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.

————————————

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.

HUD reports that as of mid-April it had received 73,840 home equity conversion mortgage (HECMs) applications so far in fiscal 2008, the accounting period that began October 1st. This compares with 59,913 reverse mortgages in the same period during FY 2007.

HUD to date has insured 59,413 HECMs, compared with 57,022 reverse loans it insured during the same period in FY 2007.

It seems odd that while applications are up 23.2 percent, actual HECM loan endorsements have risen only 04.2 percent. This is also curious when you see that overall FHA endorsements are 75.5 percent higher than a year ago.

Part of the answer may be that some seniors are waiting for reverse mortgages with higher FHA loan limits.

Another reason for modest HECM growth may seem a little odd: Reverse mortgages insured by HUD have been around for a number of years — seniors have not come to HUD because the private marketplace has closed down, FHA-backed reverse mortgages have long had a dominant position in the marketplace. Alternatively, many forward borrowers have been looking for an alternative to toxic mortgages and subprime loans. The result is that reverse mortgage originations are humming along at record levels for HUD — but the demand for forward FHA loans has increased far more.

One could see a substantial increase in HECM demand if loan limits were raised — and if HUD insurance premiums declined. Stay tuned.

Bell’s third annual Affluent Boomer Survey of 500, high-net-worth individuals who turn 60 this year found that:

___Almost 30 percent of affluent boomers say they feel more financial stress now than just six months ago.

___More than 25 percent either lost jobs in the last 12 months — or know someone 60, or over, who has.

__ Some 22 percent of affluent boomers who have made lifestyle changes due to the economy are contributing less to charity.

___21 percent canceled, shortened or postponed a vacation.

___18 reduced retirement savings.

___11 percent report that they will postpone retirement altogether.

The Affluent Boomer Survey was conducted by Opinion Research Corporation from April 1-6, 2008, among a random sample of 500 adults comprised of 250 men and 250 women who were born in 1948 and have investable assets of $1 million or more.

Reading this survey several thoughts emerged:

First, a lot of people don’t have investable assets of $1 million or more. You can guess with some logic that those with lessassets are being impacted to an even greater degree by the current economic slowdown than those at the upper crust.

Second, the value of a home is not usually seen as an ”investment asset.” However that money can be accessed — if that’s what a property owner wants — by selling the property and downsizing, getting a home equity mortgage (and facing repayment costs) or getting a reverse mortgage.

Third, the economic and policy decisions made in Washington have not been cost-free. As you look at the results of the Bell study you can see that some costs have begun to come home — literally and visibly.

But then came 2006, a seminal year. The HECM 100 (with a margin of 100 basis points) and the fixed-rate HECM were introduced. Reverse mortgages were poised to jump into the mainstream. Additional programs with even lower margins were introduced. The industry proudly boasted that there were 22 different reverse mortgages programs from which consumers could choose.

In addition, the Department of Housing & Urban Renewal (HUD) approved the LIBOR (London Interbank Offered Rate) index, an alternative to indexes based on Treasury securities. The LIBOR index is the language of Wall Street and the worldwide investing community. Ginnie Mae was set to securitize these loans as well. Foreign investors love to purchase Ginnie Mae certificates.

And then came the Alt-A and subprime debacles. Wall Street lost its appetite for any type of mortgage-backed securities. Programs were withdrawn from the drawing board and from the market place. Programs with margins lower than the HECM 100 were scrapped. Proprietary programs started to vanish. Many such programs reduced their benefit amounts as community after community were deemed to be in a “declining” housing market.

The available reverse mortgage programs, with a few exceptions, now resemble the mix of programs that existed at the end of 2005.

In spite of the paucity of programs, the number of seniors obtaining reverse mortgages has climbed steadily. Of all the reverse mortgages that have closed since 1990, 92% have closed since 2000. Astonishingly, 60% have closed in the past 28 months.

————————–

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.

