Reverse Mortgage Guide

The National Reverse Mortgage Lenders Association says that the Department of Housing and Urban Development (HUD) has approved a single national loan limit of $417,000 for federally insured Home Equity Conversion Mortgages (HECM).

Previously, says NRMLA, “the HECM program assigned different lending limits by county ranging from $200,160 in rural areas to $362,790 in the highest home value areas.”

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The Securities & Exchange Commission is out with a new report which says that seniors have big money — at least as a group.

“Baby boomers today control more than $13 trillion in household investable assets, or over 50% of total U.S. household investment assets. Projections also show that nearly one in every six Americans will be 65 or older by the year 2020. Given the increasing number of investors who will need advice and guidance, financial services firms are actively developing new products and seeking to provide financial advice and services to investors as they prepare for and reach retirement.”

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The news on the financial front is hardly re-assuring. President Bush went on television last week to inform us that “we’re in the midst of a serious financial crisis, and the federal government is responding with decisive action. We’ve boosted confidence in money market mutual funds, and acted to prevent major investors from intentionally driving down stocks for their own personal gain.”

Huh? Notice that we haven’t prevented major investors from intentionally driving up stocks for their own personal gain. The free market system is on vacation, at least for those 1,000 or so companies favored by the government.

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Given the state of the economy — not-so-good, bordering on outright collapse if we are to believe federal officials — you might think that reverse mortgages would be as popular as winning lottery tickets.

To get a reverse mortgage backed with FHA insurance you do not need a particular income, a job or a good relationship with a bank. Instead, you need to be age 62 and above, sentient and the owner of a prime residence which holds real estate equity. What you make per week or per month is irrelevant, a not-so-minor consideration in a year when 9.4 million people are unemployed.

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The financial events of the past weeks raise a question: Is now the time for a reverse mortgage? And if not now, when?

Reverse mortgages are not for everyone, but if you have an interest in such financing now may well be one of the best times to consider such a loan.

The reason? Well, several actually.

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The word is out: Jumbo reverse mortgages are about as common as unicorn toes.

REX & Co., which offers appreciation-sharing agreements as an alternative to reverse mortgages, says that “for anyone keeping score, the list of mortgage products that have disappeared over the past 24 months is long indeed. That trend has showed few signs of abating in 2008, with jumbo reverse mortgages among the latest casualties to face Wall Street’s waning appetite for mortgage-related products, particularly in high-value states with declining markets like California, Florida, Massachusetts and more.”

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U.S. News & World Report has an article regarding the Equity Key program, a reverse mortgage alternative that we have looked at previously.

“EquityKey, says U.S. News, “a San Diego company that is a division of Belgium-based KBC Bank, read more

Imagine that you have a reverse mortgage with a $200,000 balance. Imagine also that your house has declined in value and is now worth $150,000. How much do you owe the lender? Can you be prevented from moving since since the debt is bigger than the home’s value?

Assuming that you have an FHA-insured reverse mortgage, or a HECM (home equity conversion mortgage) as HUD uses the term, you can never owe more than the house is worth. That’s why the HUD reverse mortgage product is a non-recourse loan. The lender cannot go after you, your spouse or your heirs for any unpaid balance. Since the house is worth $150,000 in this case that’s all the lender can get.

The reverse mortgage borrower’s liability is limited under the FHA program because HUD insures the borrower if the lender does not come up with promised money — and HUD also insures the lender if the full value of the loan is not repaid. When I last checked at the beginning of the year, there had been no borrower claims against HUD while lender claims averaged about $18,000 apiece.

The lender gets to call the loan under certain conditions, most importantly a “maturity event,” an oblique term meaning that the borrower died, moved or sold.

HUD has been insuring reverse mortgages nationwide, including in markets obviously in decline. HUD has to do this — it is a federal entity. The result is that if a borrower with a reverse mortgage in a weak market wants to move, he or she effectively has an instant “buyer” in even the worst markets — the reverse mortgage lender backed by that valuable insurance policy from HUD.

