04.13.2009

And… the reverse mortgage subject of the day is…. HUD mortgageee letter 2009-10.

This letter, introduced on March 27, relates to the mandatory reverse mortgage counseling.  To review, all persons who obtain a FHA insured reverse mortgage are required to obtain reverse mortgage counseling from a HUD approved counselor who is COMPLETELY dissociated with the transaction. 

The purpose of the counseling is to ensure that the borrower is not being “sold” into something that he or she does not understand via the presentation of false information and 1/2 truths by a loan officer needing to make a car payment.   That sounds like something that might have been a good idea for those who closed on interest only LIBOR based ARMs or negatively amortizing pay option ARMs.  Required counseling might have saved us a majority of the agony in the current housing market!

That having been said, the primary purpose of the new mortgagee letter is to restrict the methodologies by which a senior may request the counseling.  As a direct quote:  “the lender may not contact a counselor or counseling agency to refer a client.” 

This will be a big change for the process of obtaining that counseling as it has been practiced over the years since the government insured reverse mortgages were introduced.  Standard procedure has always been for the loan officer or processor to “orchestrate” or “implement” the ordering of that counseling so that it actually gets done.  As an extreme example, Wells Fargo actually used to have HUD approved reverse counselors on staff who would conduct that counseling.  That could be construed as a conflict of interest, no?

The new rules will require that the senior be offered a list of approved counselors, and that senior must contact the counselor of choice on his or her own behalf to schedule counseling.  The exact quote is:  “Prospective borrowers must initiate communication with the counseling agency on their own, without the assistance of the lender.” 

Further down you will read:  “HUD is aware of instances in which a lender, or lenders, have dialed a counseling agency’s phone number and then handed the phone to the borrower to schedule counseling, or the lender entered the borrower’s contact information into a web-based system which automatically put that borrower’s name in a queue to be called by a counselor.  These two examples run counter to our requirement that the borrower must take the initiative to contact a counseling agency when and if he or she is prepared to pursue the HECM.”

There are two sides to this story, and both have merit.  One side is that the ENTIRE process has to be completely handled by people who do NOT have a vested interest in the closing of the transaction in order to insure objectivity.  The very fact that this letter has surfaced suggests that HUD has encountered situations where approved counselors are on the “take” to make sure they don’t say anything to discourage the transaction.

The other side of this controversy is that many seniors are very timid when it comes to taking any major financial actions, regardless of how disparately they are needed.  I’m going to site an example of one such senior who I closed just last week. 

I originally took  Jane Smith’s (as she will be called) application in November of 2008.  She lives in a free and clear home, but her husband passed away two years ago.  In the absence of her husband, her total income is $1200 / month.  Jane has repeated trouble with her chronically unemployed adult son.  That son recently had a “minor” issue that caused him to become incarcerated.  Jane pawned the title to her 2004 year model Chevrolet truck to pay the $3,500 bail required.  And no… she did not have $350 to go to a bail bandsman.  (She probably didn’t know that she could do that, either).

So anyway, that was September of 2008.  I spoke to her in November of 2008.  At that point, she had made $700 in payments on that truck pawn, and SHE STILL OWED THE ORIGINAL $3,500.   Yes, In Georgia, you can charge 25% a month for the first 3 months, and 12.5% per month there after on pawn transactions.  She went to a “cheapie” and got 10% per month terms. 

Let’s see, those payments are $350 / month, and she makes how much a month?  Too, she didn’t realize that $350 / month would not pay down her balance.  Woops! 

Well,  she just really didn’t know what to do, and she just didn’t know which way to turn, and she just didn’t want to do anything with the house.  She did talk about having a gun, which caused me to try to round up a non-profit to give her SUICIDE counseling, but I had little success.  So, I bought some stuff from here, and my wife offered to run some of her husband’s stuff through her auction house to raise some money.   And… she made it through the holidays ok.

Then, I call her again in March ’09.  Gee.  She still owes $3,500 on that truck.  The payment is “killing” her.  She still doesn’t know which way to turn.  Her son still isn’t working.  On and on and on. 

So, I WENT ON THE INTERNET AND REQUESTED THAT A COUNSELOR CONTACT HER FOR THAT COUNSELING AND BILL HER FOR THE FEE.  Bottom line, she closed last week, she no longer has to worry about her truck being reposessed, the first thing she did was BUY GROCERIES (since she couldn’t afford to go to the store but one time in the past month), she paid off her burial insurance, she is fixing her HVAC which has not been working for months, her 2008 property taxes are now paid, and she has over 30k in a credit line to handle the next crisis.  Don’t worry, her son doesn’t know she has access to more money.

The point of all of this is that some seniors will not do what they need to do to make their own lives more livable, or in some cases, even save their own lives.  But, because human nature is often exactly what HUD sees it to be, we have another new rule.  Give a goup of 1,000 folk an opportunity to cheat, and many will.  That is just the way that it is.  And, this never would have come up if somebody hadn’t been caught cheating. 