“Facing foreclosure on her Sebastopol home and Petaluma rentals,” Anna n-ha(cq) Millee used a reverse mortgage to pull cash out of the properties and pay off her lenders,” according to One borrower’s return from edge of foreclosure. The paper says the borrower was “able to tap $276,000 in equity based on her age and the value of the Sebastopol home. Now, she doesn’t have to pay the $1,500 mortgage on the Sebastopol home, leaving more money for daily needs.”

Notice that she not only saved her home from foreclosure, she also saved a rental unit with the reverse mortgage funding she was able to get.

The story continues:

“There also was enough money left to improve the income property. She plans to eventually put tenants back into the units and restore lost income that led to her financial dilemma.

“I was in total panic. Right now, this meets my needs completely,” she said.

“Reverse mortgages have gained popularity as retirees find turning equity into cash can meet different goals in their lives.

“Paying off home loans, pulling out cash for living and health care expenses, making home repairs top the list. For the 69-year-old n-ha Millee, it’s all of the above.”

You don’t like to see anyone forced to borrow for any reason. That said, at a time when lenders are lopping off withdrawals from home equity lines of credit (HELOCs) and closing the door to new financing, at least Ms. Millee had somewhere to turn and — no less important — she didn’t lose her home.

“She was able,” says the paper, “to tap $276,000 in equity based on her age and the value of the Sebastopol home. Now, she doesn’t have to pay the $1,500 mortgage on the Sebastopol home, leaving more money for daily needs.”

Reverse mortgages were never intended to save homes from foreclosure. That said, saving a home from foreclosure seems to be a small-but-growing use for reverse mortgages. For those who may face the loss of their homes, the idea of a reverse mortgage lifeline has great value — especially as alternative financial options disappear.

For the complete story, see: One borrower’s return from edge of foreclosure, May 4, 2008

As you check out the astonishingly-abusive practices which the Fed wants to end take a look at your credit cards. If there is any debt that ought to be paid off in full, it’s credit card debt. Credit cards cost big money, the interest on credit cards is not generally deductible, and credit card debts reduce credit standing.

The actual reform proposal runs 162 pages, however a look at the major points — as outlined by the Federal Reserve – can be very educating….

Regulation AA (Unfair Acts or Practices)

The proposal would amend Regulation AA to prohibit unfair or deceptive acts or practices by banks in connection with credit card accounts and overdraft services for deposit accounts.

Credit Cards

___Time to Make Payments. The proposal would prohibit banks from treating a payment as late unless the consumer has been provided a reasonable amount of time to make that payment. There would be a safe harbor for banks that send periodic statements at least 21 days prior to the payment due date.

___Allocation of Payments. When different annual percentage rates (APRs) apply to different balances on a credit card account (for example, purchases and cash advances), banks would have to allocate payments exceeding the minimum payment using one of three methods or a method equally beneficial to consumers. They could not allocate the entire amount to the balance with the lowest rate. A bank could, for example, split the amount equally between two balances. In addition, to enable consumers to receive the full benefit of discounted promotional rates (for example, on balance transfers), during the promotional period payments in excess of the minimum would have to be allocated first to balances on which the rate is not discounted.

___Applying Rate Increases to Existing Balances. The proposal would prohibit banks from increasing the interest rate on outstanding balances unless the increase is due to: (i) the operation of an index (in other words, the rate is a variable rate); (ii) the expiration or loss of a promotional rate (provided the rate is not increased to a penalty rate); or (iii) the minimum payment not being received within 30 days of the due date.

___Two-Cycle Billing. The proposal would prohibit banks from imposing finance charges based on balances on days in billing cycles preceding the most recent billing cycle, a practice that is sometimes referred to as two-cycle billing.

___Financing of Security Deposits and Fees. The proposal would address concerns regarding subprime credit cards by prohibiting banks from financing security deposits and fees for credit availability (such as account-opening fees or membership fees) if charges assessed during the first twelve months would exceed 50 percent of the initial credit limit. The proposal would also require financed security deposits and fees exceeding 25 percent of the initial credit limit to be spread over the first year.

___Credit Card Holds. The proposal would prohibit banks from imposing a fee when the credit limit is exceeded solely because a hold was placed on available credit. This can occur where the final dollar amount of a transaction was not known in advance (for example, when a consumer checks into a hotel, a hold is placed for the expected cost of the stay).

