2017—PS Financial Services, a leading Miami-based Company specialized in Reverse Mortgages Loans, recently had Owner and Principal, Phil Stevenson, a Certified Reverse Mortgage Professional (CRMP), participate as a guest panelist at a webinar held as part of the National Reverse Mortgage Lenders Association’s Reverse Mortgage Education Week. The webinar was also created in partnership with Next Avenue, a PBS news service that covers baby-boomer issues.
The goal of the panel was to inform how these types of loans work and to try to eradicate common misconceptions related to the industry. Stevenson and his fellow industry professional panelists answered a variety of questions collected by Next Avenue, disclosing the challenges that specialists face when attempting to pitch the products to consumers.
“Whenever a borrower or a client asks me if they can outlive a reverse mortgage and be forced to move, I tell them, ‘yes… when you turn 150 years old,’” Stevenson said, humorously, before adding, “reverse mortgage does have a date on the legal document and you need a date when this mortgage will end, and it’s the youngest borrowers 150 th birthday. We know no one is going to reach 150, at least not at this point in history, maybe in the future. So, you can live there for the rest of your life as long as you comply with the rules.”
During his portion of the panel discussion, Stevenson focused on explaining why it’s important to comply with Home Equity Conversion Mortgages (HECM) rules and provided specific examples of cases managed by PS Financial Services and how they have counseled several couples with their reverse mortgage. He also explained that, after August 2014, some rules changed for the non-borrowing spouse, ultimately providing them more protection.
Stevenson is one of only approximately 150 CRMPs nationwide and currently sits on the Ethics Committee of the NRMLA. He was also on the expert panel in 2016 assigned to rewrite the National Mortgage Licensing Test, which every person in the United States who wants to become a Licensed Mortgage Loan Originator must pass.
Reverse Mortgages have a less than stellar reputation; in fact, many Americans, retired or not, continue to see the reverse mortgage as a “loan of last resort” or a loan to take out when there are no other options left. In fact, many Americans think taking out a reverse mortgage either means you are poor or uneducated because there is no way a financially savvy senior would even take out a reverse mortgage.
The truth about reverse mortgage, however, is something else entirely. The first hurdle is making sure a borrower understands the reverse mortgage and, most importantly, realize that the reverse mortgage is a way to use the untapped equity in the home they’ve paid for throughout their working years.
A recent article, published by CNBC, highlights how and why the reverse mortgage became a loan of last resort:
“The criticism of reverse mortgages is less with the product itself than with the way that people use them. ‘Free money’ has a tendency to encourage bad behavior — one reason the Federal Housing Administration requires borrowers to undergo a counseling session before entering a reverse mortgage contract. In other words, don’t use a lump sum payment from one of these to buy the Mercedes-Benz you’ve always wanted.”
A reverse mortgage should be a long-term retirement planning tool, and not just for cash strapped seniors, but for affluent seniors who have planned and saved for retirement. As with any financial product though, a borrower should know and understand their financial obligations, which include paying any and all maintenance on the property as well as keeping up with their property taxes and homeowner’s insurance payments.
Most importantly, a reverse mortgage is a flexible alternative to more traditional forms of retirement planning such as social security or 401ks or stocks and, with more Americans living a lot longer than ever before, flexibility is key.
For example, if the stock market has taken a downturn, it may be time to pull funds from the reverse mortgage line of credit in order to sustain retirement expenses while the market stabilizes. Another example may be to set up monthly reverse mortgage payments to help supplement social security payments and cover retirement expenses.
These are just two of the ways reverse mortgages can adapt to a retiree’s situation, not just at 62, but also at 72 or 82. For example, a potential retiree may be saving at 62 for retirement but may need more cash flow at 72 as they adjust to their new needs and wants. At 82, fixed expenses may be set and monthly payments may be more attractive than they were at 72.
Point is, things change, and so do retirement needs and a reverse mortgage is a way to, not only sustain retirement but also ensure that it is secure and worthwhile.
