Tag Archives: reverse mortgage lenders

From the Wall Street Journal this Sunday

28 Aug

Tighter Rules for Reverse Mortgages

Fewer borrowers will qualify and borrowing limits will drop.

 

    By

  • ANNE TERGESEN

The rules governing reverse mortgages are about to change, which could mean less money for borrowers. But it also may help reduce the program’s high default rate.

Congress recently gave the Federal Housing Administration, which insures virtually all reverse mortgages, the authority to make sweeping changes to the federal program for older homeowners. Once the new rules go into effect—some perhaps as soon as Oct. 1—fewer homeowners will qualify for these loans, and the maximum amount they will be able to borrow will decline.

Those who submit an application, complete a reverse-mortgage counseling program, and receive a case number by Oct. 1 will be able to qualify for the higher maximum amounts under the current rules.

Reverse mortgages allow people ages 62 and older to convert home equity into cash. The bank then pays the homeowner, who can elect to receive a lump sum, a line of credit or monthly payments. The loan is due, with interest, when the borrower dies, moves or sells the house.

Regulators plan to merge the two types of reverse mortgages on the market today: the “standard” loan, which currently allows borrowers to tap from 56% to 75% of a home’s appraised value, depending on their age, and the “saver” loan, which currently pays from 4 to 16 percentage points less. The agency has yet to announce the new limit.

Going forward, most homeowners will be able to borrow less than they currently can with a “standard,” but more than they can with a “saver,” says Peter Bell, president of the National Reverse Mortgage Lenders Association. Regulators also plan to cap the amount many borrowers can tap during a loan’s first year.

Consider a homeowner with a $300,000 property who is eligible to borrow $175,000. Assuming FHA enacts a 60% first-year cap, the borrower will be able to take an upfront payment of up to 60% of the $175,000 loan, or $105,000. Because fixed-rate reverse mortgages currently require borrowers to take everything at once, only those opting for variable-rate loans will have access in later years to the balance (of $70,000 in the above example).

Those who need more than 60% of the loan upfront to pay off a regular mortgage—a requirement—can immediately take the amount they need, up to the entire proceeds ($175,000 in the above example). But such borrowers will have to pay a higher upfront fee for the loan, says Mr. Bell. (FHA has yet to determine the exact amount.)

The changes are designed to curtail the popularity of reverse mortgages that issue large lump-sum payments, a breed that has helped fuel a rise in defaults to nearly 10% of loans outstanding. Defaults occur when homeowners fail to pay property taxes and homeowners insurance.

Regulators also plan to require lenders for the first time to assess borrowers’ ability to cover property tax and homeowners insurance bills, says Mr. Bell. Lenders may require some borrowers to set aside money to cover future property taxes and insurance.

Advertisements

New York Regional NRMLA Conference Offers Useful Information – Part ONE – Understanding Finacial Planners

21 Mar

Tradition Title Agency was a sponsor at the NY Regional Conference, and we picked up a lot of useful information, which we’ll be sharing with you here over the next few days.

Tuesday’s sessions included workshops on Understanding Financial Planners, New CFPB Rules, HECM Updates From HUD, and discussions on the new product mix and its effects on the reverse mortgage industry.

Judd Lyman, trainer at Liberty Home Equity Access, led the session on Financial Planners/Financial Advisors to kick off the conference.  Financial Planners are valuable partners for reverse mortgage lenders, and it is important that mortgage professionals learn to speak their language.

The Wealth Management Team for a Financial Planner includes attorneys, CPAs, Insurance Agents, and Estate Planners: all further contacts that can help position a reverse mortgage specialist as part of the Financial Planner’s team.  Industry-wide designations to look for are CFP (Certified Financial Planner), AWMA (Accredited Wealth Management Advisor), AAMS (Accredited Asset Management Specialist) as well as a Personal Retirement Planning Specialist or a member of the Association of Chartered Senior Financial Planners.

Financial Planners are guided by the principle of a fiduciary standard of care, where clients’ interests come first.  They often use the “Monte Carlo” method to model asset management using multiple variables.  And those variables are changing.  We used to rely on the “3-legged stool” of Social Security, pension, and personal savings ti support us in retirement, but no more.  Retirement assets that are drawn down using the 4 percent rule are shrinking. And that’s where a reverse mortgage comes in.

In the example that Judd used, retirement assets that were graphed out as lasting to an age of 74 could be stretched out to age 92 using a $700 per month draw on a reverse mortgage line of credit.  The implications of this are important, and reverse mortgage specialists need to share their knowledge and these facts with their own team of Wealth Managers.

awma logo aams logo cfp logo