Patrick writes and says, “our California home is valued at approximately $1,000,000 but we owe $450,000 on it. What will a reverse mortgage do for us? I am turning 61 and my wife will be 60 in 5 months. I need input for planning purposes.”

I would make the following suggestion: Don’t plan yet.

The reason for delay is this: Significantly higher loan limits for FHA-insured reverse mortgages are being discussed on Capitol Hill — think in terms of $550,000 to almost $730,000.

With such limits you could retire your current loan and the monthly expense it represents. At 6 percent interest over 30 years, you would save $2,700 per month on principal and interest by paying off a $450,000 mortgage. Plus, with higher limits you could also have a significant line of credit or cash from closing.

As always with such questions, sit down with a knowledgeable advisor such as an attorney who specializes in elder law and review your situation before signing any paperwork.

The CongressDaily is reporting that Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee, wants to raise reverse mortgage loan limits to “almost $730,000.”

According to the publication, the reason Frank wants to raise the HECM loan limit is to collect more fees. Those fees would then be used to underwrite expected losses from the $300 billion FHA mortgage bailout program which is now moving through Congress.

“By lifting the cap on the FHA reverse-mortgage program, Frank said, the measure could bring in $300 million annually. He noted that raising the FHA loan limit would raise tens of millions of dollars annually, and he wants the cap to go up to almost $730,000,” according to CongressDaily.

The publication reports that Sen. Richard Shelby (R-AL) is opposed to raising the reverse mortgage loan limit to more than $550,000.

Frank wants to raise the HUD HECM mortgage insurance premium to pay for something other than reverse mortgage losses. That sounds like taxing Peter to pay Paul, not an attractive strategy if you’re Peter.

As well, one would hope that the lower origination fees required under H.R. 3221 would not be lost. The bill caps reverse mortgage origination costs at $6,000 — but does not cap HUD insurance premiums.

For the full story from the CongressDaily, see: Frank Eyeing New Sources To Pay For FHA Financing Bill

Over a period do years I have found that clients who have done their home work, need little or no assistance understanding why a reverse mortgage would work for them — or, in some cases, why it wouldn’t.

A number of clients have done their homework, but they still like to check with friends, family and other professionals.

Quite often a particular client will approach a family member or a close friend about a recent or pending reverse-mortgage decision.

I think some do this out of curiosity — just to see and, I think, test how much these fledging “experts” really  know. When I hear these stories I always counsel my clients that they need to remember what Will Rogers once said, “Everyone is ignorant. Just on different subjects”.

Clients often tell me they’re told, “Watch Out”! “You will lose your home”; or “A reverse mortgage is only for the poor;”, or “It’s just too darn expensive”, or “You need to be in good health”; or “You can be kicked out at any time”; or monthly mortgage payments have to be made…who ever heard of a mortgage where you do not have to make such payments”. And so forth and so on.

Many clients know better and can effectively tell others about reverse mortgages plusses and minuses.
The thing that’s bothersome is that not every reverse mortgage borrower has access to the answers which are actually correct.

___Many need to be told that you will not lose your home because you obtained a reverse mortgage;

___Many need to hear that reverse mortgages are not just for those with limited incomes. Seniors in every income bracket have obtained and used reverse mortgage financing. There’s no stigma attached to converting equity into cash, it’s what many people have done, will do today and will do tomorrow.

___Many need to hear that while a reverse mortgage has many costs, only the borrower can determine whether such costs are worthwhile to them. Some borrowers believe that it’s just too expensive. Others believe that a reverse mortgage is a good financial choice in the right circumstance — but not the right choice when circumstances are unsuitable. And, of course, shopping around is a good way to check costs.

___Many need to hear that “health” does not determine whether or not one can qualify for a reverse mortgage. Such loans are really a form of equity-based financing. Reverse mortgage proceeds can often help seniors stay in their homes when health is a concern.

___Many need to hear that contrary to what gets repeated, a reverse mortgage borrower is never obligated to make monthly mortgage payments.

