Posted by HisHughness on 12/29/05 6:35pm
Msg #85122

Reverse mortgages

I do many reverse mortgages, and am getting more calls for them every month. I have a couple of questions for someone who is knowledgeable about RMs.

Is it a HUD requirement that mortgage insurance be paid on such loans? Secondly, what is the justification for a monthly servicing fee if the borrower takes the proceeds of the loan in a lump sum?

Thanks in advance to anyone who is knowledgeable and is willing to address those two questions. I don't read the board very often, so if you are motivated to do so, please e-mail me your responses at [e-mail address] after you have posted them to the board.

And please, consign Missy what's her name to the unremarked oblivion which she so richly deserves (though I suspect the feminine pronoun is incorrect, because I think she is a guy who hasn't been laid in this calendar year, and is taking out his frustrations on you folk).

Reply by Elva_oh on 12/29/05 6:38pm
Msg #85125

I found a very good guide to reverse mortgages on the AARP site - I printed it for future reference - it may help

Reply by Becca_FL on 12/29/05 7:17pm
Msg #85134

Re: Reverse mortgages...Hugh

I also have a great Q&A guide that gives explanation for these questions. I'll send it your way.

Reply by HisHughness on 12/29/05 7:45pm
Msg #85146

Re: Reverse mortgages...Hugh

Becca, you're wonderful. When are you going to realize that life with an overweight, grumpy, aging lawyer would be so much more fun than hanging around with that hunk you're so attached to?

Reply by HisHughness on 12/29/05 7:52pm
Msg #85149

Re: Reverse mortgages...Hugh

I got the material, Becccccccca, but it doesn't answer the two questions: Why is a servicing fee necessary for a loan when the proceeds were paid in a lump sum, and is mortgage >>required<< by HUD? Some astute borrowers have asked me those questions, and I could not answer them. One was told by the lender, though, that the insurance was required by HUD.

Reply by Becca_FL on 12/29/05 7:59pm
Msg #85151

Re: Reverse mortgages...Hugh

The service fee is a FLAT fee billed monthly and covers maintaining the loan, MIP, etc..

From what I have read the MIP is NOT a requirement by anyone, but is accessed to protect the lenders intrest in the property.

Re-read what I sent. It may be vague, but it's in there.

Maybe PAW (Super HECM Notary) will shed some light for us. I've only done three HECMs but have studied AARP, Wells Fargo & Indy Macs programs.

Reply by PAW_Fl on 12/29/05 8:43pm
Msg #85169

Re: Reverse mortgages...Hugh

HUD **requires** that the FHA-insured loan (in whatever form) be insured for the life of that loan. Even with a one-time, lump sum distribution, the loan remains in existance with an increasing principle. However, when the loan is terminated, a refund may be possible. The FHA Commissioner determines how much of the up-front premium is refunded when loans are terminated. Refunds are based on the number of months the loan is insured. For any FHA-insured loans with a closing date prior to January 1, 2001, and endorsed before December 8, 2004, no refund is due the homeowner after the end of the seventh year of insurance. For any FHA-insured loans closed on or after January 1, 2001 and endorsed before December 8, 2004, no refund is due the homeowner after the fifth year of insurance. For FHA-insured loans endorsed on or after December 8, 2004, no refund is due the homeowner unless they refinanced to a new FHA-insured loan, and no refund is due these homeowners after the third year of insurance. Mortgagee Letter 2005-03 provides additional information on the recent policy changes regarding refunds of up-front mortgage insurance premiums.

Reply by Becca_FL on 12/29/05 9:20pm
Msg #85181

Re: Reverse mortgages...PAW

Can you explain to me why my IndyMac workbook states "if required" when discusing MIP?

Reply by PAW_Fl on 12/29/05 9:23pm
Msg #85182

Re: Reverse mortgages...PAW

Not all mortgage "require" MIP, though I have never seen one that did have it. As far as I know, and I may be wrong, all HECM's do require MIP, but other FHA/VA insured loans may not.

Hopefully, when I go through the intensive RM training program next year, I'll be able to answer those questions.

Reply by PAW_Fl on 12/29/05 9:37pm
Msg #85186

Let's try that again .... (Ignore the previous post)

Not all mortgages "require" MIP, though I have never seen one that didn't have it. As far as I know, and I may be wrong, all HECM's do require MIP, but other FHA/VA insured loans may not.

Hopefully, when I go through the intensive RM training program next year, I'll be able to answer those questions.

Reply by Becca_FL on 12/29/05 9:48pm
Msg #85189

Re: Let's try that again .... Paul

Thanks for the info. I'll email my trainer tomorrow for clarification. Untill now, I've had no real questions for her. I've had so many of my questions answered here by the Pros. (notice, I did not say Old Pros)

Reply by PAW_Fl on 12/29/05 9:51pm
Msg #85190

LOL!!

I'm glad to see someone has respect for their elders.

