Closing a reverse mortgage

After seeing a few mistakes made at reverse mortgage closings more than once, I put together this page with 10 quick pointers for attorneys to read prior to closing a reverse mortgage. I hope that it will make everyone’s closings go more quickly and smoothly!
http://members.cox.net/rscottmeyer/hecmclosing/closing.htm

Rip Off?

I just had a conversation with an attorney, and it surprised me to hear that he “had read too many horror stories about reverse mortgages.” 

Let me summarize RM horror stories.  First off, ALL “horror stories” which I have read have involved “proprietary” reverse mortgage products.  Fannie Mae even had a non-FHA insured “Home Keeper” product which was a pretty bad.  The available cash on that product was a disaster @ usually somewhere between 30% & 40% of the home’s value. 

Even then, the REAL nightmares were period certain reverse mortgages done by privateers back in the 1970s.  Those were done on (as an example) 10 year terms, and the borrower had to pay it back @ the end or leave the house right away.

So, the quick answer to this objection is that the nightmare stories are pre-FHA.  HUD so heavily regulates FHA insured HECMs that the biggest danger is that they may regulate them out of existence altogether.  As far a the borrower, all of this regulation is squarely focused on protecting his and / or her best interests.

As a quick sample of the very nearly OVER protection forced by HUD, there are actually two security deeds and two notes filed on every HECM.  One goes to the lender / servicer of record at the initial closing, and the second is filed in the name of “Secretary of Housing and Urban Development.”  In every closing package, there is a telephone number for a special department of HUD and instructions on how to handle a situation whereby the borrower’s loan servicer bites the dust.  So, somebody cannot be without access to any unused money or at a loss for statements.  Ultimately, your tax dollars will insure that this is the case.

Too, there is no reasonable way that a senior can be forced to leave a home.  Those reasons sited by critics are 1) if a senior becomes delinquent on property taxes or homeowner’s insurance or 2) “if the borrower fails to maintain the home.” 

Well, if anyone (including seniors) doesn’t pay the property taxes, the city / county will eventually take the house, anyway, right?  On the second matter, there aren’t any maintenance police out there looking for lawns that are not properly cut.  What this means (to use an example) is that if a tree falls through the roof of the house and the borrower refuses to make an insurance claim, that’s a problem!  If it is raining inside the collateral every day, that is killing the value.  If a rose bush dies… not so much.

There is no (even unreasonable) way that a senior or a senior’s estate could ever owe more than the house is worth.  To the contraray, if a senior ever decides to move or passes away, there is typically still significant equity, and there is a period of up to a year for a senior or an estate to sell the collateral after the borrower is gone.

So, given that the average client I close is living from social security check to social security check in a total panic as to how they could handle any health emergency or even keep up his or her house, and given that the government has stepped in and will smash any lender who is “ripping off seniors,” it seems that worrying about being “taken” on a reverse mortgage is NOT the correct thing about which one should be worried!