Posted by snoopdogMs on 6/26/08 12:45pm
Msg #253089

Reverse Mortgage question

I was asked this question at a RM closing last evening and I told the individual that even if I knew the answer that I could not talk about the whys. If the property was appraised at $220K, why is the available money only $147k? Is the amount lower if the individual takes out the whole lump sum? Or would the available amount be higher if they took out mostly a line of credit with a small lump sum. She wanted to know where the $60K went, the difference between 220 and 147 minus fees. I deferred all questions to her LO. For my own curiosity, can someone answer this?

Reply by BrendaTx on 6/26/08 12:56pm
Msg #253092

Check out this calculator. It will answer your lump sum question.
http://www.rmaarp.com/

The amount available is based on zip code, borrower's age, and value of home.

In this case, I'm guessing your borrower was about 85 years old to get that *much* out of her house.

If she sold the house tomorrow for $220,000 she could pay off the $147,000 loan and have additional cash. The lender isn't out right buying her home for a low ball price...that's just all that the RM guidelines will allow to be loaned on it.

Reply by ME/NJ on 6/26/08 12:58pm
Msg #253095

Bank takes the risk

What if they gave her the full value and the property value tanks? Its all about Risk and return, the bank gave themself a 30% or cushion in case anything were to happen they could unload the property and re-coupe its money.

Now if the value goes up and she dies then the bank wins again.

Reply by WDMD on 6/26/08 1:34pm
Msg #253101

Re: Bank takes the risk

"What if they gave her the full value and the property value tanks? Its all about Risk and return, the bank gave themself a 30% or cushion in case anything were to happen they could unload the property and re-coupe its money."

Reverse mortgages are insured. How would the bank lose money?

"Now if the value goes up and she dies then the bank wins again."

If the property value goes up then either the borrower or their heirs would win wouldn't they? The bank only gets to keep the principal and interest accrued correct?

Reply by PAW on 6/26/08 1:39pm
Msg #253103

Re: Bank takes the risk

Not all RM's are federally insured. Even those that are, the loan is a "non-recourse" loan, which means that the bank could still end up on the short end of the stick if the value or selling price falls below the amount due. The insurance doesn't cover devaluation, so the bank still has a lot of risk with the current market fluctuations.

Reply by WDMD on 6/26/08 1:41pm
Msg #253106

Re: Bank takes the risk

"Not all RM's are federally insured. Even those that are, the loan is a "non-recourse" loan, which means that the bank could still end up on the short end of the stick if the value or selling price falls below the amount due. The insurance doesn't cover devaluation, so the bank still has a lot of risk with the current market fluctuations."


So what does the big up front mortgage insurance premium plus monthly premium cover? Any I've seen are several thousand dollars.

Reply by WDMD on 6/26/08 2:36pm
Msg #253131

Re: Bank takes the risk

"So what does the big up front mortgage insurance premium plus monthly premium cover? Any I've seen are several thousand dollars."


Article from Mortgage 101.com explaing how government insurance covers a payoff shortfall:


If the sales proceeds are insufficient to pay the amount owed, HUD will pay the company the amount of the shortfall. The Federal Housing Administration, which is part of HUD, collects an insurance premium from all borrowers to provide this coverage.
Link to article:
http://www.mortgage101.com/Articles/FHALoans.asp?ArticleID=1139&p=Mtg101

Reply by PAW on 6/26/08 9:19pm
Msg #253213

Re: Bank takes the risk

From my class, it may not cover the total amount of the principal. The insurance is only up to a certain limit (depending on valuation) and if the sale proceeds are insufficient to cover the principal due, then the insurance will only cover up to a predetermined limit. The bank may then not fully recover the amount due. (But I don't personally know of any case where this has happened.)

Reply by PAW on 6/26/08 1:36pm
Msg #253102

Re: Bank takes the risk

>>> Now if the value goes up and she dies then the bank wins again. <<<

How do you figure that? The bank will only "win" what the principal amount of the mortgage is, regardless of the value of the property. Period. They don't get the house. The estate gets the house and will need to settle the mortgage. (And it could end up in probate for years!)

