Reverse Mortgages MN | Reverse Mortgages SIDAC | What's New with Reverse Mortgages

October 2010 brought the introduction of the Saver, which has all the same features of the original HECM (now called the HECM Standard), however the upfront FHA Mortgage Insurance Premium is 0.01% compared to 2.00% which helps reduce the upfront closing costs. But it also reduces the Principal Limit available to borrowers.

The HECM Saver could be beneficial to those who don’t want to pay as much in the upfront closing costs but also don’t want to use as much equity from their home. It can be ideal if one plans on moving in a shorter period of time or has a higher home value and wants to preserve more of the equity.

One must always look at their situation to determine which program will work best for their circumstances. A consideration while reviewing the options between a HECM Saver and the HECM Standard (the original program), is whether in a few years one will have used all the proceeds from the HECM Saver and will need more funds. While one can refinance a reverse mortgage when refinancing a mortgage one pays the closing costs again (just as is done with a conventional mortgage) and the first mortgage must be paid off.

Consequently while saving on the upfront MIP with the HECM Saver, if more funds are needed at a future date, it could be more costly when refinancing by paying the closing costs a second time.

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Protecting Seniors, Governor Pawlenty Vetoed Minnesota Reverse Mortgage Bill

On May 21, 2009 Minnesota Governor Pawlenty vetoed the reverse mortgage bill with a letter stating, "The intention of this bill is to protect borrowers from predatory lending practices, and I share that goal. However, this legislation may trigger unintended consequences and increase costs to consumers."

The bill would have done just the opposite of protecting seniors, leaving a lot of subjectivity and risks that would have hurt seniors, lenders and professionals who help them. "As an industry, we are relieved Governor Pawlenty vetoed the bill. We were afraid that reverse mortgages may not have been available to Minnesota seniors," states Beth Paterson, Executive Vice President of Prestige Mortgage, Reverse Mortgages SIDAC who testified against bill through the legislative process.

'At a minimum if lenders didn’t pull from the state, reverse mortgages would have been more costly to seniors, limited their options and choices as well as taken away their rights to make their own decisions," Paterson continues. Additionally it would have negatively impacted seniors and the financial planners and attorneys helping them plan their estates and retirement.

A reverse mortgage is a loan with special terms for senior homeowners 62 and older allowing them to use the equity in their home and receive cash while continuing to own and live in it. There are no income or credit qualifications and monthly payments are not required during the life of the loan. Historically the interest rate is lower than a conventional loan. The loan is not due and payable until the home is no longer the primary residence of the borrowers. And as a non-recourse loan when the loan is due and payable there is no personal liability to the borrowers or their estate.

Paterson, who has specialized in reverse mortgages for 10 years says, "I have helped hundreds of seniors maintain their security, independence, dignity and control. From saving their home from foreclosure, having funds for home repairs, medical expenses, and home care to giving them the extra cash during these tough economic times when their retirement portfolios shrank." The reverse mortgage has allowed her clients to retire, take their dream vacation, and travel to family weddings. As one client stated, "A reverse mortgage has brought me bountiful solutions to resolving financial issues. Its benefits enabled me to achieve the means to better enjoy living in my own home."

Paterson plans on educating senior advocacy groups on reverse mortgages and then with their support developing legislation that will offer the protections sought yet not hurt seniors and the reverse mortgage industry.

To Protect Minnesota Seniors Governor Pawlenty
Needs to Veto the Reverse Mortgage Legislation -
A Letter to the Governor

The reverse mortgage legislation that was passed by the House and Senate will negatively impact seniors and the reverse mortgage industry so we are requesting Governor Pawlenty veto the bill. Following is the letter we sent to him:

Governor Pawlenty,

I am writing again requesting a veto of SF489/HF528. This is a terrible bill because it is not well thought out and is obvious that those who worked on it and voted in favor of it don't understand reverse mortgages and the implications it will have on seniors and the lender's businesses if put into affect:

May be more costly to seniors
Will limit options and choices to seniors
Will take away rights for seniors to make their own decisions
Will hurt lenders/businesses
May force lenders to choose not to continue offering reverse mortgages in MN
Will impact financial planners helping seniors plan their estates and retirement

Overall the bill leaves a lot of subjectivity and risks that will hurt seniors and lenders! Please veto this bill and allow us to come back with a new bill that provides protections to seniors yet is also favorable to seniors and lenders.