Give us a call at (888) 845-6630 to speak to one of our brokers or email us at info@PSReverseMortgage.com. A reverse mortgage calculator is great to get started but it’s the personal touch that matters.
The reverse mortgage was a created to help retirees stay in their home without the need to keep up with monthly mortgage payments at a time when cash flow might not be optimal. In addition, borrowers who also owned their homes free and clear could tap into the home equity they accumulated throughout their working years and leverage it during retirement.
Something happened along the way that increasingly painted reverse mortgages in a negative light and, suddenly, a financial product that was created to help seniors became the “most misunderstood mortgage” there is. Even more confounding is the fact that many financial experts and academics find “no rational reason” why many older homeowners remain hesitant to tap into their home equity.
A recent article in Reverse Mortgage Daily interviewed Steven Sass, a research economist at Boston College’s Center for Retirement Research, about the familiar behavioral roadblocks many retirees have about the reverse mortgage and the financial industry in general.
At the top of the list is a fear of getting into debt late in life and the satisfaction that comes with owning a home free and clear. These are two things that are not inherently bad but can cause problems for future retirees.
For example, the article mentions the fact that Social Security may be non-existent in the future and newer generations are saving less and less so where do future seniors obtain cash flow for their retirement needs: the equity in their home. Equity is a funny thing, many people don’t think about it until they need it but it’s an important source of cash flow. More importantly, it’s an option to supplement income and diversify assets in an ever-changing environment.
In a perfect world, a homeowner takes out a reverse mortgage line of credit at 62 and lets it grow, untouched, as a “rainy day” fund for the future but, like equity, many homeowners don’t think about the reverse mortgage until it is necessary and, by then, it may be too late.
“If you have a sufficient income to cover your expenses, is there any great need to go out and secure this line of credit or get the money?” Sass asked rhetorically. “So I think people might need some impetus to use a reverse mortgage.”
New Financial Assessment Date Gives Industry Time to Breathe
When the first effective date for the financial assessment was first announced to be March 2015, there was a collective groan in the industry.
It was finally here, that which would determine the eligibility of a borrower based on income and credit, the one thing that set the reverse mortgage apart from all other loans, and the potential implications (good and bad) of this action have yet to determined.
This is why when HUD announced that there would be an extension to the financial assessment of possibly 30 to 60 days, the industry realized it had time to breath, gauge the situation and make sure everyone, from brokers to their computer systems, were correctly set up, trained and ready to go.
Officially, HUD has finally set the new effective date for the financial assessment: April 27, 2015.
Warning Signs That Your Parents Need Financial Help
Talking about your finances is never easy. Talking to your parents about their finances before or during their retirement can be just as difficult.
This is the situation many loved ones and caregivers may find themselves in at some point as their parents get older and they need their help managing their finances.
Most importantly, parents should feel their children are there to help, no matter what, and feel safe talking about their finances openly.
If children feel they would have a hard time talking to their parents about their retirement planning and the financial stability of their plans, here are a few warning signs to watch out for:
Ask Them About Their Health
Firstly, children should gauge their parent’s health for any signs that it may be deteriorating. If this is happening, it’s crucial to notice as soon as possible, in order to take the necessary steps to protect their parents should they fall ill in the future.
Look For Irregularities In Their Spending
Most people are used to checking their bank statements once a month when the statement comes in the mail, but when it comes to retirees, their adult children should become more involved and track spending more often than it’s customary.
Notice if bank statements reflect excessive statements or buying the same things over and over as this could signal more troubling health issues in the future. If looking at bank statements is too uncomfortable, look in their pantry. See if they have something (like rice or ketchup) that is piling up; it could be an early warning sign that something is amiss.
Talk To A Financial Planner
In addition, children should seek help, along with their parents, in determining if their parents have enough cash flow to sustain them long into their retirement. As people live longer than ever before, retirement planning should reflect the changes in the times, predicting longer survival than just a decade after retirement.
