Despite only a slight increase in endorsed units, max claim volume grew 25% compared to the prior Fiscal Year total of $24.2 billion.

According to data from Reverse Market Insight, 22% of the increase in volume comes from the lending limit increase, and the remaining 3% stems from the additional units in FY 2009.  In addition, the shift to the fixed rate product has also been a factor.

“The shift to the fixed rate product further magnifies the increased dollar volumes spurred by higher lending limits, as the unpaid principal balance (UPB) is up 31% for FY 2009,” said John K. Lunde, President of RM Insight.

“At a time when declining home values and recession dominated the headlines, our industry acted as a key safety net for seniors and provided more funds to more customers in FY 2009 than ever before.”

Looking at the calendar year numbers is even more telling, while units were down 2.9% in 2009, the max claim amount and UPB totals were up 26% and 42% respectively from the last year.

Whether or not the industry will continue to grow in Fiscal Year 2010 is another story.  The Office of Management and Budget is predicting the industry will endorse 120,429 units in 2010 while FHA’s Outlook Report shows a prediction of 106,875 units for FY 2010.

President Obama proposed a new tax on the nation’s biggest banks to pay for the financial bailout. Several leading reverse mortgage lenders, such as Bank of America, MetLife, and Wells Fargo, are included in this category.

The Federal Housing Administration (FHA) announced a series of sweeping changes on Wednesday to help the agency restore its financial reserves and reduce its risk.

HUD announced this week that it’s expanding a temporary policy to help borrowers access FHA mortgage insurance and allow for quick resale of foreclosed homes. HECMs are specifically exempted.

With the victory of Scott Brown (R-MA) in the special election to fill the late Senator Ted Kennedy’s seat, the Democrats have lost their 2/3 majority in the Senate, enough to overcome any vetoes.

Brown’s victory also concerns Democrats who are worried that their party will suffer heavy losses in the midterm elections this fall.

President Obama’s State of the Union address is planned for January 27, 2010.

“Everyone in the industry was really excited about it when we realized we were going to get the HECM for Purchase product,” said Monte Howard, Affinity Relationship Director at Generation Mortgage.  But this excitement has proven to be short-lived as the dramatic burst in business has yet to be realized.

After several conversations with professionals in all parts of the reverse mortgage industry, it is clear the problem with the unique reverse mortgage for purchase program is education.  This education needs to take place on several levels, but the first is educating Realtors.

Derry Hampton, a reverse mortgage professional at Security 1 Lending and a licensed Realtor, pointed out just how little realtors know about the product.
“No one’s talking to Realtors about how this can fit into their business,” said Hampton, “I think really it’s up to the reverse mortgage industry to learn how to work with the real estate industry.”
A member of the National Association of Realtors (NAR) and the California Association of Realtors (CAR), Hampton added, “In California alone, there are 170,000 members of the CAR – that’s the new market for the reverse mortgage industry… what we need to do is teach them about this product.”

An $18,000 federal government grant from the U.S. Department of Housing and Urban Development (HUD) will allow CCOA to provide free reverse mortgage / Home Equiy Conversion Mortgage (HECM) counseling (normally $125 per session) until the funds are exhausted.

The counseling is available at CCOA offices in Fayetteville and Bentonville, or over the phone. Sessions take about an hour, and clients simply seeking more information are welcome.

CCOA is a non-profit organization that has been providing Arkansas with free financial education, seminars, credit report reviews, debt management programs, and budget, credit, housing and bankruptcy counseling since 1995.  The organization has six locations across the state.
Customers looking for more information can click here to visit their website, or call (800) 889-4916

The administration recently implemented a new set of standards for Home Equity Conversion Mortgage counselors which established a roster and testing standards to qualify counselors.  Counselors will also have to follow a set of protocols to help determine whether a reverse mortgage will help a borrower.  Burns told the NY Times, “We’ll be weeding out the bad counselors going forward.”