Forty-five House Representatives voted to send the bill back to the Conference Committee. Obviously they have concerns about how it will impact our seniors and the reverse mortgage industry. Unfortunately it was passed.
California changed their bill during the process and dropped the longer rescission leaving it to match the Federal 3-day rescission and eliminated the suitability for lenders.
Minnesota will be the only state in the nation to implement a 10-day rescission, suitability clause putting lenders at risk, the cross-selling verbiage limiting the purchase of insurance products for 18-months and having a civil penalty for lenders based on what an independent third-party counselor may or may not do. This is outrageous!!! Minnesota won’t be protecting seniors, they will be hurting them!!!
A representative from a senior advocacy group told me they want to get better educated on reverse mortgages and come back with a new bill with protections but not hurting seniors or lenders. Your veto would support their concerns that this bill may hurt seniors and give them the opportunity to be better educated on reverse mortgages.

This bill is throwing the baby out with the bath water! If this legislation goes into affect, as seniors, professionals working with seniors, and the general public become more educated on the reverse mortgage product and how the legislation is affecting their options and choices many may rebel and look negatively upon you and the legislators who implemented it. Overzealous legislators are just as bad as overzealous lenders! Show your support of seniors and businesses by vetoing it.

I have now read the final text. After talking with other lenders and others in the industry both in Minnesota and across the nation, I want to again share are our concerns:

The 10-day rescission may end up costing seniors more because lenders will have to price to reflect the longer time frame. Lenders negotiate with investors (currently Fannie Mae) and the shorter the period of the rate lock the lower the costs, the longer the period the more expensive it is to lenders which has to be passed on to borrowers. This will negatively impact seniors!

When a senior is in foreclosure and up against a deadline to pay off the bank, the longer rescission may mean the loss of their home. This certainly isn't helping seniors − it's hurting them!

The new Home Purchase program won't be available (wasn't defined that the rescission only applies to refinances and not purchases). Not fair to seniors that want to use a reverse mortgage as financing with a simultaneous close (saving costs) to downsize or purchase a home more fitting for their needs. Limiting seniors' options and can hurt them!

Suitability hurts lender's businesses with the subjectivity! I, as a lender, am not a financial planner or attorney with the training to review or make the decisions on whether a reverse mortgage is suitable for a borrower. While I do discuss options and explain potential risks with my borrowers, the verbiage in this legislation is asking lenders to make decisions that are risky for them to make and putting lenders at risk of law suits. This too may hurt seniors because lenders may decide not to offer reverse mortgages in MN or if they do offer them, costs of doing business will increase in order to protect ourselves with insurances against law suits.
This cross-selling verbiage puts seniors estates at peril!! The 18-month restriction of purchasing insurance products impacts financial planners and elder law attorneys who are helping seniors plan their estates. There are times that purchasing an insurance product right after closing would be appropriate and necessary. While I believe an originator/lender should not be the same as an insurance agent, the verbiage in this legislation is putting us as originators at risk, i.e. "know or should know" - what does this mean? How am I to determine this?

How should I know or control what a senior does with their funds. How could this be tracked? Since I don't sell insurance products how can I control what a borrower or their financial planner or attorney thinks is best for their situation. Why are the two industries being mixed? This hurts seniors and the lenders as well as affects financial planners and elder law attorneys.

Don't take away their rights of seniors to make their own decisions. They are not 2 year-olds, respect them to make their own decisions. If they can't make their own financial decisions then they need a guardian. Don't punish those who are capable of making their own decisions and have needs for the reverse mortgage funds.