Who wins if the borrower simply wants to move and home values have declined? The borrower got the money, the lender got the fees and HUD gets to write a check to the lender for any unpaid loan balance.

For specifics, speak with an independent adviser such as an attorney who specializes in elder law.

Michelle Singletary, the excellent personal finance columnist with The Washington Post, took a look at reverse mortgages over the weekend and had some interesting points about the new regulations that will go into effect October 1st.

“Under the new law,” says Singletary, “the amount a senior can borrow through a reverse mortgage has been increased to $417,000 nationally. However, that limit could be pushed to $625,000 if the borrower lives in a high housing-cost area. Currently, the amount a senior can borrow varies by county. The range now is $200,160 to $362,790.”

She adds that “the law reduces fees on this type of loan. It cuts the origination fee to 2 percent of the first $200,000 borrowed and 1 percent for any amount after that. The maximum origination fee can’t exceed $6,000. The fee is currently capped at 2 percent of the loan limit or of the home’s value. The law does allow for the cap to adjust, based on the annual percentage increase in the consumer price index.”

Interestingly, she does not ask why HUD insurance premiums remain unchanged but does note that the new law requires a study of reverse mortgage costs.

“Except for title, hazard, flood or other such insurance products,” she explains, “lenders are prohibited from requiring borrowers to purchase insurance, annuities or other similar products as a condition for a reverse mortgage. The law also restricts lenders who are originating reverse mortgages from working with, employing or providing incentives to other professionals trying to sell seniors other financial products as part of the application process.

“The housing act includes a provision for reverse mortgages partly because of concerns that seniors were inappropriately — and sometimes fraudulently — being sold other financial products.”

For the full story, please see: Help for Seniors Who Have Reverse Mortgages

The state of Mississippi has come out with an online Resource Guide to Combating Senior Financial Abuse in Mississippi. While some of the information is state-specific in the sense that laws to combat predatory lending and other types of fraud differ by jurisdiction, the Guide itself has a lot of generic information of value to seniors.

According to the Mississippi AG, “there are usually three reasons why financial elder abuse happens:

“Need or greed –- People who take advantage of elders usually have financial problems or act out of greed.

“Opportunity –- Offenders often have opportunities to obtain an elder’s money or property by pressuring or otherwise influencing them or taking advantage of the trust, discretion or power that has been given to them.

“A sense of entitlement –- Offenders also usually have a false sense of entitlement or, in other words, they believe that they “deserve” the money as the future heir or because they believe that older people in general don’t really need all their money.”

Of particular interest is the material discussing reverse mortgages. The Guide has a balanced review of reverse mortgages, including pros and cons.

For the complete guide, press here.

Larry Morris writes and says regarding the new reverse mortgage offering from SECU in North Carolina, “I like some of the bells and whistles, but find it interesting that in their brochure, they are comparing a fixed SECU Reverse Mortgage at 6.75% with an adjustable HECM Reverse Mortgage at 6.75%. So they are just looking at fees, not the reality of where the CMT currently is and historically has been. It will be interesting to see how much of their members money they can loan before they realize they are in the Real Estate business. Watch them invest their pension dollars in this as well…”

Credit unions, of course, are a source of financing outside the orb of commercial banks. They have different, and from a consumer perspective, often better economics. When the North Carolina State Employee’s Credit Union (SECU) says it will offer a reverse mortgage with “a fixed, stable rate of interest, a simple interest accrual method, a low origination fee of 1%, no mortgage insurance and no monthly service fees” you have to assume these folks did not set such fees blindly.

One of the reasons that commercial bankers have tried to close down credit unions is that credit unions exist to benefit members, not management.

In 2005 I gave a speech before ARELLO, the Association of Real Estate License Law Officials and said that “according to The Washington Post there are some 9,000 non-profit, member-owned credit unions nationwide. Banks want credit unions to convert and become for-profit mutual savings banks. Why? According to the Post, credit unions are ‘low cost’ competitors who have ‘exerted a downward pressure on the fees banks charge.’” (See: Banks Look to Make Converts of Credit Unions, Feb. 11, 2006)

“Now you might think that the National Credit Union Administration, the federal regulator, would have some say in the conversion process. Nope. The Post reports that under a 1998 law the ability of the NCUA to block conversions was simply eliminated.”