If children of retired parents notice retirement funds are dwindling fast or there is a strong possibility their family members may outlive their funds during the length of their retirement, they should seek out guidance from financial professionals as well.
In addition to medical illnesses, children also need to consider unexpected financial hardships such as freak accidents. It’s hard to think of a time when parents or family members may be ill because of one reason or another, but being prepared is part of the solution.
How Reverse Mortgages Can Help
Reverse mortgages can be part of the solution for long-term retirement planning as well, even when more traditional methods of retirement planning are in place. It can give retirees the necessary financial cushion for the unexpected expenses as well as paying off any remaining mortgage or HELOC debt so that those monthly payments can be put to use elsewhere such as a savings account.
Financial stability is always important but even more so during a time when retirees should be relaxing or volunteering or working because they love what they do or are beginning a third career, not because they need to pay their monthly bills or are struggling to do so.
This blog was written with the help of Dennis Coral, vice president and financial advisor, at SunTrust Bank Wealth Management.
Interested in a reverse mortgage or simply want more information? Give PS Financial Services a call at (888) 845-6630 or via email at info@PSReverseMortgage.
What to Do If You’re Denied a Reverse Mortgage
Occasionally, we get calls from borrowers who were in the process of obtaining a reverse mortgage and found out they were denied by their current lender.
When reverse mortgages were offered by big banks, such as Bank of America and Wells Fargo, borrowers would also find themselves denied for x,y,z reasons and unable to continue the process of getting a reverse mortgage.
Back then, it was usually because of conservative appraisal guidelines by those lenders, and we would take those clients and find a lender who WOULD get them approved and closed.
Historically, qualifying for a reverse mortgage has been easy because it was simply based on your age (62 and over) and having enough equity in your home, while credit and income, for the most part, was not a factor.
Thirty days after March 2, 2015 begins a new era in reverse mortgage qualification:
Future borrowers are now subject to a credit and income approval like no other in mortgage history. Regardless of the credit score being 800, they can still be denied or have money withheld in a “Lifetime Escrow Set Aside” or LESA. This denial can be possible if the property taxes are behind, or other reasons even if the credit record is clean.
For those who were denied a reverse mortgage, they should consider the benefits of working with a broker like PS Financial Services, especially with the financial assessment looming.
For one, a brokerage works with more than one lender, building relationships with each of them and getting to know what a lender would accept and what it would not. If a borrower is working with only one representative of a big name lender, they are at the mercy of that one lender’s rules and regulations.
At the same time, there are brokers who specialize in regular (forward) mortgages. They might have 1 or 2 reverse mortgage lenders just in case they find that 1 client per year. In that case, they will have far less knowledge on how to close a reverse mortgage with a borrower who has Financial Assessment issues or less than enough lenders with whom to shop the mortgage.
However, because a brokerage works with more than one lender, especially if they are specialized in the reverse mortgage, as soon as they know a borrower’s specific situation, they can ascertain which lender would be most comfortable with the borrower’s file and which would not. Not all lenders are created equal and not all have the same hurdles to overcome, so the more in-depth knowledge the broker has regarding the reverse mortgage AND the financial assessment the smoother the process will be.
Additionally, if a borrower’s file has a setback and the underwriting department of a big lender has already formed an opinion, a big lender only has one way to go. A broker, on the other hand, can work with additional lenders to find the right fit for the client. While not every person will qualify for a Reverse Mortgage Loan, working with a broker can make the process easier. In many cases setbacks are issues brokers have dealt with before, so they can quickly determine the best course of action moving forward.
In some cases, the borrower can share their preoccupation or setback with the broker beforehand, which can send the details to more than one lender and see how each responds according to their own rules and regulations.
The fluidity of a brokerage versus a big lender is something that borrowers should be privy too and use to their advantage. While a representative of big lender carries the reputation of the company they work for, it’s important to note that a brokerage works with the same lenders as well, except without as much constriction as a representative.