The counseling section is also an issue. The verbiage that the lender can be charged a civil penalty and $1,000 if the counseling subdivision is not followed puts the lender at a risk where they have no control over the situation. This subdivision outlines what counselors should do including holding the counseling session for a minimum of 60 minutes. I cannot control what a counselor does, why should I as a lender be charged with a penalty for something someone else does?

Please respect seniors and veto the bill. Allow us who are advocates and know the reverse mortgage business to educate and come back with a more favorable bill in protecting seniors but not hurting them or the reverse mortgage industry. Your signing this bill may also hurt you in the long run!

If you wish to discuss I can be reached at 651-762-9648.

Thank you,
Beth Paterson
Executive Vice President
Reverse Mortgages SIDAC

Minnesota Legislation supported by Minnesota Attorney General will negatively impact Minnesota Seniors

Prestige Mortgage, LLC, Reverse Mortgages SIDAC commends the Minnesota Attorney General, Lori Swanson, and legislators for wanting to and being proactive in protecting our Minnesota seniors. Additionally we are in agreement with the reasons expressed for the purpose of the bill and we too would like to have protections implemented to protect our seniors. Unfortunately the bills in their current form will negatively impact seniors and the reverse mortgage industry in Minnesota - doing just the opposite of the intention of this legislation.

During a time when we are trying to help homeowners stay in their home, receive help with their mortgages, and/or avoid foreclosure it would be a dis-service to seniors to pass this bill in its current form.

While every section of the Senate and House bills will have a negative impact, the most egregious sections are:

The 10-day rescission: If the rescission is NOT left to be consistent with the Federal 3-day rescission the reverse mortgage may cost borrowers more over the life of the loan and in some cases will impact whether a borrower will qualify by the time of closing/funding. Being this is so different than the standard of the industry some lenders may decide they cannot change their systems and not offer reverse mortgages in Minnesota - this will limit choices for seniors.
Suitability: The suitability section as worded is setting up a huge risk lenders are not willing to take which could mean they decide not to offer reverse mortgages in Minnesota.
Cross-selling: While we agree that an originator/lender and insurance agent should not be the same person, the verbiage of the bill "know or think they know" will cause people to lie or not disclose information.
Counseling: With the state counseling requirements different than the federal protocol of HUD's counselors, the state will have responsibility, both overseeing and financial, to see that the counseling requirements are kept up to date. The HUD counseling protocol has evolved over 20 years and HUD continues to update their requirements. If all reverse mortgages borrowers are required to have counseling as required by HUD following HUD's protocol, HUD bears the financial responsibility.

Beth Paterson, Executive Vice President, of Prestige Mortgages, LLC/Reverse Mortgages SIDAC, has testified at all the hearings and provided proposed amendments that provide the protections the Attorney General and legislators are looking for but doesn't negatively impact the seniors or restrict the originators and lenders. We had a meeting as well as some discussions prior to or after the hearings with the Attorney General's staff including the Assistant Attorney General, Carla Heyl, and gave her some good arguments for our position on the bill.

The bill was been passed on the Senate Floor April 6th with a few changes from the original bill including: removed the lender responsibility section (lender responsible for the originators); lender default, forfeiture section now excludes federally insured loans; removed the "funds received must be paid back" verbiage and replaced it with "The effects of a rescission shall be the same as provided in Regulation Z, title 12, Code of Federal Regulations, section 226.23." But the 10-day rescission and suitability are still in the bill. Additionally the cross-selling as "no producer shall sell or encourage the purchase of an annuity, life insurance or long term care insurance product where the producer knows or should know that the purchase will be made using proceeds from a reverse mortgage" remains in the bill.

The House bill still has the Lender responsible for the actions of the originator section. We hope that it will be removed from the House also
otherwise it could eliminate correspondents and only retail lenders will survive.
The bill passed through all of the House Committees and has gone from the
House Floor to be compared to the Senate bill through a Conference
Committee. From here it will go back to the House and Senate Floors for
full votes. If passed it will then go to the Governor for his signature or veto.