Reply by Linda_H/FL on 6/26/08 1:40pm
Msg #253104

I've noticed in many postings about Reverse Mortgages

and in conversatons about them that it's a common misconception that the borrower is selling their house to the bank or the bank takes the house upon their death or non-occupancy.

Reply by ME/NJ on 6/26/08 1:44pm
Msg #253107

Re: I've noticed in many postings about Reverse Mortgages

The bank does not want anyone to lay claim to the home. My inlaws have there place in a trust and cannot do a RM, I am on the deed to my mothers place and would need to be removed for a RM.

Pretty much if you want to give your family the home when you pass don't do a RM.

Reply by snoopdogMs on 6/26/08 1:46pm
Msg #253110

Thanks for the many replies! n/m

Reply by Linda_H/FL on 6/26/08 1:50pm
Msg #253112

Re: I've noticed in many postings about Reverse Mortgages

"Pretty much if you want to give your family the home when you pass don't do a RM. "

Disagree - you can still do an RM and leave the house to the kids - they'd have to refinance the loan and pay off amounts due. I'm not saying it would be easy but it can be done.

Not a lawyer or an estate expert..yada..yada..

Reply by PAW on 6/26/08 1:51pm
Msg #253113

Re: I've noticed in many postings about Reverse Mortgages

Even in a trust, it may still qualify for an RM.

Reply by ME/NJ on 6/26/08 2:17pm
Msg #253122

When I did Bank of New York RMs

No Trust were allowed and only owners over 62 were allowed on deed.

Reply by PAW on 6/26/08 2:26pm
Msg #253127

Re: When I did Bank of New York RMs

Wells Fargo allows it. From their FAQ:

2. My property is held in trust. Do I qualify?
Yes, but you must be the primary Trustee and qualified by age.

Reply by LKT/CA on 6/26/08 1:57pm
Msg #253117

Re: I've noticed in many postings about Reverse Mortgages

<<<My inlaws have there place in a trust and cannot do a RM,....>>>

I've done RM's where the property is in a trust. The deeds and notes had to be signed "their names, as trustee".

Reply by Hugh Nations Signing Agents of Austin on 6/26/08 2:07pm
Msg #253118

Re: I've noticed in many postings about Reverse Mortgages

***Pretty much if you want to give your family the home when you pass don't do a RM.***

Reverse mortgages are no different in that respect than other mortgages. If you want to keep the decedent's home, then pay off the mortgage, same as a regular mortgage. You don't want to keep the homestead, sell it, pay off the bank, keep the balance.

If you understand the principles of a reverse mortgage, you should be prepared to explain it just as you would the interest and monthly payments on a regular mortgage, unless the lender/TC only want you to notarize and oversee signatures. That's what signing agents do. If you don't feel sufficiently grounded in reverses, then by all means refer the borrower to the loan officer.

Reply by MikeC/NY on 6/26/08 2:25pm
Msg #253125

Re: I've noticed in many postings about Reverse Mortgages

"The bank does not want anyone to lay claim to the home. My inlaws have there place in a trust and cannot do a RM, I am on the deed to my mothers place and would need to be removed for a RM. "

Maybe the rules are different in NJ (or for different banks), but I've done at least one RM recently where the house was in a trust. Why would it matter to the bank? They still have a lien position, even if the house is owned by a trust.

Reply by ME/NJ on 6/26/08 2:35pm
Msg #253130

good question, maybe a lawyer could fill us in

Maybe it is state or company that dictates there lending practice if not insured by the goverment.

Bank of New York was strict about its guidlines for RMs - Of course BONY is now Chase.

Reply by Therese on 6/26/08 6:06pm
Msg #253169

Re: Trusts

are reviewed by the lenders Trust Dept. and are approved based on what is required.

Reply by Therese on 6/26/08 6:08pm
Msg #253170

Re: Trusts

The majority of RM's I have signed are in trust

Reply by ME/NJ on 6/26/08 1:40pm
Msg #253105

Re: Bank takes the risk

Pretty much when the person passes, unless the value is alot the estate gives the property up because of amount due. Most folks who do RMs around here do not want to give the house to the children.