Most importantly, a representative of any big lender is usually working for the retail side, as opposed to brokers who only work for the wholesale side.
I’ve used this example before, but it illustrates the difference perfectly:
Simply put, a broker has more options than a representative of a big lender and a brokerage specialized in the reverse mortgage has enough knowledge and experience to know how to proceed with any file.
If you’re denied a reverse mortgage, contact PS Financial Services at (888) 845-6630 or info@PSReverseMortgage.com and start working with, not only a brokerage but a brokerage experienced in reverse mortgages.
How to Protect Your Spouse Even if They’re Under 62
There were many reasons why non-borrowing spouses were removed from title and were not included on the loan when their spouses first obtained a reverse mortgage.
Over the years, there have been many reasons as to why a borrower has removed their spouse from title: whether it be because they were underage at the time the reverse mortgage loan was originated or because they were considerably younger than their spouse, thus making the amount of funds received from the program lower than expected, the non-borrowing has always been a point of concern for many in the industry.
Sometimes, to fully pay off the existing mortgage on the subject property, a borrower had no choice but to leave their spouse off the loan or not be able to pay off their mortgage fully, if at all.
Thankfully, spouses, both over and under the age of 62, are now under the protection of the reverse mortgage loan since August 4, 2014.
**It’s important to remember that the non-borrowing spouse protection rules applies only to loans originated on or after August 4, 2014**
I Went to the Podiatrist for Brain Surgery…
If you needed brain surgery, would you go to the Doctor who happens to be a podiatrist just because you know someone who works there?
A Medical Doctor after all is a Medical Doctor and they can all help people with any ailment, right? ABSOLUTELY NOT!
Now that’s just silly and we all know that to not be the case. Yet people think a mortgage company is a mortgage company and can offer all kinds of mortgages, and this couldn’t be farther from the truth. This is the story about a client who experienced this contrast first hand, but first let’s learn about the differences between the types of mortgages.
Reverse Mortgages and Forward Mortgages (conventional, FHA, VA, etc. that all require payments) are, simply, polar opposites. When a Mortgage Loan Originator takes their 24 hour course to get licensed, the portion of the course and test that comprise the Reverse Mortgage is approximately 1%, simply addressing what a reverse mortgage is and not the details surrounding it.
Mortgage Brokers Can Ease the Strain of Getting a Home Loan
There was a time when reverse mortgages could be taken out at the local branch of the bank you’ve trusted with your money for years. However, after the boom and bust, more and more banks bowed out of originating reverse mortgages. And while many lenders have also closed their reverse mortgage departments, there have been many changes to the reverse mortgage loan as well as the landscape for homeowners.
Presently, according to an article published by The Guardian, a little over 60% of all home loans are taken out through a broker.
This information is not surprising, given the amount of changes to various mortgage loans, including reverse mortgages, have gone through the years. It’s no longer enough to fill out a form, hand it to an “order taker” and wait for the “yes,” “no,” or “we need more information.”
In the last year alone, the reverse mortgage industry has gone through at least four major changes. While these changes have made the loan safer for both borrowers and the FHA, it also requires extra education and preparation so that borrowers who are thinking about getting a reverse mortgage, have the most up-to-date information.
History of the REVERSE MORTGAGE
- The Reverse Mortgage (RM) first started in Great Britain.
- 1961: The first reverse mortgage in the U.S. was done by Nelson Haynes of Deering Savings and Loan for Nellie Young of Portland, Maine because she wanted to stay in her home despite the loss of her husband’s income. This reverse mortgage, however, was not insured.
- 1983: The first congressional hearing regarding reverse mortgages takes place. The Senate approves a proposal to insure reverse mortgages through the Federal Housing Administration.
- 1988: The program was re-introduced by President Ronald Reagan with FHA insurance.
- 1989: The first FHA-insured HECM loan was done for Marjorie Mason of Fairway, Kansas.