I would expect that if SECU’s low-cost reverse mortgage concept spreads that the obvious result would be an effort to eliminate the ability of credit unions to originate reverse mortgages by changing the law. In some eyes, that’s a lot easier than meaningful competition in the marketplace.

Great minds think alike — largely.

Kiplinger’s headline tells us that “seniors Get a Gift from the New Housing Law” while TheStreet.com headline explains that “Senior Homeowners Get Lift From Housing Bill.”

Kiplinger notes that “homeowners age 62 and older will now be able to tap a greater amount of their home’s equity. The maximum amount for a reverse mortgage has been upped nationwide by more than a quarter of a million dollars, to $625,500. That flat limit replaces the old rule that set limits from $200,160 to $362,790 depending on where the borrower lived.”

TheStreet.com says that “now there will be a higher borrowing level on FHA reverse mortgages — with $625,000 of home value as a cap, and a $417,000 borrowing limit. Fees will be capped at 2% of the first $200,000 borrowed, and 1% on the balance — with an absolute maximum of $6,000 in fees.”

Both stories are good, but the Terry Savage column on TheStreet.com is the better of the two because it goes into far more depth about reverse mortgages generally.

For the full story, see:

Seniors Get a Gift from the New Housing Law

and

Senior Homeowners Get Lift From Housing Bill

The North Carolina State Employee’s Credit Union (SECU) has come out with a reverse mortgage product which is truly unique: “The Credit Union loan offers a fixed, stable rate of interest, a simple interest accrual method, a low origination fee of 1%, no mortgage insurance and no monthly service fees!”

It will be interesting to see whether the North Carolina idea is financially viable and, if so, whether it spreads to other states.

The release below speaks for itself. If you’re in a state other than North Carolina and belong to a credit union, you might want to share the release with local CU officials.

State Employees’ Credit Union Rolls out Consumer-Friendly Reverse Mortgage

RALEIGH, N.C.–(BUSINESS WIRE)–State Employees’ Credit Union (SECU) is pleased to announce a consumer-friendly reverse mortgage designed to help senior members utilize the wealth in their homes in the best manner. Setting it apart from other industry-standard reverse mortgages, the Credit Union loan offers a fixed, stable rate of interest, a simple interest accrual method, a low origination fee of 1%, no mortgage insurance and no monthly service fees!

Many older homeowners have a large amount of equity in their homes but still have a need for more income on a monthly basis to balance their budget. In some cases these homeowners do not qualify for typical home equity loans and need another option in order to stay in their home or help pay for home healthcare. One alternative is a reverse mortgage loan. A reverse mortgage is a loan against a residence to provide cash to assist with living expenses, typically in the form of a lump sum or fixed monthly disbursement to the borrower. Borrowers must be 62 years of age, utilize the home as their primary residence and receive consumer education on the product from a NC certified reverse mortgage counselor.

Phil Greer, Senior Vice President of Loan Administration states, “SECU investigated the reverse mortgage marketplace and we saw numerous opportunities to provide this important product to our members, reducing the typical costs being assessed. Through reduced fees, a fixed rate of interest and a simple interest accrual method, we will provide the member with an enhanced use of their equity. This will result in more funds being made available to the member in order to assist with their day-to-day living expenses. The features of the SECU reverse mortgage are very consistent with our ‘Do the Right Thing’ philosophy.”

SECU sought assistance from various senior-affiliated organizations in designing a beneficial reverse mortgage product. To provide additional guidance and financial education on reverse mortgages, SECU also published a booklet for members to learn about the product. The booklet is available via the SECU website at www.ncsecu.org.