There’s no substitute for asking questions. Questions are the fuel you need to get the best answers, to help you make sound decisions. When it comes to reverse mortgages, take your time, ask around and when you’re comfortable then pro or con make the choice that works best for you.

———————

Attorney Dennis Haber is the author of the just-published, ground-breaking book, Piggy Bank Your Home: Tap Into The Power Of A Reverse Mortgage.

Back in January we reported that of roughly 375,000 FHA reverse mortgages which had been issued since HUD began the program, only 1,609 claims had been made against the reverse mortgage insurance plan.

That sure doesn’t sound like a lot of claims, but part of the reason for the low number is that most home equity conversion mortgages (HECMs) are recent — simply put, they have not been outstanding long enough to result in the possibility of a claim.

Now we know another part of the reason for steep insurance premiums and few claims: HUD is running a profit on its FHA insurance program.

According to Luke Mullins at U.S. News & World Report, the FHA now runs a “surplus.”

Speaking before the National Association of Realtors at their mid-year meeting in Washington, Mullins reports these words from FHA Commission Brian Montgomery:

“We normally, at the end of the day, have a surplus that we then give to the U.S. Treasury. And we want to keep the FHA that way.”

A surplus? That sounds like a profit, looks like a profit. Oh wait, it IS a profit.

Under H.R. 3221, reverse mortgage origination fees will be significantly reduced and a maximum fee will be imposed.

That’s great. But the bill doesn’t say anything about reducing HECM insurance premiums.

Is it the intent of Congress that HUD should be generating a profit from the insurance fees extracted from senior citizens? What is money given back to the Treasury except a tax? And since when was the Constitution revised so that HUD could originate taxes, a job that used to be reserved for the Congress?

Reverse mortgage premiums should be seen as something sufficient to cover costs — and not as a cash cow for the U.S. Treasury, something used to hide our vast federal deficit.

For the full story by Mr. Mullins, see: FHA Chief Criticizes Rescue Plan.

A few weeks ago my wife and I went to Florida to attend the 60th wedding anniversary of an aunt and uncle.

The honored couple are decent and honorable people who lead a good life. It was great to see that more than 100 friends and family members turned up to celebrate their big day.

Part of the story is that my uncle was among the millions who served in World War II. A war hero with a remarkably-distinguished record, he wore his medals to the anniversary celebration.

Today is Memorial Day, a day to honor those in the military who died defending the country. It’s a good day to recognize those who have served in the Armed Forces, to thank them for their service and to remember those who gave their lives.

Walter Updegrave, Money Magazine senior editor, has now written about reverse mortgages.

In his article, Reverse mortgages: Beware the come-ons, Updegrave says “reverse mortgages can help cash-strapped retirees generate extra money for living expenses, pay for home improvements, lower other debts or fund the occasional splurge.

“There’s also a downside to reverse mortgages’ growing popularity, however. Loan-origination fees that can top $7,000 on a $500,000 home are attracting aggressive salespeople intent on getting you to take out a reverse mortgage whether you need one or not. Some may try to persuade you to invest the proceeds in high-priced financial products, such as annuities, boosting their commissions even more.”

Updegrave, who I met long ago when appearing on Oprah, offers several areas for borrowers to consider:

___Making sure you really need it

___Looking out for the product pitch

___Getting help from a financial planner

Updegrave also mentions what he calls “sure losers.” What does he mean? “A salesperson might prod you to get a reverse mortgage so you can buy an annuity. But the annuity’s value will never catch up to the mortgage debt.”

For the full story, see: Reverse mortgages: Beware the come-ons

The Federal Deposit Insurance Corporation — the federal entity which insures bank accounts — has just issued a new publication entitled Money Tips for All Ages: Your Finances at Different Stages of Life.

The subjects covered include:

___Before You Retire: Getting Your Finances Ready for Your Golden Years

___After You Retire: Managing Your Expenses on a Fixed or Reduced Income

___For Financial Caregivers: Helping Disabled or Elderly Relatives With Money Management, Even From Far Away

___For Major Life Events: Ways to Cope Financially During and After a Big Change

This is generally-good stuff and includes the following excerpt discussing reverse mortgages:

Understand the pros, cons and costs before borrowing money with a “reverse mortgage.”