Reply by HisHughness on 12/29/05 9:36pm
Msg #85185

Re: Reverse mortgages...Hugh

Thanks, PAW. That helps a lot. I was convinced that a lender had been BSing a borrower when he told her the insurance was required.

Reply by BrendaTx on 12/29/05 10:35pm
Msg #85201

Re: Reverse mortgages...Hugh


MIP in HECMs
The purpose of reverse mortgage MIP is to give the longest possible time for the bwr to remain in the house. It protects the lender from the risk of the balance of the loan becoming higher than the value of the home. Even if this happens, the borrower will not be responsible for the repayment of a loan balance higher than the home's value. That's what the insurance is for. If it were not there the bwr (bwr's estate) might become the one footing the bill for the difference. If the bwr were still in the house when that happened the house it would leave the bwr without a home.


SERVICING FEES / REV MORTS

The short answer: Lenders charge these fees because they are permitted to. They are not mandatory but since they are allowed, they are charged to cover the post-funding maintenance of the loan.

The long answer: Amazingly enough, the rev mort service fees are either paying for the loan servicing (in house) or outsourced loan servicing (as I understand it).

Supposedly, in the case of a reverse mortgage, a loan servicer must stand ready to provide such services as

--scheduled and unscheduled payments to borrower
-- accept prepayments from borrowers
-- make mortgage insurance premium payments to HUD
-- keep accurate records of mortgage balances
-- send out regular statements of mortgage activity to borrowers
-- pay property taxes and insurance if requested by borrowers
-- ensure that borrowers are in compliance with the loan agreement (including the verification of continued occupancy of the property)
-- process borrower requests for payment plan changes.

So...why is this charged on reverse mortgages when it is not charged on forward
mortgages?

It *is* charged on forward mortgages, but you do not hear about it because it is built into the interest rate and/or the buy-down points.

In a regular mortgage, interest payments to the lender is painfully high in comparison to the principle payment. This is true for most of the usual loan's lifetime and often up to the time the loan is paid back (due to sale of the home) or refinanced.

On the other hand, reverse mortgage balances are smallest in the early loan years and grow
larger. Loan servicing fees charged in the rev mort's interest rate would be pretty small in the beginning and larger in the later years...if the later years come to fruition.

Most of the time, as I understand it, the rev mort is based on a bwr reaching age 100.

Since the odds are that such a ripe old age will not commonly occur, to even out the amount of the servicing fee, most reverse mortgage lenders charge a flat monthly servicing fee.

Somewhere in the docs you see a total of what the servicing fees will be. Seldom do they reach that amount though it is "set aside" as a safety net in case the bwr does reach the age of 100 years. In other words, the amount set aside is overstated.

HECM rules permit lenders to include the cost of loan servicing within their interest rates.

And, I have learned in the future, as more stats become available on HECMs, we may see competitive "no servicing fee" loans. I suppose this means the fees will be hidden in the interest rates.

The amount of the rev mort servicing fee is usually $30 or $35. The reason:

HECMs with ANNUALLY adjusting interest cannot exceed $30 in service fees/month.
HECMs with MONTHLY adjusting interest to amount must not be more than $35 in service fees/month.

Care and maintenance of (Servicing) loans comes with a price. When I serviced loans for a small S&L it was 1/2 of my full-time job. The other 1/2 was processing loans. My point is the lender sees keeping watch over the condition of the loan to be a task that should be paid for by the bwr. The lender may do it in house or they may do it by sending the loans out for servicing.

And, finally, Missy Anderson, let me add this to reasons to exploit my need for attention.

In the dark ages while HisRoyalHughness hunted buffalo on the plains I typed loan applications on an IBM Selectric typewriter. Half of the duties of my post was to service loans for the late great Burnet County Savings and Loan Assn. Here is what I did as a loan servicer in a small time S&L...

--I had to pay all the insurance and property taxes on the properties as they became due. Some hazard insurance policies were paid monthly or quarterly. Some were every six months. I do not know who set those schedules up.

--One "really difficult" job (which seems to elude many loan servicers to do it accurately) was to add up the property tax and insurance due each year and divide by 12 to get the amount of escrow payment which should be paid each month.

--Another "hard part" of the loan servicers job was to determine how much the shortages were and send letters out to the bwrs to let them know if they owed money to escrow in the upcoming year so that their insurance and taxes could be paid.

--Some bwrs rented out property and I accepted payments from renters to apply to the mortgages.

--If we sold a loan I got it into compliance for the buyer if it was not already packaged properly. (I.e., gather up missing documents or missing information.)

--I posted payments (Yep...part of servicing the loan.).

--I took in the hate letters from the taxing authorities when the bwrs did not pay and wrote hate letters to the bwrs to tell them they needed to pay their taxes. (This in the case of non-escrow loans.)