Minnesota Seniors are at risk of losing the
Reverse Mortgage Option

February 20, 2009, St. Paul, Minnesota ─ If the proposed bill S.F. 489/H.F. 528 regarding reverse mortgages is passed reverse mortgages that have benefited thousands of our seniors will no longer be available in Minnesota. The concern of the Minnesota Attorney General and legislators to protect seniors will do more harm than good if this bill is passed. Click here to view a pdf file of the detailed issues of the proposed bill.

FHA’s U.S. Department of Housing and Urban Development (HUD) has requirements and regulations already in place to address the issues of the proposed bill S.F. 489/ H.F. No. 528. State legislators should not be changing parameters or implementing laws of a Federal program without consulting HUD, Fannie Mae, lenders, investors, and servicers of reverse mortgages. With the restrictions in this proposed bill HUD, Fannie Mae, lenders, investors, and servicers of reverse mortgages will walk away from Minnesota leaving seniors without the option to access the one program that can provide cash during their retirement.

The proposed bill is irresponsible and poorly researched! says Beth Paterson, Executive Vice President of Prestige Mortgage, LLC, Reverse Mortgages SIDAC. Lenders will not lend based on the restrictions in this bill! In their goal to protect seniors and keep the scam artists out of the reverse mortgage industry they will destroy the industry so even those of us who are honest and ethical and senior advocates will no longer be able to offer reverse mortgages and help our seniors, adds Paterson who has specialized in reverse mortgages for 10 years.

A reverse mortgage is a mortgage with special terms to help seniors. There are no income or credit qualifications and the loan doesn’t have to be paid back until the home is no longer their primary residence. Real Estate Settlement Procedures Act (RESPA) regulations are applied to all reverse mortgages and the Home Equity Conversion Mortgage (HECM), backed and insured by the U.S. Department of Housing and Urban Development (HUD), has additional regulations. Even the proprietary reverse mortgages, when available, followed many of HUD’s guidelines and regulations.

Research has shown that staying in the home saves over one going into a nursing home and is better for seniors. The reverse mortgage helps seniors stay in their home, therefore saving government dollars. Just talk to other state officials who are trying to utilize reverse mortgages to save state dollars or help seniors purchase long term care insurance.

Paterson states, "A reverse mortgage is often the only option seniors have to stay in their home; retire or don’t feel like they have to work; avoid foreclosure; pay for medical expenses and home care; or even have money for themselves after their social security runs out at the end of the month. If they’ve had a forward or conventional mortgage but are scrimping on their needs, paying off a traditional loan with a reverse mortgage will improve their cash flow. She adds, Options that may have once been available for seniors, such as qualifying for a forward loan or relying on investment income, are no longer possible. Reverse mortgages are usually a lifeline for seniors and gives them security, independence, dignity and control as well as choices for their retirement."

Federal law already protects borrowers for all refinances including reverse mortgages offering a 3-day rescission period. The 30 day rescission included in the proposed bill is impractical as well as impossible.

At the time of application or within 3 days of the application, reverse mortgage lenders are required to provide borrowers with calculations including a comparison of at least 2 options, Amortization Schedule, Total Annual Loan Cost, Good Faith Estimate, Important Terms as well as sample closing documents. Additionally, Fannie Mae’s "Considering a Reverse Mortgage?" is required to be left with borrowers.

Since it typically takes 20 to 30 days or more to process and complete a reverse mortgage, borrowers have time to review the terms of the loan as well as the costs and payoff provisions. During this time as well as 3 days after signing the closing documents, borrowers have the right to cancel or stop the loan from proceeding.

Educating borrowers about the details of a reverse mortgage is a concern. However, independent counseling is absolutely mandated with no exceptions for anyone doing a reverse mortgage. HUD’s counseling guidelines and regulations have evolved over time and the counselors are required to follow a protocol approved by HUD during the counseling sessions. While there are no proprietary (private) reverse mortgages at this time, when there were counseling was required by HUD trained counselors for these products also.

Another concern is cross-selling insurance and other financial products with a reverse mortgage. While a valid concern, last year federal regulations regarding cross-selling were implemented and outlined in HUD’s Mortgage Letter 2008-24. This too already protects seniors. Click here to read as a pdf.

