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March 13, 2020 Reverse Mortgages No Comments

Refinancing a Reverse Loan

Like any other mortgage, there may be a time when it’s optimal to refinance a reverse loan due to a drop in interest rates, increased home value or that the borrower is several years older than when they did their original reverse mortgage.

As of this posting, interest rates have decreased and many reverse loan borrowers are being solicited to refinance their current loan into a new one, however, there are some guidelines that have to be followed and not every borrower will pass them.

There has to be a tangible benefit to the homeowner to refinance their reverse loan and at the same time protect them from being taken advantage of and being charged unnecessary fees.

Regulations are in place to protect seniors from being taken advantage of and this has resulted in 3 “tests” to determine whether or not it would be beneficial for the borrower to refinance their current loan into a new one.

The borrower must pass 2 out of the 3 tests to be considered eligible to refinance their existing mortgage and if they do, they can apply for the new mortgage.

There is a”seasoning’ requirement and this means the loan has been in place for not less than 18 months from the time it was originated, funded and closed. Otherwise, the borrower will have to wait, although there are some exceptions to this, that could be discussed in an additional post.

Closing Cost Test. The increase in available loan proceeds must exceed five (5) times the total closing costs amount This is the “benefit factor.”

2. Loan Proceeds Test. For any reverse mortgage refinancing the available Benefit Amount from the new HECM is the amount of the Principal Limit available to the borrower MINUS the HECM loan balance being paid off and the Closing Costs for the new mortgage. This must equal or exceed 5% of the HECM Refinance Principal Limit.

3. Rate Reduction Benefit Test. The borrower must recover the total costs of the new loan through savings in the annual interest rate charged on the new loan within 4 years.

Confused? Of course and the only way a borrower can find out if they would qualify for a refinance would be to provide a complete copy of their most recent mortgage statement to a reverse loan professional and have them do the calculations for you.

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Over the years I have refinanced many of my former clients, but they all have to pass the tests and most of the time they do. If they wish to refinance into a Jumbo/Proprietary reverse loan, that can be done too, and the qualifying tests are very similar.

When in doubt, call your loan professional and ask them. It might be a benefit to you at this time while the interest rates are so low and you might be entitled to more of your equity and increased cash flow.

August 22, 2018 Power of Attorney, Reverse Mortgages No Comments

Power of Attorney for Reverse Loans

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.

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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.