We can all relate to the above, but because I was also pinned down on these servicing fees with questions from concerned bwrs I started looking for answers on this query from Hugh. This diatribe is what my research revealed.

DISCLAIMER: This could be a big pack of lies. I may have made all of this information up in an attempt to "waist" Missy Anderson's time and to gain another top mention in its posts. By the way, my sources tell me that Missy may really be a Mary...or it may be someone who went into semi-hysteria with me over a remark I made about estates of the elderly once upon a time. In either case, Missy, if you got to this point...well...you know it means you love to "waist" your time reading what I write. Care to comment??

Reply by BrendaTx on 12/29/05 10:55pm
Msg #85209

Re: Rev Mort Gibberish correction

I said...
MIP in HECMs
The purpose of reverse mortgage MIP is to give the longest possible time for the bwr to remain in the house. It protects the lender from the risk of the balance of the loan becoming higher than the value of the home. Even if this happens, the borrower will not be responsible for the repayment of a loan balance higher than the home's value. That's what the insurance is for. If it were not there the bwr (bwr's estate) might become the one footing the bill for the difference.

GIBBERISH: If the bwr were still in the house when that happened the house it would leave the bwr without a home.

SHOULD BE MORE LIKE:
The bwr can stay in the house even if the bwr lives long enough so that the loan balance exceeds the value of the home.

Reply by PAW_Fl on 12/30/05 8:17am
Msg #85252

Not Gibberish

Brenda ... What an excellent dissertation on the purpose of the MIP and Monthly Service Charge. This should be written in the HUD text for everyone to read. It certainly is a keeper and is being put in my HECM binder.

You have such a way with words.

Reply by BrendaTx on 12/30/05 9:31am
Msg #85267

Re: Not Gibberish - thank you...a little OT

I am going to have lunch w/ a Rev Mort LO in January. *She* asked me to lunch so it will not be like I am crossing any lines...this is the second invitation she's given me and I feel pretty nervous about it for some ridiculous reason. I literally avoided the first one until I could get settled down and start my real rev mort research.

Very nice lady. Easy to talk to.

Hmmmm...I do not want to sound informed so I think I will memorize all of Hud's website on HECMs beforehand...but, oh no...what if I become a worse and more pretentious bore who will not let her get a word in edgewise -- what if it comes across that I think I am the smartest woman in the world about everything? What if I forget to brush my teeth? What if I forget to turn on the light and get dressed in the dark? I might wear a navy shoe and a black one!

That should seal off my chances of a signing agent future here... the friends I have on the Tx network will jump off the site and run away. I just know I will get that bird flu as soon as it hits Texas and I'll die cold and alone. This could be a real disaster!

-----
I have to laugh or I'd cry...my dad just left after a visit. He and my stepmother are not what you would call rays of sunshine. I mentioned a tiny spot on my thumb which is a little numb from all the typing I do and they immediately concluded I had had a small stroke and needed medical attention. How do you spell "hypochondriacs?" LOL

Reply by HisHughness on 12/29/05 11:11pm
Msg #85211

Re OT & RevMorts

For all of you who helped with my confusion over revmorts, for those of you who did not help at all, and for those of you who left me still perplexed, I offer the following. It is definitely off topic, but it is also hilarious.

Practice Safe Fax:

Q. Do I have to be married to have safe fax?
A. Although married people fax often, there are many single people who fax complete strangers every day.

Q. How do I go about faxing a complete stranger?
A. Just ask them if they want to fax. If they do, they will give you their phone number.

Q. My parents say they never had fax when they were young, and were only allowed to write memo's to each other until they were 21. How old do you think someone should be before they can fax?
A. Faxing can be performed at any age once you learn the correct procedure.

Q. If I fax something to myself will I go blind?
A. Certainly not. As far as we can see.

Q. There is a place on our street where you can go and pay to fax. Is this legal?
A. Yes, many people have no other outlet for their fax drives and must pay a "professional" when their needs become too great.

Q. Should a cover always be used for faxing?
A. Unless you are really sure of the one you are faxing, a cover should always be used.

Q. What happens if I do the procedure incorrectly and fax prematurely?
A. Don't panic. Many people fax prematurely when they haven't faxed in a long time. Just start over, most people won't mind if you try again.

Q. I have a personal and a business fax. Can transmissions become mixed up?
A. Being bi-faxual can be confusing, but so long as you use a cover with each one you won't transmit anything you're not supposed to.

Q. Is getting faxed by one person the same as with another?
A. No. Even though many people (especially lawyers) would like you to believe that the longer they are faxing you the better you will like it. In reality the best fax is short, of high quality, and very graphic.

Q. There is a man I'd very much like to fax (I've tried several times) but he can't seem to keep his equipment up long enough. Is there any thing I can do to help him?
A. You could suggest that he contact a good fax therapist, such as Canon or Mitsubishi. If he refuses to take the suggestion, it would be best if you just wrote him off.