Forward on reverse: Reaching out to my reverse readersAtare E. Agbamu, CRMSreverse mortgage, questions, answers, qualifications
James Thurber, humorist for The New Yorker, was right
when he wrote, "It is better to know some of the questions than all
of the answers." Readers from around the country have been sending
me reverse mortgage questions since the inception of this column in
the February edition of The Mortgage Press. Therefore, I
have decided to use this column to answer some of the more
pertinent reverse mortgage questions.
Question: How does someone qualify for a
reverse mortgage?
Answer: Borrowers must be 62 or older and own
their own home as a principal residence. Additionally, the house
must have substantial equity, and the borrowers must receive
reverse mortgage information from a HUD-approved counseling
agency.
Question: Should available credit be a
concern?
Answer: Credit is not a relevant qualifying
factor in a reverse mortgage transaction, though reverse lenders
generally pull credit for varying reasons. Also, income is not
required.
Question: In a reverse mortgage transaction,
what happens to the underlying mortgages?
Answer: Underlying mortgages must be paid off or,
in some cases, subordinated, because a reverse mortgage must be in
a first lien position.
Question: Are the interest rates and closing
costs the same as conventional loans?
Answer: Yes. The interest rate is usually based
on a monthly or yearly adjustable rate mortgage (ARM). In addition
to conventional closing costs, there is an up-front mortgage
insurance premium of two percent and a monthly insurance premium of
0.5 percent of the monthly balance. There will also likely be a
service fee for both the monthly and annual ARMs, applied
respectively.
Question: What happens if the borrower outlives
the term of the loan?
Answer: Reverse mortgages are designed to address
longevity risks. If the reverse product is either an FHA-insured
Home Equity Conversion Mortgage (HECM) or Fannie Mae's HomeKeeper,
and the payment plan is a tenurelasting as long as the borrower
resides in their homepayment from lender to borrower will continue
uninterruptedly, even if the borrower lives as long as te biblical
Methuselah (approximately 970 years)!
Question: What happens to the property when the
borrower dies?
Answer: When a borrower dies before the loan is
payed, the property is still owned by the deceased's estate or
heirs, and they are required to pay off the reverse mortgage
balance. To do this, they have three options: They can use other
funds from the deceased's estate; they can refinance the balance
with a new "forward" mortgage, keeping the property in the family;
or they can sell the property, pay the remaining balance, and keep
any positive difference from the sale.
Question: Is this program offered for
manufactured homes?
Answer: Yes, some manufactured homes are eligible
for reverse financing. For more information, visit the National
Reverse Mortgage Lenders Association's (NRMLA) Web site,
www.reversemortgage.org.
Question: Must a Mortgage Broker be approved to
originate FHA loans in order to originate reverse mortgages?
Answer: Yes and No. Yes, if you will be working
with HECMs,which are FHA-insured and require FHA approval to
originate them. No, if Fannie Mae's HomeKeeper and Financial
Freedom's Cash Account will be your primary products. They are
non-government products and, therefore, different rules apply.
Generally, for FHA-approved lenders and anyone interested in
brokering these mortgages, a correspondent relationship with a
reverse mortgage wholesaler is required.
Question: Where can I obtain a list of
reputable reverse mortgage lenders?
Answer: Currently, there are three wholesale
lenders in the reverse mortgage arena: Financial Freedom Senior
Funding Corporation in Irvine, Calif., Seattle Mortgage Company in
Seattle, and Standard Mortgage Corporation in New Orleans. For a
more comprehensive state-by-state list of reverse mortgage lenders,
visit the NRMLA Web site.
Question: Can you offer some ideas on how to
market reverse mortgages?
Answer: To successfully market reverse mortgages,
I suggest the following tips:
a. Constantly read and study reverse mortgage lending and its
products. It is a very complex financial instrument.
b. Visit your senior and community centers and share your knowledge
and excitement about reverse mortgages.
c. Do not sell.
d. Develop professional relationships with reverse mortgage
counselors in your community. The experienced ones will be highly
knowledgeable about the product and, consequently, have some
influence with potential borrowers.
e. Finally, be persistent!
Thanks to everyone who wrote in! Keep it up and remember to keep
thinking, and writing, in reverse.
Atare E. Agbamu, CRMS, is a senior consultant and director
of training at Iver Grove Heights, Minn.-based Peoples Choice
Mortgage. Headquartered in Erlanger, Ky., People's Choice mortgage
is a member of the National Reverse Mortgage Lenders Association.
Mr. Agbamu has served on the Minnesota Association of Mortgage
Brokers Inc. 2000-2001 Executive Council and currently sits on the
Board of Little BrothersFriends of the Elderly in the Twin Cities.
He can be reached by phone at (651) 389-1105 or e-mail
[email protected].