A reverse mortgage isn’t the problem! Don’t throw the baby out with the bathwater. If a senior is selling they have costs associated with sale and receive funds in a lump sum. No one is controlling how they use the remaining equity from the sale of the home. If the senior (or anyone) does a forward/conventional loan the funds are received in a lump sum. They can do whatever they want with this equity. And they have to make payments which can become difficult for them if “life happens.” If a senior wins the lottery they have money in a lump sum which can be spent however they wish. With credit cards seniors (or anyone) are not restricted on how they are used. They can charge for whatever they want. And they then have created debt that has to be paid back. Counseling is not required with any of these options. So why destroy the one program that already has protections in place?

Overzealous legislation can be just as destructive as overzealous mortgage lenders.

Paterson suggests considering other solutions. For example: Have a separate testing and license requirement for all reverse mortgage originators which includes employees of banks, credit unionts, as well as mortgage brokers. Make it easy for people to access the list of the originators and confirm who holds this license. Educate borrowers on how to make better decisions. And instead of going after the industry as a whole, go after those who violate the laws and regulations already in place. Fine those who violate the laws and regulations. Forbid those who violate the laws/regulations from practicing in reverse mortgages.###

New Stimulus Package Includes Higher Lending Limit for Reverse Mortgages

The Stimulus Package signed in February 2009 includes a Lending Limit of $625,500, up from $417,000. With HUD's release of their Mortgagee Letter on February 24th, effective immediately any loans closed will use the new higher limit. This means that if your home is valued more than the lending limit, the lending limit ($625,500 now) will be used to determine how much will be loaned to you. The Principal Limit, or loan amount, is never 100% of the home value or lending limit. The loan amount is a percentage based on the age of the youngest borrower and the Expected Interest rate. The $625,500 Lending Limit is temporary, good only through 2009. If you have a home with a higher value, contact us for more details.###

New Housing Legislation Benefits Seniors
Has Gone Into Effect!

The new housing legislation signed into law on July 30,2008 will benefit senior homeowners with improved aspects for reverse mortgages. The legislation for Home Equity Conversion Mortgage (HECM) reverse mortgages includes:

Higher single national lending limits of at least $417,000. The home value or lending limit, whichever is less, is used to determine how much will be loaned. For example, if one has a home valued at $500,000, the most we are able to use is the current lending limit of $276,683. With the new legislation it will be $417,000, providing more funds to borrowers. Higher single national limits for reverse mortgages went into effect November 6, 2008. We are now taking applications and closing loans under the new lending limit.
Change in allowable origination fee. The origination fee is paid to the originating lender to cover the company’s overhead (these include electricity, computers, rent, health insurance, marketing, etc.), administration costs, loan officer’s and staff salaries, processing and underwriting fees. Currently HUD’s guidelines are 2% of the home value or lending limit with a minimum of $2,000. The new legislation will have the origination fee as 2% on the initial $200,000 and 1% on the balance thereafter with a cap of $6,000. The minimum is expected to be $2,500. Went into effect November 6, 2008. We started using these calculations for the homes valued over $200,000 in October. The new minimum is $2,500 effective November 6, 2008. The FHA Mortgage Insurance Premium remains at 2% of the home value or new lending limit.

Home Purchases. When purchasing a new home, for example, downsizing, borrowers will have the ability to use a HECM for financing their purchase.Co-ops will be a qualified property for a HECM. Home Purchases will go into effect with FHA Case Numbers ordered after January 1, 2008. Co-ops won't happen until some time in the future.
Prohibitions on requiring the purchasing of financial products and restrictions on cross-selling financial products with a reverse mortgage. In effect now.
Requirements on counseling protocols, funding, and practices. To be determined.

Before these become effective, HUD needs to issue their Mortgagee Letters which outlines their guidelines for these changes. See effective or targeted effective dates noted above.

So while the law is passed, they are not all in effect yet. Check back often to learn when the other legislation is implemented.

For previous information posted under "What's New" visit the "What's New Archive."

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