This is a type of home equity loan — a way to get cash by borrowing money using your home as collateral (see: Be cautious when borrowing against the “equity” in your home). But there are some important differences between a reverse mortgage and the traditional home equity loan.

First, a reverse mortgage is available to homeowners age 62 or older. Second, you don’t need an income to obtain a reverse mortgage. And third, you don’t need to pay back what you owe until you move out of the house, sell the property or die.

While there are potential benefits to reverse mortgages, they don’t make sense for everyone. They generally are not advisable if you plan to stay in your home for less than five years or need extra monthly income for relatively small expenses. Among the reasons: The fees associated with reverse mortgage loans can be high. You still will be responsible for maintaining the house and paying property taxes. And, your beneficiaries won’t inherit the full value of the house. They will have to pay off the loan either by refinancing or selling the house.

Also be aware that some unscrupulous individuals or companies have promoted reverse mortgages that were not in the consumers’ best interest or that involved extra payments for unnecessary services.

For example, there have been reports of companies attempting to sell questionable home repairs or investments in connection with a reverse mortgage, or they charged a fee for information about reverse mortgages that is available for free from the U.S. Department of Housing and Urban Development (HUD) or other sources. One problem with using any loan product to fund an investment is that you could lose money on the investment and still owe on the loan.

How can you protect yourself? As with any loan you’re considering, do some research using information from neutral, unbiased sources, such as HUD. If you later decide that a reverse mortgage is right for you, contact several reputable lenders and read and understand all documents and contracts, perhaps with the help of an attorney you trust, before you agree to anything.

For help or guidance regarding reverse mortgages, go online at www.hud.gov/buying/rvrsmort.cfm or contact a HUD-approved housing counselor by calling toll-free 1-800-569-4287. Also, to receive a reverse mortgage insured by the Federal Housing Administration (FHA), you must first speak with a HUD-approved counselor, who can help you determine if the program meets your needs.

The reverse mortgage material would be a lot more powerful if it came out and said “annuities” instead of “investments,” told people that HUD allows lenders to pay counselors, and mentioned that attorneys who specialize in “elder law” can be an excellent source of information and advice.

HUD has come out with a renewed set of guidelines regarding who can be paid for originating an FHA reverse mortgage — and who can’t.

According to the new mortgagee letter to lenders, HUD says the only people who can be paid for originating FHA-backed reverse mortgages are FHA-approved parties. However, the rules also allow payments to “a non-approved entity or third party to assist in the origination of insured loans in certain limited ways and to receive compensation for such services actually provided under certain limited circumstances.”

The HUD letter makes clear that so-called “naked referrals” are out — getting a fee in exchange for merely giving a lender the name of a borrower. However, the HUD letter also says that:

“HECM and RESPA regulations permit a non-approved entity or third party to be compensated for educating prospective borrowers about the reverse mortgage lending process, advising the borrower about different types of loan products available, demonstrating how closing costs and payment options could vary under each product, and maintaining regular contact with the lender to keep the borrower apprised of the status of the loan application. Such services would be in addition to, and not as a substitution for, reverse mortgage counseling which is provided by a HUD-approved housing counseling agency.”

Since lenders can already compensate counseling agencies on a case-by-case basis under HUD rules, borrowers are well-advised to avoid the obvious and overt conflicts-of-interest allowed by HUD. Protect your interests and your assets: Get help from an attorney who specializes in elder law before making complex financial decisions that potentially include reverse mortgages.

The new HUD letter is below:

Home Equity Conversion Mortgage Program – Non FHA-Approved Mortgage Brokers

This Mortgagee Letter reminds lenders of FHA’s policy regarding the use of non FHA-approved mortgage brokers, subsequently referred to as a non-approved entity or third party (i.e., advisor, consultant, mortgage broker) to support the origination of FHA-insured Home Equity Conversion Mortgages (HECM). Loan origination must be performed by FHA approved entities which include: (1) an FHA-approved loan correspondent and sponsor; (2) an FHA-approved mortgagee through its retail channel; or (3) an FHA-approved mortgagee working with another FHA-approved mortgagee. However, FHA policy permits a non-approved entity or third party to assist in the origination of insured loans in certain limited ways, and to receive compensation for such services actually provided under certain limited circumstances.