Pretty sad, Last RM I did a year ago the person has had his place for sale for over a year to get out of his RM.

Reply by PAW on 6/26/08 1:49pm
Msg #253111

Re: Bank takes the risk

>>> Pretty sad, Last RM I did a year ago the person has had his place for sale for over a year to get out of his RM. <<<

That makes no sense at all. After getting in to an RM, the longer the mortgage is in place, the better off the home owner is. The cost of the RM is high. To recoup those costs, an RM needs to be kept in place for more that just a few years.

In the package there should be a sheet that tells you what the APR is if the RM is kept for different lengths of time. (Not exactly sure what the time periods are.) The point of that is to show, over time, the cost of the mortgage decreases, since those costs are amortized out over the longer term.

I can only assume that the person who had their RM only for a year, was needing to get from under the house, not the mortgage.

Reply by Hugh Nations Signing Agents of Austin on 6/26/08 1:25pm
Msg #253100

Typically, 40-60 percent of the value of the home is available in a reverse mortgage.

That is because the borrower, of course, never makes a payment. The interest and service fee are added to the principal balance each month. If the full value of the home was loaned, then quickly the amount of the loan principal would exceed the value of the collateral. Homes typically appeciate in value, though, so on most reverse mortgages the borrower still retains some equity over the life of the loan. Every RM packet has an amortization schedule, based on estimated interest and appreciation over the life of the loan, and you can see it at work if you glance at that.

The younger a borrower is, the less they will be entitled to receive at closing, because that means the loan usually will run longer and more in interest and service fees will be added to the principal. I gather your borrower was probably 69, which is fairly young for most on a reverse mortgage. Had your borrower been 79, she would have gotten about $149,000.

Her potential monthly payment at age 69 would have been $775 for her lifetime. If she elected to take monthly payments for a specified term of up to 30 years, her payments would be commensurately larger, depending on the length of the term.

She still has the option of taking her money in any combination of lump sum, monthly payments for the life of the loan or term, and line of credit.

Reply by BrendaTx on 6/26/08 6:44pm
Msg #253181

Re: Reverse Mortgage question 69? 79?

**I gather your borrower was probably 69, which is fairly young for most on a reverse mortgage. Had your borrower been 79, she would have gotten about $149,000.**


Hugh, Based on being in MS, the age of the borrower on a $220,000 home would be about 85 years old to get $147,000 according to the online calculators. Maybe you have a formula I'm not aware of.

Reply by MW/VA on 6/26/08 1:53pm
Msg #253114

You were right. The calculations are only to be explained by the LO. There are a lot of myths out there about reverse mortgage. The basic principal is that you are able to use the equity in your home (not up to 100% ltv, however) without any repayment. It becomes a negative amortization, interest is added to the loan balance. The bank does not take your home when you pass--any remaining equity is passed on to heirs. To my knowledge, most are FHA insured, since that is who created the program. IMO, it is a great option for a lot of people.
I'm doing a lot of these signings, and don't feel I'm "scamming old people". It is a whole new way of looking at things.

Reply by BrendaTx on 6/26/08 4:58pm
Msg #253146

**most are FHA insured, since that is who created the program**

There are

Home equity conversion mortgages/HECMS - FHA

HomeKeepers - FannieMae's alternative to the FHA HECM.

Any number of "conventional" RMs uninsured by the gov't...which I admittedly do not know much about... FF is one of the lenders who offers a "Jumbo" loan to higher valued homes which FHA and FannieMae can't work with effectively b/c of lending limits. Jumbos have no limits.

Reply by MW/VA on 6/26/08 5:52pm
Msg #253163

Thanks. I only knew about the FHA-backed ones.

Reply by ME/NJ on 6/26/08 2:27pm
Msg #253128

I don't do RMs anymore for a number a reasons

I do think it will be the next sub-prime mess in the next few years. I'm sure there are trusted RM LO's and programs out there and you never know what people need to survie, but most RM's I've done in the past it would make you cry.