The changes come after a report from the Government Accountability Office, which sent investigators posing as borrowers to 15 reverse mortgage counseling sessions.  According to the report, none of the counselors covered all of the required topics, and some overstated the length of the sessions in records provided to the government.  Read  the new rules for counselors (NY Times)

According to the Mortgagee Letter, FHA will allow HECM loans that received case number assignments but did not close prior to the effective date of the Mortgagee Letter to be closed using either the old limit that was used to originally calculate the loan, or the new limits as described in the Mortgagee Letter. An option will be made available in FHA Connection for the lender to choose which rate to use until April 30, 2009.

ML 09-50 provides notice of the 2010 comprehensive update to the Federal Housing Administration’s (FHA) single-family loan limits, under the authority of the recent passage of the Continuing Resolution, 2010 (CR) as part of the Department of Interior, Environmental, and Related Agencies Appropriations Act, Public Law 111-88.

The current CR mandates that the revised FHA loan limits for 2010 are set at the higher of the loan limits established under the Economic Stimulus Act of 2008 (ESA) or those loan limits otherwise established for 2010 as amended by the Housing and Economic Recovery Act of 2008 (HERA).

Under provisions of the recent CR, the national FHA loan limit for the HECM program in 2010 remains at $625,500 (150 percent of the national conforming limit). In the special exception areas (AK/HI/GU/VI), the maximum claim amount on HECM reverse mortgages is the same limit.

But now…

With home prices still under pressure and fears of a double-dip recession rampant, reverse mortgages no longer look so safe. Moreover, new government underwriting guidelines are likely to crimp the market’s stellar growth.

According to a survey by the National Reverse Mortgage Lenders Association, of the year-to-date loans booked by the three largest lenders, had the October 1 changes been in effect for the entire year, one out of five borrowers would not have qualified for their loans because the amount of equity available to them would have been less than what was still owed.

Declining home prices have had a major impact on the reverse mortgage industry and seniors who are considering their financial options. Currently, a potential customer doesn’t know if a reverse mortgage will work for them until the appraisal comes in.
Once homeowners get an appraisal, they may find out that it was appraised for less money than expected; they may not receive enough reverse mortgage proceeds to pay off an existing mortgage or to handle another financial issue.

During these tough times, reverse mortgage servicers also have to keep an eye on borrowers to make sure they are maintaining their real estate tax payments and home insurance payments. On a traditional mortgage, these payments are often escrowed and the servicer automatically pays them. But the borrower is responsible for making these payments on a reverse mortgage.

As a result of weak home prices it is difficult for people to know what their homes are worth and if a reverse mortgage will get them enough proceeds.
There is hope, however, that the economy and consumer confidence will recover. As home prices and retirement assets stabilize, we’ll get back into a healthy phase of growth, people will reassess their retirement/home situations, and will include reverse mortgages in their financial plans.

Read the full article here

The reverse mortgage division at Bank of America released its fixed-rate product on August 24 of this year. Until then, all originations were adjustable-rate products.

The adjustable-rate HECM has drawn different borrower types with different utilization patterns, which promises greater expansion of secondary market support for the product.  Yet other organizations are reluctant to retain that risk, because in funding balances at par they may not have the balance sheet or capacity to take on commitments for a large number of loans (not knowing how the market will change or what draws will be worth to the secondary market in the future).

The “big story” in secondary marketing for HECMs is Fannie Mae – they were the market for most of 2007, 2008 and early 2009.
But, now, other investors are re-engaging in that market as FM reduced their prices to competitive levels and stopped supporting it.  That investor base diversity is good for the industry; it will grow as people understand the product and its performance is documented.

What is a reverse mortgage?

It’s a loan on your house that lets you tap your home’s equity.  Like a cash advance, a bank fronts you the money—either as a lump sum, a line of credit or monthly draws—and you have to repay it eventually, with interest.

Unlike a traditional mortgage, you don’t have to repay the loan during the term of a reverse mortgage.  Instead, you pay it off all at once at the end of the loan.  There are no income or credit qualifications, but homeowners must be 62 or older.