Mary Reca Todd, Manager of Supportive Housing for the NC Housing Finance Agency, comments on the helpfulness of certified counselors, “A reverse mortgage can be a useful financial option for some older homeowners who need to supplement their retirement income to help pay for essential needs. Since each homeowner’s situation is unique and reverse mortgages differ significantly in payment options and fees, it is important to receive face-to-face counseling with a certified reverse mortgage counselor prior to applying for a loan. Certified reverse mortgage counselors in North Carolina are trained to provide consumers with information on reverse mortgage products and other services available to older adults that will help them make informed financial decisions.”

Mark Pearce, Deputy Commissioner of Banks for the State of North Carolina, adds, “If you are considering a reverse mortgage, you should shop around and talk to a counselor to make sure you are getting the product that is right for you. Reverse mortgages are complex products and choosing the wrong one can cost you thousands of dollars and even possibly your home.”

Ed Regan, Executive Director of the NC Retired Governmental Employees’ Association, remarks, “Seniors in the market for this type of product can be extremely vulnerable. There are media ads promising ‘too good to be true’ products that are ultimately not in the best interest of the borrower. Consumer education is crucial in making sure the older population does not fall victim to what could become the next frontier for mortgage scams. We are pleased SECU has developed a consumer-friendly product to assist NC’s retired state employees.”

Jerrie J. Lattimore, Administrator of the Department of Commerce’s North Carolina Credit Union Division, reinforces, “I strongly encourage all North Carolinians considering a reverse mortgage to investigate the available options, consult with family members and compare products in the marketplace.”

About SECU

SECU is a non-profit financial cooperative owned by its members. SECU has been providing the employees of the State of North Carolina and their families with consumer financial services for over 70 years. Currently serving more than 1.4 million members, SECU provides services through 218 branch offices, 980 ATMs, two call centers and a website — www.ncsecu.org.

Should you sell your life insurance policy? You should buy a life insurance policy just to have something to sell? How does such an arrangement compare to a reverse mortgage as a way to raise cash?

Writing on Newsday, Saul Friedman says “We were among the first, more than a year ago, to call your attention to “life settlements.”

“That’s a new and, to my mind, a potentially unsavory business now referred to as “Stranger Owned Life Insurance” (SOLI), wherein you sell your life-insurance policy to an investor for more than its cash value. Or, closer to fraud, you are advised to buy a big policy in order to sell it to the highest bidder, and you name the investor as beneficiary.”

Reminds me of the old Groucho Marx show, You Bet Your Life….

“For cash-strapped older people on fixed incomes,” says Friedman, “it’s tempting to sell a long-held policy in order to get some cash and quit paying premiums, rather than turning it back to the insurance company for its cash value and going without insurance. But taking out an FHA-insured reverse mortgage on the equity in your home is safer, and you continue to own your home.”

Friedman says it’s better to borrow against a universal life-insurance policy because unlike the sale of an insurance policy the proceeds from a loan are not taxable income. This is similar to a reverse mortgage because, again, there are no taxable proceeds because the tax derived from a reverse mortgage is loan money and not sale money.

Friedman mentions two companies that make loans against insurance policies, for those who want to look into this further.

And for those who really want to look into this further, please speak with your insurance broker and an attorney who deals with elder law before signing anything with anyone.

For the full story, see: Gray Matters: SOLI: a stranger is your beneficiary

With a jobs shortage and huge number of adult children living with their parents, there ought to be a way to get the youngsters out of the house. And now, thanks to the new FHA reform bill, there is.

As a parent you can always give a gift to a child to help them buy a home. But a “gift” is something that you don’t get back and doesn’t pay interest, not an option for a lot of families that are not among the rich and famous.

Under the new FHA package, however, there is a delightful option: You can give the children a loan and it will count as “cash” for FHA downpayment purposes.

This is likely to be a better idea for most parents than an outright gift. You can structure the loan as you like, maybe not requiring payments or interest for awhile, or maybe not requiring repayment after so many years. And you can forgive the debt in your estate, if you want.

Given that so many couples wind up in divorce court, a loan rather than a gift may well be practical and prudent alternative to an outright gift.

Loans, of course, should be in writing, with all terms plainly spelled out. An attorney or legal clinic can help with the paperwork and specific advice.