This Mortgagee Letter describes the ways in which a non-approved entity or third party may support the origination of HECMs and the limited circumstances under which they may be compensated, consistent with both applicable FHA policy and applicable requirements of the federal Real Estate Settlement Procedures Act (RESPA) and its implementing regulations found at 24 CFR Part 3500.

FHA-approved entities are required to complete the full origination process, as described below, in order to be compensated for their services. A non-approved entity or third party may provide more limited services only and be compensated for those limited services under the circumstances described in this Mortgagee Letter and applicable FHA and RESPA regulations. FHA will not permit an FHA-approved entity to serve in the limited capacity of a non-approved entity or third party.

Required Activities for FHA-Approved Entities

FHA-approved entities must perform certain activities to be compensated. In RESPA Statement of Policy 1999-1(64 Federal Register 10080, 10085, March 1, 1999), HUD identified the following services that are normally performed in the origination of a loan. For FHA-insured loans, including HECMs, only FHA-approved entities may be compensated for performing these services:

___Taking information from the borrower and filling out the loan application;

___Analyzing the prospective borrower’s eligibility for a reverse mortgage;

___Collecting financial information, if applicable, and other related documents that are part of the application process;

___Initiating/ordering verification of deposits or assets, if applicable;

___Initiating/ordering requests for mortgage and other loan verifications;

___Initiating/ordering appraisals;

___Initiating/ordering inspections or engineering reports;

___Providing disclosures (truth in lending, good faith estimate, others) to the borrower;

___Assisting the borrower in understanding and resolving adverse property conditions;

___Ordering legal documents;

___Determining whether the property is located in a flood zone or ordering such service; and

___Participating in the loan closing.

For purposes of identifying compensable services under RESPA, HUD RESPA Statements of Policy 1999-1 and 2001-1 (66 Federal Register 53052, at 53055, October 18, 2001) indicated that this list of origination services is not exhaustive.

Eligible Activities for Non-Approved Entities

FHA’s HECM regulations permit a non-approved entity or third party to provide educational-type origination services (generally known in the reverse mortgage lending industry as “Advisor” services) under limited circumstances. Under 24 CFR 206.31(a)(1), a non-approved entity or third party must be “engaged independently by the homeowner,” and there must be “no financial interest between the mortgage broker and the mortgagee.” In addition, the fee paid to the non-approved entity or third party must be “included as part of the origination fee” paid to the mortgagee or loan correspondent.

Under this regulation, the non-approved entity or third party may not be compensated for simply referring the mortgage loan application to FHA-approved entities; nor may the non-approved entity or third party perform the origination activities that must be performed by FHA-approved entities. For example, a non-approved entity or third party may not fill out or process the loan application, and may not collect additional documentation from the prospective borrower, or close the loan.

FHA permits the non-approved entity or third party to provide advisory and educational services to the HECM borrower; and under RESPA, the non-approved entity or third party may receive bona fide compensation for those services. For example, HECM and RESPA regulations permit a non-approved entity or third party to be compensated for educating prospective borrowers about the reverse mortgage lending process, advising the borrower about different types of loan products available, demonstrating how closing costs and payment options could vary under each product, and maintaining regular contact with the lender to keep the borrower apprised of the status of the loan application. Such services would be in addition to, and not as a substitution for, reverse mortgage counseling which is provided by a HUD-approved housing counseling agency. RESPA Statement of Policy 1999-1, addresses the amount of compensation a mortgage broker may receive for such services.

