left untouched by it, either by death or the loss of employment and most certainly the loss of structure and a feeling of safety.
I received many calls from seniors during this time, very afraid about running out of money and trying to take care of themselves, and at the same time, cut off from their families and feeling isolated.
Some had entered into forbearance agreements on their mortgages and the payments for them were paused, but they were now being notified by their Lender to resume them, and many did not have the income to start making payments again.
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I received many calls for help, and I was able to provide everyone a reverse loan and at the least, make them feel a bit safer and and less anxious about what was going to happen to them.
It was challenging when we couldn’t meet personally, but I made it work for each client and we got through it together.
I am grateful that it seems we are moving forward with more confidence and less fear, and I am also grateful that I was able to help many seniors last year by providing them with more money and peace of mind and we survived the pandemic together.
Reverse Mortgage Application
What are the steps to apply for a reverse loan? Is it the same as applying for a traditional mortgage or is it different?
It is just like applying for a regular loan, except the borrower won’t have to make any mortgage payments but they will still be responsible for maintaining their home, paying the property taxes, and Homeowners insurance.
The loan application is standard, but there are many lender, state, and federal disclosures to sign in the application package. It does require quite a few signatures and a complete copy of it is left with the applicants to save and review.
Along with the signed application, copies of bank statements, Social Security card, Drivers License, Declaration page for Homeowners insurance, Trust ( if there is one), and any mortgage statements for the property, plus a signed HUD Counseling Certificate.
The file and documents are sent to a loan processor, Escrow is opened and a Title Policy is ordered, along with an order for an appraisal to be scheduled.
When the loan processor has all the necessary items to make the file complete, it is sent to a Lender for Underwriting.
They review it and make sure it is complete prior to giving it an approval. Sometimes they may request a few additional items, but nothing that is unusual.
The next step is to order the loan documents and coordinate with Escrow, assign a Notary to meet with the clients and have them sign the documents.
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The documents are returned to the Closing Department of the Lender, they review them for all signatures, communicate with Escrow to finalize closing figures and after the 3-day Right of Recession, the loan funds and closes.
The entire process takes approximately 45 days as long as the borrower has provided all of the necessary documents that are needed for the file.
Appraisals can cause a delay, or issues with the Title of the property, and sometimes the lack of cooperation from the borrower will cause the loan to take longer to complete.
Applying for a reverse loan is generally not difficult and can be completed in a reasonable amount of time.
Home Equity
I just read the following stunning statement about how much American seniors have in home equity. It is an enormous figure and seems to be growing upwards every quarter, and is now at $7.54 trillion dollars.
But many seniors still have a mortgage on their property and have to make mortgage payments and its become extensively more difficult in the last few months due to Covid-19 and how it has impacted millions of Americans and their savings and retirement funds.
Many American homeowners who are unemployed due to the Pandemic are extremely concerned about making their mortgage payments and have entered into forbearance plans with their Lenders. Their payments will be deferred for a period of time, but depending upon the terms of the agreement, the homeowner might be faced with a balloon payment.
If they don’t have funds, to begin with, how are they going to pay whatever the amount is when it becomes due in a few months?
But if the homeowner is a senior, they can use a reverse loan, pay off the mortgage they have, and not have any more monthly payments. The Title stays in their name, no prepayment penalties and when they pass away, their home goes to their estate.
This is one of those times when it is seriously advantageous to be a senior in America. A reverse mortgage can help mitigate market risks and provide some financial security to them during this very difficult time in our country.
And it is a very intelligent solution to eliminating money insecurities.
Payment Choices for Reverse Loans
The FHA Home Equity Conversion Mortgage is a reverse loan and along with its many features for seniors, are different ways they can access their funds in the line-of-credit. They can choose to not take any kind of payment and simply take out some money at the close of escrow, or do a combination of the different options.
- Cash at the close of escrow with a “tenure” payment.
- Tenure payment only
- Modified Term payment and if they want it, cash at the close of escrow.
- Or no payments at all. But payments can be set up later if the borrower wishes to have one at any time in the future, as long as there are remaining funds in their account.
Very few of my clients have ever opted for any kind of monthly payment, but let’s take a look at what a Modified Term Payment is.
The borrower chooses a certain amount of money to be sent to them each month, such as $2,000 for 10 years. Depending on the age of the youngest borrower and how much money is available in their account, they will receive it each month but not for their lifetime.
At some point in the future, it will stop being sent to them, (10 years in this example) but if they still have money in their account, they can set up a new monthly payment, a tenure payment or stop it altogether or request a lump sum. Again, it depends on how much reserve they have in the line-of-credit.
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Every person has their own unique concern or goal and depending on a number of factors, such as paying off a large mortgage, there may not be enough money left in the account to choose a payment option, but at the least, they will have eliminated their mortgage payment and that would become extra income to them each month.