___Firm Offers of Credit. The proposal would require banks making firm offers of credit advertising multiple APRs or credit limits to disclose the factors that determine whether a consumer will qualify for the lowest APR and highest credit limit advertised (for example, the consumer’s credit history, income, and debts). A safe harbor disclosure is provided.

Overdraft Services

___Right to Opt Out. The proposal would prohibit banks from imposing a fee for paying an overdraft unless the bank has provided the consumer with an opportunity to opt out of the payment of overdrafts and the consumer has not done so. The opt-out right would apply to all transaction types. Banks also would be required to provide consumers a partial opt-out for overdrafts resulting from ATM and point-of-sale transactions.

___Debit Holds. The proposal would prohibit banks from imposing a fee when the account is overdrawn solely because a hold was placed on funds in the consumer’s deposit account.This can occur where the final dollar amount of the transaction was not known in advance (for example, when a consumer purchases fuel at the pump, a hold is placed for the estimated amount of fuel that will be purchased).

Regulation Z (Truth in Lending)

The proposal would also amend Regulation Z to complement the proposed amendments to Regulation AA, including the following:

___Due Dates for Mailed Payments. The proposal would provide that mailed credit card payments received by 5 p.m. on the due date must be considered timely. In addition, if a creditor does not receive or accept mailed payments on the due date (for example, when the due date falls on a Sunday or holiday), a payment received by mail on the next business day would be considered timely.

Regulation DD (Truth in Savings)

The proposal would also amend Regulation DD to complement the proposed amendments to Regulation AA, including the following:

___Disclosure of Aggregate Overdraft Fees. The proposal would extend to all banks and savings associations the requirement to disclose on periodic statements the aggregate dollar amounts charged for overdraft fees and for returned item fees (for the month and the year-to-date). Currently, only institutions that promote or advertise the payment of overdrafts must disclose aggregate amounts.

___Disclosure of Balance Information. The proposal would require banks and savings associations that provide account balance information through an automated system to disclose the amount of the consumer’s funds available for immediate use or withdrawal, without including additional funds the institution may provide to cover overdrafts.

The study by the Wall Street Journal and the Harris Interactive Personal Finance Poll found that the “most common reasons for premature withdrawals from retirement investment products include a family member losing a job and the cost of a down payment on a home. Financial pressures that motivate premature withdrawals seem to begin at age 35, when nearly one-third of respondents report doing so. Respondents under the age of 35 are more likely to withdraw funds for mortgage payments and to pay for an event than older respondents.”

“Wealthier respondents,” according to the study, those “with income of at least $50K are less likely to have prematurely withdrawn funds from their retirement investment products (70% of those who are actively planning for retirement have not done so). Those in the lowest income tier, under $35K, are more likely to be affected by a death in the family and require premature withdrawals — however only 35% of this segment is actually planning for retirement. Adults employed full time feel the least pressure to withdraw funds prematurely from their retirement investment products, with nearly 70 percent of those actively planning for retirement never having done so.”

Importantly, the study found that once withdrawn it’s tough to return pension funds.

“Nearly one-third of adults who have prematurely withdrawn funds from their retirement products cannot pay them back, and 45 percent either cannot pay back the funds or have not begun to do so. Those ages 45-54 are more likely to be unable to pay back their premature withdrawals. The youngest adults, 18-34, seem to be more financial responsible or less financially burdened, and are more likely to be currently making payments. Among the oldest respondents who have prematurely withdrawn funds, one-quarter of respondents are still actively contributing to their retirement investment products.

“Even among the highest income earners, over $75K, more than one-quarter of respondents cannot pay back their premature withdrawals. The lowest income earners are more likely to have not begun to pay back their premature withdrawals.”

In general terms, withdrawing money from retirement funds is not a good idea because there may be taxes and penalties, the money withdrawn is no longer available for the future and certain protections against seizure in case of bankruptcy are lost.