Compensation for Non-Approved Entities

With the HECM, a non-approved entity or third party may be compensated for certain limited services as described in this letter when:

a. The non-approved entity or third party provides actual services and not simply a referral.

b. The services are meaningful and do not constitute steering, as described in RESPA Policy Statement 1999-1, or merely delivering a loan with a higher interest rate, as described in RESPA Statement of Policy 2001-1.

c. The compensation is paid by the borrower directly from the borrower’s own available assets or from HECM loan proceeds. If the payment comes from the HECM proceeds, the amount would be added to the loan balance and disbursed to the broker by the closing agent. In all cases, the amount paid must be included in (subtracted from) the loan origination fee which is capped at the greater of $2,000 or 2% of the maximum claim amount.

d. The amount paid is no more than the reasonable value for such services. For example, if the payment bears no reasonable relationship to the market value of the services provided, the excess over the market rate may be used as evidence of a compensated referral or unearned fee in violation of section 8(a) or (b) of RESPA and 24 CFR 3500.14.

e. The final HUD-1 Settlement Statement contains the amount paid and name of the mortgage broker.

f. The signed written agreement between the borrower and non-approved entity or third party, describing the advisory and educational services to be performed and the amount of compensation for each service, is included in the FHA case binder.

It was nearly two years ago that the Alliance for Retired Americans, a group with some 3 million members, wrote about reverse mortgages.

What’s interesting about what they wrote is that in the past two years real estate markets in many areas have gone from boom to bust and yet their analysis remains largely on track.

As ARA wrote:

>>>With the main sources of retiree income –- Social Security benefits, pensions and personal savings –- dwindling, some financial experts are encouraging people to use their home equity to help fund their retirement. Real estate prices across the country have soared in recent years, greatly appreciating the values of homes in many areas. For those who have not been able to save, the various options to “monetize” their home, from selling and investing the proceeds to reverse mortgages, may provide some income. According to calculations by Wells Fargo & Co., the assets in pension plans totaled $1.7 trillion last year. Assets in other company-sponsored plans, such as 401(k), totaled $2.8 trillion and Individual Retirement Accounts (IRAs) had assets of $3.7 trillion. In the same year, the home equity held by all households was nearly $11 trillion. “Relying on home equity is extremely risky, as homes may not appreciate as fast in the future as they have in the past decade,” said Edward Coyle, Executive Director of the Alliance. “Furthermore, the reality is that nearly 30 percent of older home owners are both house poor – their homes have a low market value – and cash poor.”

It is, of course, right that relying on home equity can be risky, especially in an environment where home prices are declining in many areas. Equity in senior housing has dropped, according to the last report by the National Reverse Mortgage Lenders Association (NRMLA), but not a whole bunch: By the Association’s calculations elder equity stood at $4.212 trillion at the third quarter of 2007, a drop of just $25 billion from the second quarter.

But the core question is this: Where have most people done better — in a financial sense — then real estate? Not those looking for quickie profits with no money down, but those who have held real estate for the long term?

It’s true that relying on home equity can be risky, but so can relying on stock, continued employment with a given company or nice vacations fueled with cheap gas. In the end, there’s always risk in the marketplace — no matter which marketplace you’re in.

It will be interesting to see the next equity report from NRMLA, and yet even if the numbers are down seniors will continue to hold trillions of dollars in untapped real estate value. In effect, the risk of real estate ownership has paid off for most seniors in a most-tangible way with real equity and thus real wealth.

Last year both Fannie Mae and Freddie Mac, the big buyers of local mortgages, decided that falling real estate values required a change in the way they underwrite mortgages: In areas they identified as “declining” markets buyers would need an additional 5 percent down.

For reverse mortgage borrowers the new policy has been troubling. Why? Because “markets” were defined in very broad terms to cover entire metro areas — including, maybe, neighborhoods that are doing fairly well. Rather than pinpointing troubled markets, the concept inherently labels large areas as “declining” including, perhaps, individual homes and communities where the label is inappropriate if not wrong.

If you are a reverse mortgage borrower you likely want the largest possible loan against your property. You cannot get such financing if area values are depressed. Just in terms of PR and marketing, area values are surely not helped when described as “declining.”

