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National Mortgage Professional
Dec 02, 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 [email protected]
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