You retain title and ownership of your house.  You are still responsible for paying the property taxes and the costs of insurance and repairs.  If you still have a regular mortgage, you either have to pay it off before taking the reverse mortgage, or use part of the proceeds from the reverse mortgage to retire it.

In this article, we’ll focus on the most popular reverse mortgage:  the Home Equity Conversion Mortgage, or HECM, which is insured by the Federal Housing Administration. Until the credit crunch, private reverse mortgages were also available, but lenders are no longer offering them.

When must the money be repaid?

The money doesn’t have to be paid back as long as the homeowner remains in the house and keeps up with taxes, insurance and repairs.  Generally, repayment is triggered when the homeowner dies, sells the house or moves out for 12 months or more.  If a couple owns the home and one spouse dies, the surviving spouse can stay in the home without having to pay back the loan until he or she dies, sells or moves out for 12 months.

When it’s time to repay the loan, you or your estate will pay the principal you tapped and the accrued interest.  Be aware that the interest expense can quickly accumulate.  If you take out the loan in your sixties and stay in your house until your eighties, the interest owed on the loan could be much greater than the principal amount you took out.  After the loan is paid off, there could be little or no equity left to use, say, for a move to assisted living. The HECM does have a “non recourse” feature however, which means that you never have to pay back more than the house is worth at the time of sale.  If the debt exceeds the sales price, the insurance covers the shortfall.

As for taxes, because a reverse mortgage is a loan, the money you receive is not taxable income.  But you can’t deduct the interest on your tax return each year.  In the year the loan is paid off, you or your estate can write off at least part of the interest (see IRS Publication 936 Home Mortgage Interest Deduction)

Can my heirs keep the house?

Sure, if they pay off the reverse mortgage. If the debt is more than the house is worth though, the heirs would have to come up with the difference.  The insurance that covers such a shortfall only kicks in if the house is sold. If your heirs decide to sell the house, they have at least six months to do so, and that can be extended to 12 months with a written request. If the heirs sell the house and money is left over after the reverse mortgage is paid off, they will inherit that cash.

How do I get the money from a reverse mortgage?

You can take a lump sum, open a line of credit to tap whenever you choose or receive monthly payouts (either for a set number of months or for as long as you live in the house), or you can choose a combination of those options-say, a lump sum for part of the mortgage with the rest in a line of credit.

If all else is equal, the line of credit is more advantageous; you use it when you need it.  The money that’s not tapped won’t rack up interest.  The unused portion also grows larger over time, generally at the same rate as the loan’s interest rate.  Unlike a home equity line of credit, which can be reduced or frozen by a lender, a reverse mortgage line of credit is safe, thanks to the FHA insurance.

Interest rates recently ranged from 5% to 6%, depending on the lender, the payout option and type of rate.  A fixed rate is typically only available if you take a lump sum, which could be suitable to lock in costs for those who want to use all of the money at once.  A line of credit or monthly payout comes with an adjustable rate, which can change monthly or yearly.

Are there non-interest costs?

• There is an origination fee, which is 2% on the initial loan and 1% on the balance, with a cap (which will be adjusted for inflation).
• You’ll also pay closing costs, such as title insurance and recording fees, that will likely run several thousand dollars.
• You must also pay insurance premiums.  The FHA insurance guarantees that you will receive your money and that the lender later receives its money.  You’ll be charged an upfront premium of 2% of the home value (or the lending limit, whichever is less) plus an annual 0.5% premium of the mortgage balance.
• Finally, the lender sets up what’s known as the “servicing fee set aside.”  This is a pool of your money that the lender sets aside to ensure the loan’s servicing fee, which typically is $30 to $35 a month, will be paid for.

In total, these costs could run upward of 10% of the loan.  If you have a short-term need for the cash or you plan to move within the next five years, consider other options, such as a home equity loan, a home equity line of credit, or selling the house and buying a cheaper one.