Fannie Mae now says that as of June 1st it’s dropping the “declining” markets label. Instead, you need at least 3 percent down for any loan processed through Fannie Mae’s underwriting system and 5 percent if the loan is otherwise processed. In effect, forget labels and look at properties individually.

You can be sure that the “new” concept — a return to the old idea of looking at individual properties — will now be picked up by other lenders and mortgage buyers.

This is a change for the better, both for borrowers and Fannie Mae.

The complete release from Fannie Mae can be found by pressing here.

Our slowing economy is having an impact on seniors. “One in four affluent 60-year-olds are changing their retirement plans and 40 percent “downsizing” their lifestyles,” according to an April national survey from Bell Investment Advisors.

The survey used a random sample of opinions from 500 adults comprised of 250 men and 250 women who were born in 1948 and have investable assets of $1 million or more. The poll was conducted by Opinion Research Corporation.

The major findings included:

Financial Stress Increases for One in Three Affluent Boomers

Survey findings revealed that almost 30 percent of affluent boomers have more financial stress now than they did six months ago. Affluent female boomers report considerably more stress than men (35% vs. 24%), while affluent boomers on both coasts–in the Northeast (36%) and West (34%)—report more stress than those in the Midwest (27%) and South (25%).

One in Four Affluent Boomers Affected by Job Loss

Over a fourth (28 percent) of affluent boomers have either lost their job in the last 12 months or know someone who is age 60 or over who has. The job losses have been more acutely felt by affluent boomers in the Northeast or Midwest (both 38 percent) and have had the least effect on those in the South (19 percent). More than one third (35%) of the most affluent boomers surveyed—those with more than $3 million earmarked for retirement—were affected by job loss, compared with just 24 percent of those with $1-3 million saved, and 30 percent of those with under a million saved for retirement.

Changes in Retirement Plans and Spending

Of the one in four boomers who are changing their retirement plans due to the economy, more women (31%) than men (19%) say they are making changes. Regionally, those in the Midwest are most likely to make changes to their retirement plans (31% vs. 25%). Male respondents are more likely than women to have decided to push their retirement plans further into the future, with those in the Northeast and West more likely to postpone retirement than affluent boomers in the Midwest and South.

Of the 40 percent of boomers who are reducing spending in response to the economy, the highest proportions are in the Northeast (50%) and the West (46%), compared with 38 percent in the Midwest and 33 percent in the South. Based on the survey, 47 percent of affluent boomer women are making lifestyle changes, compared with just one-third of men. Only four percent of the affluent boomers surveyed report having downsized housing in response to changes in the economy.

Affluent Boomers’ Seeking Higher Returns

Based on the survey, more than half (54 percent) of affluent boomers cited higher returns on investments as a primary goal for the next five years. “This finding underscores the fundamental lack of understanding many investors have about risk and return. Boomers will not achieve higher returns if they shift to more conservative investments as the survey findings suggest,” said Bell. He recommends that boomers retain a healthy portion of their assets in growth-oriented equities, so that their nest egg continues to grow.

For some time there has been considerable concern regarding the origination costs associated with HUD-insured reverse mortgages, fees which are “limited” to 2 percent of the property’s maximum claim amount.

“Generally,” says HUD, “the property value and the maximum claim amount will be the same because the maximum claim amount is the lesser of the appraised value or the maximum mortgage amount under Section 203(b) of the National Housing Act.”

Now the House, under H.R. 3221, is moving to substantially lower origination costs.

The legislation as passed by the House last week limits the origination fee to 2 percent of the first $200,000 of the claim amount plus 1 percent of any remaining claim amount above $200,000. There’s a $6,000 cap, a cap which may be adjusted for inflation.

Is this good? You bet.

A borrower seeking a $300,000 home equity conversion mortgage (HECM) would save $1,000 under the new system. A borrower who took out a $550,400 reverse mortgage — the likely new reverse mortgage limit if the bill is passed — would see origination costs fall from $11,008 under today’s rules to $6,000 under the new system — a savings of roughly $5,000.