Is it better to get a reverse mortgage rather than withdraw money from a retirement account? In some cases the reverse mortgage may actually represent a lower cost because there are no taxes on the money obtained.

For specifics, speak with a financial counselor and compare the costs of all alternatives if you have a need for funds.

For more information regarding this study, go to HarrisInteractive.

An unprocessed diamond, after all, does not look like the finished product we know it to be. Charcoal, graphite and diamond are allotropes of carbon. To the untrained eye, a diamond specimen found in the earth, would be mistaken as a piece of trumpery. Once cleaned up, it too becomes a thing of beauty.

Similarly, the reverse mortgage is usually not seen in its pristine form because it has been sullied by unyielding Babel promulgated by those who do not understand the program.

Today, it is easy to equate all mortgages with the demotic label “bad”. Well all mortgages are not bad. Many mortgages are quite good. The media conflates the two. Wall street conflates the two. Government conflates the two. It is a drastic mistake to take the position that all mortgages are bad. Certainly the one mortgage program that does not deserve this moniker is the reverse mortgage. Granted, it may not be perfect, but it is by no means “bad”.

A reverse mortgage lets seniors sleep at night. Worry over financial matters is the paramount reason seasons cannot sleep. Worrying about things will not make them better. Wishing that circumstances change would not make things better. Action is what is needed. When our seniors take action they can make things better. When a senior acts he/she becomes A Champion Tomorrow.

A reverse mortgage makes our seniors champions. They become winners because they changed their lives. The reverse mortgage will enable those borrowers to convert equity into cash. A reverse mortgage will allow seniors to access the funds in a variety of ways. A reverse mortgage will allow borrowers to even change how these funds are accessed.

A reverse mortgage is easy to get provided the owner/borrower(s) are 62 and are using the home as their primary residence. A reverse mortgage can overcome the financial tsunami that has opened wounds between parent & adult children.

Although over $2 billion a month is spent by adult children on their parents, many do not have the financial wherewithal to simultaneously care for their immediate family and parents. Thus the intervention of the reverse mortgage allows the parents to reclaim their independence and dignity without the need to go to their children for financial aid.

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.

According to HUD’s report, during the first six months of the fiscal year (in the world of government accounting, the fiscal year starts October 1st), the Department had received 762,266 single family program applications (up almost 150 percent from 2007), including 73,709 HECM applications.

On the approval side of the ledger, the FHA endorsed 351,615 forward mortgages as well as 55,218 reverse mortgages.

What these figures show is that the FHA program is enjoying huge demand because many toxic loans are no longer available. Also, investors want the safety of mortgage-backed securities which include loans made with sane underwriting standards.

In addition, of course, it looks as though the reverse mortgage program is going to have another banner year. Last year there were 108,287 reverse mortgages endorsed by HUD, this year we already have 55,218 even though higher loan limits have not been available to reverse mortgage borrowers.

(Source: FHA)

While maximum single-family FHA loan limits have been doubled for 2008, that has not been the case with FHA reverse mortgages. They remain stuck at 2007 levels, not good news for many households in high-cost areas that would like to access more equity than is now possible.

Swanson also said “with an estimated $4.3 trillion in home equity held by Americans age 62 and older, this is an attractive market niche for lenders.

“The products are suitable for some borrowers, but national senior advocacy groups have reported an increase in seniors who are pitched reverse mortgages that are too expensive or not suitable.

“They also report seniors being duped into taking out a reverse mortgage merely to put the proceeds into an investment like a long-term deferred annuity, where the cost of the mortgage outweighs any investment gains on the new investment. The winner in those cases: the agent, the mortgage company and the insurance company. The loser: the senior citizen.”

Swanson says that the FBI has now noticed a “a spike in reverse mortgage fraud, both as to excessive fees and abusive marketing practices.”

As we say, one solution to the problem of inappropriate or plain wrong reverse mortgages is to get proper counseling. To us this means prospective reverse mortgage borrowers should sit down with an attorney who specializes in elder law before signing any paperwork.

For the full story, please see: Suitable for some, a bad deal for others — borrower, beware, April 27, 2008.