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December 2, 2002

Forward on Reverse: Attention HUD, Grandma Needs a HUGAtare E. Agbamu, CRMSReverse Mortgages, HUD, CAIVRS, HECM,
Grandma's telephone service was disconnected in September for
non-payment and arrears. She was two months behind in her $510
monthly mortgage payments, reaching as far back as June, and
smaller bills were already starting to mount. Needless to say, this
slight, 75-year-old Minneapolis grandmother was rapidly losing her
sense of hope.
When Grandma came to me for a reverse mortgage, it was apparent
that this innovative, equity-take-out loan, designed for seniors 62
and older, was her only option-the alternative being total
financial collapse. Her existing mortgage balance was $25,000, and
other consumer bills came to approximately $7,000. Her monthly
income was, and still is, $827 from three sources, leaving her only
$310 to get by, after making her monthly mortgage payment.
The prospect of using a reverse mortgage to solve the pressing
cash needs of an elderly lady energized me. After all, the initial
analysis looked good: There was sufficient equity under her
shingles to pay off all of her cash-munching debts and still leave
her with a tax-free reverse loan income of $230 a month. This would
bring her total income to $1,057, a 241-percent increase in monthly
spending power!
After completing the application interview, I turned the file
over to our resourceful processing staff. Within minutes, I
received a call from one of our senior processors, informing me
that Grandma had a bad CAIVRS number.
"What's a CAIVRS number?" I asked.
As explained, CAIVRS stands for Credit Alert Interactive Voice
Response System. It is a shared database of delinquent federal
debtors. If you are delinquent on debts to any federal agency, your
social security number will go into the CAIVRS database. Therefore,
whenever you attempt to obtain a federal loan or loan guarantee, no
matter how many years down the road, your social security number
will return with a negative brand. Say goodbye to any federal loan
or loan guarantee until you clear your debts with Uncle Sam.
Apparently, some 27 years ago, Grandma borrowed approximately
$1,000 in student loans and "forgot" to pay them back. Over time,
the relatively-low initial amount had gained interest and
penalties, and skyrocketed to nearly $7,000. Luckily, there was
enough equity in her home to pay off the defaulted student loan.
However, my processor still spent hours talking to the Department
of Education, their collection agency and our reverse mortgage
wholesaler to work things out, so Grandma could get the cash she
needed to be free of mortgage payments.
Our reverse mortgage wholesaler was ready to approve and fund
the loan, as long as they received assurance that the CAIVRS would
be cleared after funding, and Grandma's defaulted student loan
would be paid at closing. An official of the Department of
Education's outside collection agency gave a verbal assurance that
they will see to it that her CAIVRS was cleared after receiving
payment. I assumed that the end was near, and Grandma would soon be
liberated from her cash-destroying monthly payments. As it turned
out, I was too optimistic. A few days later, I received an e-mail
from a senior underwriter at our wholesaler who, citing the U.S.
Department of Housing and Urban Development's policy, told me that
she had no choice but to deny the loan. In a nutshell, HUD says
that, even after completely scrubbing CAIVRS from your social
security number, you must wait at least 36 months before being
eligible for any HUD-insured loan. The Home Equity Conversion
Mortgage (HECM), the leading reverse mortgage product, with 95
percent of the reverse loan market, is FHA-insured, and,
unfortunately, the FHA is a division of HUD.
Taken to its logical conclusion, this policy says Grandma must
not only come up with $7,000 to pay off her defaulted student loan,
but also wait until she is 78-years-old before even being
considered for an FHA-insured reverse mortgage, the only source she
has for that kind of money.
CAIVRS is designed to aid federal debt collection efforts, and
there is no question that HUD's policy is well-intentioned-those
who have defaulted on public debts should be forced to wait before
assuming further debt. However, for Grandma and other seniors in
similar situations, the real-world impact of HUD's policy is
punitive and counter-productive. There is no conceivable way for
Grandma to pay the Department of Education without a reverse
mortgage! Furthermore, if she does not get a reverse mortgage, she
will eventually lose her house and end up on the street!
Even a good, tough policy like HUD's should have a needy-case
exception for the extremely vulnerable. Grandma desperately needs a
hug from HUD this holiday season.
Atare E. Agbamu, CRMS, is a senior
mortgage consultant and director of training at Inver Grove
Heights, Minn.-based Peoples
Choice Mortgage. Headquartered in Erlanger, Ky., Peoples Choice
Mortgage is a member of the National
Reverse Mortgage Lenders Association. Atare's reverse mortgage
interview has been webcast on Mortgage Mag Live!, and
he currently serves on the Board of Little Brothers-Friends of the
Elderly in the Twin Cities. He can be reached by phone at (651)
389-1105 or e-mail