This is a case where reverse mortgage lenders have largely lined up in favor of legislation which would result in smaller fees per loan. The idea is that while the origination fee per loan would be reduced, more loans would be originated under the system because the product will be more attractive to consumers. This is an example of enlightened thinking by everyone involved.

Will HR 3212 become law as written? That’s unclear given that the bill must pass through the Senate, emerge from the compromise committee and then be signed by the President — a President who has threatened to veto the legislation.

Stick around, this could get interesting.

The language from HR 3212 is below:

(d) Limitation on Origination Fees- Section 255 of the National Housing Act (12 U.S.C. 1715z-20), as amended by the preceding provisions of this section, is further amended –

`(1) be equal to 2.0 percent of the maximum claim amount of the mortgage up to a maximum claim amount of $200,000 plus 1 percent of any portion of the maximum claim amount that is greater than $200,000, unless adjusted thereafter on the basis of an analysis of (A) costs to mortgagors, and (B) the impact on the reverse mortgage market;

`(2) be subject to a minimum allowable amount;

`(3) provide that the origination fee may be fully financed with the mortgage;

`(4) include any fees paid to correspondent mortgagees approved by the Secretary or to mortgage brokers;

`(5) apply upon the date that the maximum dollar amount limitation on the benefits of insurance under this section is first increased pursuant to the amendments made by section 219(a)(3) of the Expanding American Homeownership Act of 2008; and

`(6) be subject to a maximum origination fee of $6,000, except that such maximum limit shall be adjusted in accordance with the annual percentage increase in the Consumer Price Index of the Bureau of Labor Statistics of the Department of Labor in increments of $500 only when the percentage increase in such index, when applied to the maximum origination fee, produce dollar increases that exceed $500.’.

For seniors in need there are alternatives to reverse mortgages, reports syndicated columnist Lew Sichelman, writing in the Chicago Tribune.

Sichelman says that seniors might want to look into “deferred-payment loans” from state and local governments to make home repairs, accessibility modifications and improvements to reduce energy usage.

Generally, says Sichelman, with DPLs “there are no origination fees; insurance premiums and closing costs, if any, are very low.

“The interest rate on DPLs is fixed, if it’s charged at all. And many programs charge simple rather than compound interest, so interest isn’t charged on interest. Some even forgive part or all of the loan if you remain in the house for a specified period of time.”

Sichelman also points out that some jurisdictions offer property-tax-deferral loans. Essentially the idea is that the local community pays your property taxes as long as you live in your home — and then re-coups the money when the property is sold.

This is interesting stuff and Sichelman does a good job explaining the programs in general.

For the full story, see: Look before slamming it into reverse

HUD has come out with new reverse mortgage regulations. The Department now says that “based on feedback from reverse mortgage counseling providers and cost data collected by HUD, HUD has determined that a HECM counseling fee of $125 per counseling session constitutes a reasonable and customary fee, and does not exceed a level so as to be generally commensurate with the education and counseling services that are typically provided.”

It is entirely understandable that counseling agencies want to be paid and should be paid. Like us all, counselors also need to eat and pay their bills. While one can argue whether the right number is $125 or something different, $125 seems well within the realm of reason — a bargain, actually, considering the huge economic stakes involved for borrowers and what is likely to be their largest asset.

What is troubling, however, is HUD’s continued view that it’s just dandy for lenders to pay such fees.

“Lenders,” says HUD, “may pay HUD-approved counseling agencies for counseling services, through a lump sum or on a case-by-case basis. The Lender payment may be made directly to the counseling agency or disbursed at closing by the settlement agent, as provided in paragraph (3) below. The Lender payment may be made directly to the counseling agency or disbursed at closing by the settlement agent. As required in §214.303(g), counseling agencies must disclose to their clients any funding or relationships with lenders. Lenders that pay agencies for counseling services may seek reimbursement from clients who proceed with the HECM and become HECM borrowers.”

Is this really a good idea? Is not the purpose of counseling to get information from an independent source — and also a source that like Caesar’s wife appears independent?