SEC. 2113. CASH INVESTMENT REQUIREMENT AND PROHIBITION OF SELLER-FUNDED DOWN PAYMENT ASSISTANCE.

Paragraph (9) of section 203(b) of the National Housing Act (12 U.S.C. 1709(b)(9)) is amended to read as follows:

“(9) CASH INVESTMENT REQUIREMENT. –

“(A) IN GENERAL.—A mortgage insured under this section shall be executed by a mortgagor who shall have paid, in cash or its equivalent, on account of the property
an amount equal to not less than 3.5 percent of the appraised value of the property or such larger amount as the Secretary may determine.

“(B) FAMILY MEMBERS.—For purposes of this paragraph, the Secretary shall consider as cash or its equivalent any amounts borrowed from a family member (as such term is defined in section 201), subject only to the requirements that, in any case in which the repayment of such borrowed amounts is secured by a lien against the property, that –

“(i) such lien shall be subordinate to the mortgage; and

“(ii) the sum of the principal obligation of the mortgage and the obligation secured by such lien may not exceed 100 percent of the appraised value of the property plus any initial service charges, appraisal,inspection, and other fees in connection with the mortgage.

“(C) PROHIBITED SOURCES. — In no case shall the funds required by subparagraph (A) consist, in whole or in part, of funds provided by any of the following parties before,
during, or after closing of the property sale:

“(i) The seller or any other person or entity that financially benefits from the transaction.

“(ii) Any third party or entity that is reimbursed, directly or indirectly, by any of the parties described in clause (i).

This subparagraph shall apply only to mortgages for which the mortgagee has issued credit approval for the borrower on or after October 1, 2008.”

If you’re concerned with credit card practices then now is the time to say something.

The Federal Reserve has proposed modest changes to curb credit card abuses — not touching 28 percent interest rates, of course, but at least getting rid of several practices as described below.

You have a chance to say something — but your thoughts must be received by August 4th — next Monday. The addresses are:

Mail:
Regulation Comments,
Chief Counsel’s Office,
Office of Thrift Supervision,
1700 G Street, NW.,
Washington, DC 20552
Attention: OTS–2008–0004.

Facsimile:
(202) 906–6518.

Hand Delivery/Courier:
Guard’s Desk,
East Lobby Entrance,
1700 G Street, NW.,
from 9 a.m. to 4 p.m. on business days,
Attention: Regulation

The full proposal is at:

http://edocket.access.gpo.gov/2008/pdf/E8-10247.pdf

The proposal news release is below:

The Federal Reserve Board on Friday proposed rules to prohibit unfair practices regarding credit cards and overdraft services that would, among other provisions, protect consumers from unexpected increases in the rate charged on pre-existing credit card balances.

The rules, proposed for public comment under the Federal Trade Commission Act (FTC Act), also would forbid banks from imposing interest charges using the “two-cycle” billing method, would require that consumers receive a reasonable amount of time to make their credit card payments, and would prohibit the use of payment allocation methods that unfairly maximize interest charges. They also include protections for consumers that use overdraft services offered by their bank.

“The proposed rules are intended to establish a new baseline for fairness in how credit card plans operate,” said Federal Reserve Chairman Ben S. Bernanke. “Consumers relying on credit cards should be better able to predict how their decisions and actions will affect their costs.”

The proposed changes to the Board’s Regulation AA (Unfair or Deceptive Acts or Practices) would be complemented by separate proposals that the Board is issuing under the Truth in Lending Act (Regulation Z) and the Truth in Savings Act (Regulation DD).

The provisions addressing credit card practices are part of the Board’s ongoing effort to enhance protections for consumers who use credit cards, and follow the Board’s 2007 proposal to improve the credit card disclosures under the Truth in Lending Act. The FTC Act proposal includes five key protections for consumers that use credit cards:

Banks would be prohibited from increasing the rate on a pre-existing credit card balance (except under limited circumstances) and must allow the consumer to pay off that balance over a reasonable period of time.

Banks would be prohibited from applying payments in excess of the minimum in a manner that maximizes interest charges.

Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.

Banks would be prohibited from imposing interest charges using the “two-cycle” method, which computes interest on balances on days in billing cycles preceding the most recent billing cycle.

Banks would be required to provide consumers a reasonable amount of time to make payments.

The proposal would also address subprime credit cards by limiting the fees that reduce the available credit. In addition, banks that make firm offers of credit advertising multiple rates or credit limits would be required to disclose in the solicitation the factors that determine whether a consumer will qualify for the lowest rate and highest credit limit.

“Unfair practices can impose significant costs on credit card users,” said Federal Reserve Board Governor Randall S. Kroszner. “The new proposed rules would provide the benefit of substantial protection against practices that can harm consumers.”

The Board’s proposal under the FTC Act also addresses acts or practices in connection with a bank’s payment of overdrafts on a deposit account, whether the overdraft is created by check, a withdrawal at an automated teller machine, a debit card purchase, or other transactions. The proposal requires institutions to provide consumers with notice and an opportunity to opt out of the payment of overdrafts, before any overdraft fees or charges may be imposed on consumers’ accounts.

To ensure that consumers enjoy the same protections regardless of the institution from which they obtain a credit card or receive overdraft protection, the Board’s FTC Act proposal is issued concurrently with substantively similar proposals by the Office of Thrift Supervision and the National Credit Union Administration that would apply, respectively, to savings associations and federally-chartered credit unions.

Like the last two minutes in basketball, changes continue to flow back and forth on Capitol Hill as various versions of the FHA reform package are passed.

Thomas, the electronic information service operated by the Library of Congress, has now posted the final version of the FHA reform package and — once more — we have changes related to reverse mortgages.

In the enrolled version of the legislation, the one being sent to the President — we are back to caps on reverse mortgage origination fees.

The new fee schedule will allow origination fees equal to 2 percent of the first $200,000 of the maximum claim amount, 1 percent of every thing above with a $6,000 cap per transaction.

The actual language in the bill says the following:

(c) LIMITATIONON 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 by adding at the end the following new subsection:

“(r) LIMITATIONON ORIGINATION FEES.—The Secretary shall establish limits on the origination fee that may be charged to a mortgagor under a mortgage insured under this section, which limitations shall—

“(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) the 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;

“(5) have the same effective date as subsection (m)(2) regarding the limitation on principal obligation; 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, produces dollar increases that exceed $500.”

Given the news recently, a lot of people have been wondering just how safe their money is in local banks — and in big, huge banks as well.

Banks are supposed to have significant reserves because there will always be losses. However, when reserves are not enough we have in place a federal insurance program which provides coverage for most borrowers and most deposits, but not all.

“Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation’s banking system,” says the FDIC about itself. “The FDIC insures deposits at the nation’s 8,494 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars — insured financial institutions fund its operations.”

Hold onto the contact information below… just in case.

FDIC’s Depositor’s Bill of Rights

1) You have the right to automatic deposit insurance coverage when you open a deposit account at an FDIC-insured bank, with no additional cost or action on your part.

2) You have the right to separate FDIC insurance coverage for deposits held at different FDIC-insured banks.

3) You have the right to confirm that a bank is insured by using the FDIC’s Bank Find service (www2.fdic.gov/IDASP/main_bankfind.asp) or by calling the FDIC toll-free at 1-877-275-3342.

4) You have the right to deposit insurance coverage of $100,000 for your deposits at an FDIC-insured bank – up to $250,000 for your IRA deposits.

5) You have the right to deposit insurance coverage of more than $100,000 at a single bank when deposits are held in different “ownership categories,” such as a single, joint and trust accounts.

6) You have the right to confirm that your deposits are within the insurance limits by using the FDIC’s Electronic Deposit Insurance Estimator and other online resources at www.fdic.gov/deposit/deposits or by calling the FDIC at 1-877-275-3342.

7) You have the right to be informed when a financial product offered by your bank is not covered by FDIC insurance.

You have a right, if your bank fails, to prompt access to your insured deposits.