It pays to shop around.  Fees set by the government won’t vary, but some costs, such as the interest rate and the monthly servicing fee, can differ by lender.  Compare reverse mortgages from at least three lenders.  Lenders will issue you a Total Annual Loan Cost, or TALC, for each option to help you compare costs.

How much equity can I tap?

This is based on a calculation that factors in your age, the interest rate and the value of your home.  The older you are, the lower the interest rate and higher the house value (i.e. money you’ll be able to tap).

There is a limit on the amount of home value that can be taken into account for HECMs:  $625,500 until the end of 2009.  So if your home appraises for $1 million, a HECM will cap the home value in the calculation at $625,500 (that limit is scheduled to fall to $417,000 in 2010).
You can’t tap 100% of your equity.  The calculation leaves plenty of room for accrued interest.  Instead, you get a portion of the equity in your home and you pay interest on that.

A reverse mortgage must be set up at the maximum amount the homeowner is eligible to receive. For example, if you qualify for $250,000 in loan proceeds, you can’t just set up a loan for $50,000.  In this situation, you could choose the line of credit option, which will let you tap $50,000 now and keep the remainder in the line for future use.  If you truly only need $50,000, your best option may be to find an alternative to a reverse mortgage because many of the fees are based on the maximum loan amount.

Reverse mortgages can be refinanced. You will pay loan costs for the new reverse mortgage, which will pay off the old reverse mortgage.

Do consumers have any protections?

You can back out of the loan within three days of signing the paperwork.  Ask if you can repay the reverse mortgage early without penalty—usually you can.

The government requires borrowers to attend a counseling session, either in person or over the phone.  The counselor will explain how the reverse mortgage works, including the costs. Your lender will likely provide you with a list of counselors approved by the Department of Housing and Urban Development, but the lender should not direct you to a specific one.  You can find a counselor on your own;  HUD can help direct you to approved counselors in your area.

How do I know if a reverse mortgage is right for me?

Reverse mortgages are generally a last resort for seniors who have no other option to cover expenses.  Think about what you plan to do with the proceeds – for instance, a reverse mortgage might be a good fit for a senior who wants to age in place, with the loan proceeds paying for home health care, instead of moving to assisted living.  For more information on reverse mortgages visit our FAQ Page.

Be very careful when choosing.  There are several legitimate mortgage lenders out there that offer reverse mortgages, but there are illegitimate ones as well.  Be sure to pick one with a good reputation. Ask your lender if they are setup with the Better Business Bureau (BBB).

It is important that you choose the right reverse mortgage lender. A number of reverse mortgage companies can be found online. These companies promise the best of services, however, it is important for you to conduct detailed research before choosing the best reverse mortgage lender. Not all of the lenders are worthy of receiving your business, and a lot of them are involved in reverse mortgage scams. Take your time to know about your friends’ or relatives’ experience with their reverse mortgage lender.

There are private mortgage lenders, which may lend at higher amounts or higher loan-to-values. These are less regulated than HECM and if you need a large private loan you should scrutinize the lender thoroughly. Counseling is also strongly advised before you purchase one of these loans–it can help you understand the disclosures.

Since most reverse mortgage are the HECM programs, it is very likely you will have the chance to pick and choose between reverse mortgage lenders. Below are several tips on how to find a good reverse mortgage lender and the main topics you will need to question.

Finding a good lender

• National Reverse Mortgage Lenders Association (NRMLA) provides education and serves as advocates in the reverse mortgage lending industry. You might want to consider only lenders who are members of NRMLA and follow their published Code of Ethics.
• Start online to see the lenders available in your area. Online searching is an easy and efficient way to get your search going.
• American Association of Retired Persons (AARP) represents seniors on many issues including reverse mortgage lenders.
• Get counseling. In fact, HUD requires that borrowers obtain counseling via phone or in person before being allowed to take out a reverse mortgage. Part of this counseling should include how to evaluate reverse mortgage lenders and understand disclosures.

We hope this helps with your incredibly important decision. Contact us now if you have further questions.