“Mortgagees are reminded,” says HUD, “that, as explained in Mortgagee Letter 2004-25, the lender may not steer, direct, recommend, or otherwise encourage a client to seek the services of any one particular counseling agency.”

Right. Is it okay if several local counselors compete for lender fees?

Could the potential for conflict be any more obvious? Will not some savvy lawyer start a class-action suit against a lender the moment a borrower is steered into an undesirable loan? Do you think a jury will believe the lender or an elderly citizen who happens to have been a local — and now impoverished — town minister for forty years?

And, really, paying counselors on a case-by-case basis? Is this a pay-for-performance deal — or does it just seem that way?

How many borrowers will understand the paperwork, disclaimers and disclosures?

HUD’s rules plainly provide that counseling fees can be paid at closing from reverse loan proceeds, but this is also an approach which requires some caution because the equation it produces is this: no loan = no fee.

HUD has produced a counseling system with suspect funding and thus suspect results. One solution to the problem is counselors who are fairly paid from public funds, by consumer groups unconnected with any lender and by the borrowers themselves. But a better solution is this: HUD is collecting huge reverse mortgage insurance fees — and to date has paid out few claims. Perhaps some of the insurance money could be used to fund an independent counseling system based on services provided and not the appearance of loans originated.

For the full HUD letter, press here.

For too long, too many lenders have been enlisting advertising campaigns that have overstepped the boundaries of reasonableness and fairness. NRMLA — the National Reverse Mortgage Lenders Association — has now set the bar with its first ethics ruling regarding advertising standards for reverse mortgage lenders.

At its eastern regional meeting in Philadelphia, NRMLA issued guidelines that every reverse mortgage lender should use — and every prospective borrower should know about. Some of the highlights include:

1. It is unethical and a violation of the NRMLA code of ethics to suggest that a loan is made by the government or FHA.

2. It is unethical and a violation of the code to suggest that a reverse mortgage is either funded by the government or is a benefit from the government. (The FHA insures most reverse mortgages, it provides no funding to borrowers or lenders.)

3. It is unethical to say that you must call a particular number first, before you can be entitled to benefits. (There is no reverse mortgage “benefit” anymore than there is a 30-year mortgage “benefit” for those who borrow a forward loan that’s FHA insured.)

4. It is unethical to suggest that a product or service must also be purchased as a condition to obtaining the reverse mortgage.

5. It is unethical to say that such a reverse mortgage is “endorsed” or “approved” by the government, HUD, AARP, FHA or NRMLA.

Since the conference, NRMLA has issued a second ethics advisory. Here are some of the highlights:

6. It is unethical to require an applicant to purchase any other product as a condition to receiving a reverse mortgage. (Think of insurance, home repairs, annuities, etc.)

7. It is unethical to refer, recommend, or offer other products that do not provide a bona fide advantage to the senior borrower. Anyone offering other products must be appropriately licensed and follow all related rules, regulations and laws. (Think of the sale of annuities when considering this item.)

8. It is unethical to sell deferred, fixed-rate annuities or deferred variable rate annuities with surrender charges, and any financial product that contains a penalty for early withdrawal or cancellation if they do not provide a bona fide advantage to the senior. (Note that BestReverseMortgage.com has consistently argued that lenders should not be allowed to sell annuities funded by reverse mortgages. Also, a number of reverse mortgage lenders refuse to sell annuities.)

9. It is appropriate and ethical to provide borrowers with written notices explaining that reverse mortgage products are complex, that caution needs to be used when considering such financial products and that it’s wise to consult with an independent professional before selecting any reverse mortgage option.

10. It is unethical to receive unreasonably high compensation as a result of cross selling. (Think of home repairs, annuities, etc.)

11. It is unethical not to provide timely, clear and concise information regarding cross selling compensation.

In the future, there will be many more such standards handed down. The challenge, I think, will be in the enforcement of same, when NRMLA members violate the letter and spirit of these opinions. It is far better that the industry police itself, rather than a governmental agency.

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Attorney Dennis Haber is the author of the just-published, ground-breaking book, Piggy Bank Your Home: Tap Into The Power Of A Reverse Mortgage.