9) You have the right, if you are an uninsured depositor, to receive distributions from the receivership as the sale of assets permits.

10) You have the right to sleep well, knowing that since the creation of the FDIC 75 years ago, no depositor has ever lost one penny of insured deposits.

The final version of H.R. 3221: The Housing and Economic Recovery Act of 2008, has some real teeth when it comes to selling annuities and other insurance products to reverse mortgage borrowers.

Buried in the 636-page bill is the language below. In basic terms, it says that mortgage lenders are welcome to sell reverse mortgages but they cannot be paid for the sale of insurance products or annuities.

Some seniors have obtained reverse mortgages for the purpose of buying annuities from the same folks who sold them the reverse mortgage — only to discover that the rate of return on the annuity is less than the cost of the reverse mortgage and to also discover that the annuity has a huge prepayment penalty.

This is one the Congress got right. In particular, congratulations and a thank you to Sen. Claire McCaskill (D-MO. She led the effort to block annuity sales to seniors who want reverse mortgages, and in doing so she has helped homeowners nationwide. You can imagine that there are a bunch of people in the insurance industry who are fairly peeved with Sen. McCaskill for having the gall to seek fairness for seniors.

Language from the final FHA bill is below:

(n) Requirements on Mortgage Originators-

(1) IN GENERAL- The mortgagee and any other party that participates in the origination of a mortgage to be insured under this section shall–

(A) not participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity; or

(B) demonstrate to the Secretary that the mortgagee or other party maintains, or will maintain, firewalls and other safeguards designed to ensure that–

(i) individuals participating in the origination of the mortgage shall have no involvement with, or incentive to provide the mortgagor with, any other financial or insurance product; and

(ii) the mortgagor shall not be required, directly or indirectly, as a condition of obtaining a mortgage under this section, to purchase any other financial or insurance product.

(2) APPROVAL OF OTHER PARTIES- All parties that participate in the origination of a mortgage to be insured under this section shall be approved by the Secretary.

(o) Prohibition Against Requirements To Purchase Additional Products- The mortgagee or any other party shall not be required by the mortgagor or any other party to purchase an insurance, annuity, or other additional product as a requirement or condition of eligibility for insurance under subsection (c).

Also:

SEC. 2122. HOME EQUITY CONVERSION MORTGAGES.

(a) In General- Section 255 of the National Housing Act (12 U.S.C. 1715z-20) is amended–(1) in subsection (b)(2), insert `real estate,’ after `mortgagor’,';

(2) by amending subsection (d)(1) to read as follows:

(1) have been originated by a mortgagee approved by the Secretary;’;

(3) by amending subsection (d)(2)(B) to read as follows:

(B) has received adequate counseling, as provided in subsection (f), by an independent third party that is not, either directly or indirectly, associated with or compensated by a party involved in–

(i) originating or servicing the mortgage;

(ii) funding the loan underlying the mortgage; or

(iii) the sale of annuities, investments, long-term care insurance, or any other type of financial or insurance product;

Our sister site, FHALoansPros.com report that by a vote of 72-13 the Senate on Saturday wrapped up H.R. 3221: The Foreclosure Prevention Act of 2008.

Next, the bill — which includes important provisions for FHA reverse mortgage borrowers –  moves to President Bush for a signature or veto. The White House says it will now sign the bill, a measure which it had threatened to veto.

A veto, however, would be pointless. Senate support included 43 Democrats, 27 Republicans and two independents. All 13 opposed were Republicans and 15 senators did not vote. In other words, a veto-proof majority.

In the House, passage was by a vote of 272-152. This means 63 percent of the House members approved of the measure — not enough to overcome a veto.

However, the politics of this matter are changing daily and the House vote was before release of the RealtyTrac.com foreclosure results for the second quarter of 2008. Realty Trac found that foreclosure filings “were reported on 739,714 U.S. properties during the second quarter, a nearly 14 percent increase from the previous quarter and a 121 percent increase from the second quarter of 2007. The report also shows that one in every 171 U.S. households received a foreclosure filing during the quarter.”