POA's by someone in the medical field to pay there company off with the RM. I live in a large senior sector and could do well with RMs but I will not do them anymore. It's double the time of normal signing 80% of the time (not like normal refis are knocking down the door anymore and companies are lumping them into a refi class now.

Reply by Hugh Nations Signing Agents of Austin on 6/26/08 4:48pm
Msg #253145

Re: I don't do RMs anymore for a number a reasons

***most RM's I've done in the past it would make you cry.***

I think reverse mortgages are probably the most useful development in the home mortgage field in the past two or three decades. There simply is no other process in which seniors can:

1. Use the equity in their home to enhance their current lifestyle or meet their needs;

2. Never make another mortgage payment;

3. Live in their home till they die; and

4. Not have to qualify on the basis of income or credit.

Of all the closings I do, it is when I close a reverse mortgage that I feel like I am truly performing a service.

Reply by WDMD on 6/26/08 4:58pm
Msg #253147

Re: I don't do RMs anymore for a number a reasons

I have done 2 reverse mortgages in the past year where the borrowers were in the process of being foreclosed on. The reverse mortgages saved their homes and provided much needed financial relief.

Reply by lindetteh_PA on 6/26/08 5:05pm
Msg #253151

Re: I don't do RMs anymore for a number a reasons

Most of the closings I do these days RM and I can't tell you how many people I've met who can't pay their heat bill or get their medicine or just make ends meet. I don't see why people think its that different from a forward mortgage after the person dies the heirs still have to refi and pay of the exsisting loan or sell the house and pay the loan at least this way the borrower can have a better quality of life. The only people who usually object at my closings are the children who are grown still living at home wondering what will happen to them

Reply by Linda_H/FL on 6/26/08 5:07pm
Msg #253153

Re: I don't do RMs anymore for a number a reasons

"The only people who usually object at my closings are the children who are grown still living at home wondering what will happen to them "

Gee...maybe they'll have to step up and support themselves, huh??...talk about a sense of entitlement!!

Reply by MW/VA on 6/26/08 5:51pm
Msg #253162

Re: I don't do RMs anymore for a number a reasons

Good post--I agree 100%. It also covers those situations where one dies & the other can't afford to live in the home, or someone gets sick & would need to worry about having to leave their home.

Reply by Linda_H/FL on 6/26/08 4:59pm
Msg #253149

I did one yesterday that the people took in order to save

their house - they got hooked into an ARM a few years ago and their payments started to adjust this year from $484 to $900 something, with another adjustment to $1,200 something in January, I think they said...he was 82...she's late 70's....Countrywide, who held the first mortgage on the property, worked with them and gave them the reverse, took a partial paydown on their current first mortgage and are going to do a modification of the old first, re-amortize the new principal balance over 29 years and subordinate it to the reverse and the HUD second...<<phew>>..all so these two really nice older people can keep their home. They were so relieved that this was worked out for them.

Reply by MW/VA on 6/26/08 5:56pm
Msg #253164

Re: I don't do RMs anymore for a number a reasons

The ones I'm doing are for BOA, and there is nothing sub-prime about it. They also aren't necessarily taking longer, but if they do, I'm not concerned with that. I would rather do these all day long than some of the "predatory lending" things that have been around (charging borrowers $15,000 plus closing costs). At least I know someone is really benefitting from it.

Reply by Therese on 6/26/08 6:04pm
Msg #253167

Re: I don't do RMs anymore for a number a reasons

The majority of my work right now is signing RM's. This can be the most rewarding work.
Especially when working with reputable lenders. RM work is no more work than signing a FHA program and once you have it down you can be done within an hour. Granted the BO doesn't have any aliments to be considered. BO's range from 62 and up and you can really never tell what time constraints you will have unless you have a relationship with the LO.

Reply by MikeC/NY on 6/26/08 6:34pm
Msg #253177

Re: I don't do RMs anymore for a number a reasons

Not all RMs are a good deal for the borrower - there are always going to be sleaze bags looking to take advantage of people - but I think most would fall into the beneficial category. Those that I've done were for people who really needed a lifeline because their expenses were quickly exceeding their income. I think that situation is only going to get worse this winter, when some people are going to have to make the choice between being warm and being fed....