One more thing on this subject… we are now required to record whether the counseling was paid up front vs. billed for collection at close.  You don’t need a big calculator to see that they will be measuring follow through on “billed” cases.  They won’t likely need a statistically significant variance in order to take billing away as an option in the future.  But, there probably will be a statistically significant difference.  See above.  See the post from the 9th.  See the trend.  All one has to do in order to ensure that it will be more expensive to close a reverse mortgage is to wait for some more regulation… and it will likely continue to come!

There is another potentially positive point in this letter that has never before been a rule.  The reverse mortgage counseling must include a budget analysis to be completed by the counselor.  This will help identify, with real numbers, who is being “sold,” and who has a real and valid need that can be filled by a reverse.  Real numbers always make me feel better.  A calculation with a real mathematical outcome is better than a “I think you outta get one.”

So, if you are a senior considering a reverse mortgage, or if you are a professional with a client that is thinking about a reverse, just know that the telephone will not bite you.  As a senior who needs a reverse to make life more livable,  DON’T PROCRASTINATE… TAKE THAT ACTION.  The  government just ensured that nobody else can take that action for you.

As always, your link to HUD’s mortgagee letter page is:  http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm, and the letter for the day is (again), 2009-10.

04.09.2009

Surely most anyone who has made it to this blog already has a working knowledge of what reverse mortgages are and now they work.  If not, you may want to visit:  http://members.cox.net/rscottmeyer/Reverse/index.mht.

 

 I will do my best to reserve this page for timely news from a perspective that you would not likely get from other sources.  One thing any regular reader will take away from my blog is that I will shoot straight!  There won’t be any question about that! 

So then… what, today, is on my mind about reverse mortgages in the news? 

Well, I’m a bit frustrated that the ruling of last week to require the Fannie Mae form 1004/mc or Freddie Mac form 71 in FHA appraisals associated with HECMs.  Once again, a ruling intended for regular mortgages, which are subject to severe issues on a short term basis due to declining markets, is going to be applied to HECMs which are long term instruments to a completely different market far less affected by short term swings in home value trends. 

We in the business have been smiling for over a year at appraisals marked as “stable” or “increasing” for area values in markets like Atlanta.  The new form will put a halt to that, and it will also likely reduce the average appraised value by 10% or more. 

 

However, is it really necessary to have the same form included in a HECM appraisal where the borrower can’t loose a home in the short term by having missed payments?  I mean, essentially, all a senior has to do is be alive and be in the house in order to NOT have FHA subjected to a claim.  Furthermore, since the average beginning gross loan to value ratio is under 70%, what real risk is the government fund exposed to when a borrower does die within just a couple of months of borrowing (a VERY rare situation)?  I agree, there is a good argument to add the form as a requirement on loans where the loan to value ratio is 96.5% and the area is declining @ 10% per year… but requiring it with an exposure of around 70%?  What must they be expecting for home values over the next five or ten years?  Actually, I’m going to guess that they (HUD) didn’t think of the fact that this mortgagee letter would have to be applied to HECMs, and it isn’t going to be worth the effort to carify its use in a HECM scenario.  I can see Pee-wee Herman… “I meant to do that!”

  

Frankly, this wouldn’t be a concern for me, EXCEPT that several appraisers, with whom I’ve discussed the form’s introduction, are saying that this form is MORE work than the appraisal itself (if completed correctly which requires that all sale information be verified with parties to the various transaction and NOT MLS records).  That, my friends, means that the price of the typical HECM appraisal just went up by probably $100 or better, and the way I see it, there isn’t a good case for mandating its use on a reverse.  In most markets, we may now be looking at $500 to $550 for an appraisal to fit the new standard. 

 

Here is a link to the original Fannie Mae post on the usage of the form, which was originally intended for conventional forward mortgages.  A copy of the addendum itself is at the end:

 

https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2008/0830.pdf

 

 

Here is a link to the FHA mortgagee letter site, and the mortgagee letter about which I am complaining today is # 09-09:

 

http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/index.cfm

 

(I’ll be sure to address other mortagee letters on another day!)

Note that (as a direct quote under “Data Requirements” from # 09-09):

·       The appraiser must verify data via local parties to the transaction: agents, buyers, sellers, lenders, etc. (if the sale cannot be verified by a party then public records or other impartial data source that can be replicated may be used).  A Multiple Listing Service (MLS) by itself is not considered a verification source.

 Oh well.  At least HUD is still guaranteeing them.  They are still the best way to handle money matters in retirement for many seniors… particularly those who are short on liquidity and only have social security as a dependable income stream.  But, it also looks like those who are considering a RM transaction ought to move forward before they (the government) regulate them even further adding to the expense of getting one closed!