By Mike Maddy
Regional Program Manager, Reverse Mortgage
Wells Fargo Home Mortgage
There are many reasons why a senior homeowner 62 years of age and older will consider a reverse mortgage. The first Reverse Mortgage I ever did was for Mrs. Jones, age 78. Mrs. Jones owed $170,000 on her $1.2 million home and was struggling to make the $1200 a month payment. Her husband’s health was very bad and she was using her monthly pension and social security to pay for in-home healthcare to keep her husband at home. In an uncomfortable moment of silence Mrs. Jones said, “There is something I need to tell you that I am very embarrassed about. My house is in foreclosure because I have not paid the mortgage and I did not want my husband to have to move into assisted living”.
Early on I had read on the American Association of Retired Persons website that the most important issue to a senior was that they could stay in their home. I assured Mrs. Jones that I would do everything I could to help her. I contacted the company that was foreclosing on her house and they replied, “We will wait for you to finish the reverse mortgage and Mrs. Jones could pay off the original lien against her house. That was a relief to both of us when we heard the news and we went to work.
I asked, “Where did she hear about a reverse mortgage?” she said she read about them on the Internet at the website U.S. Department of Housing and Urban Development. She had researched all the companies who did these types of loans and mentioned Financial Freedom, Seattle Mortgage and Wells Fargo .
I asked why she chose to call Wells Fargo Reverse Mortgage versus our competitors. She learned that Wells Fargo did not sell their loans. It is true that the other 2 companies do sell the loan after they fund it. This means that a customer will no longer be dealing with the company they originally bought the loan from.
Mrs. Jones and I discussed the many questions she had about Reverse Mortgages and the conversation went as follows. Mrs. Jones was a very bright and well informed lady and put me to the test on the following questions;
Mrs. Jones; Q. What is a reverse mortgage?
Mike Maddy A.
A reverse mortgage is a home loan that lets a senior homeowner convert a portion of the home equity into cash. Unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.
Mrs. Jones; Q How do I qualify for a reverse mortgage?
Mike Maddy A.
To be eligible for a reverse mortgage, HUD's Federal Housing Administration (FHA) www.fha.gov requires that the borrower is a homeowner, 62 years of age or older; own your home, or have a low mortgage balance that can be paid off at the closing with proceeds from the reverse loan; and must live in the home. You are further required to receive consumer information from HUD-approved counseling sources prior to obtaining the loan.
Mrs. Jones; Q. What types of homes are eligible?
Mike Maddy A.
Your home must be a single family dwelling or a two-to-four unit property that you own and occupy. Townhouses, detached homes, units in condominiums and some manufactured homes are eligible. Condominiums must be FHA-approved. In some cases, home repairs can be made after the closing of a reverse mortgage.
Mrs. Jones; Q What’s the difference between a reverse mortgage and a bank home equity loan?
Mike Maddy A.
With a traditional second mortgage, or a home equity line of credit you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage pays you, and is available regardless of your current income. It not a credit score based loan. The amount you can borrow depends on your age, the current interest rate, other loan fees, and the appraised value of your home or FHA's mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow. You don't make payments, because the loan is not due as long as the house is your principal residence. Like all homeowners, you still are required to pay your real estate taxes and other conventional payments like utilities, but with an FHA-insured HUD Reverse Mortgage, you cannot be foreclosed or forced to vacate your house because you "missed your mortgage payment."
Mrs. Jones Q.Can the lender takes my home away if I outlive the loan?
Mike Maddy A.
No! Nor is the loan due. You do not need to repay the loan as long as you or one of the borrowers continues to live in the house and keeps the taxes and insurance current. You can never owe more than your home's value.
Mrs. Jones Q Will I still have an estate that I can leave to my heirs?
Mike Maddy A
When you sell your home or no longer use it for your primary residence, you or your estate will repay the cash you received from the reverse mortgage, plus interest and other fees, to the lender. The remaining equity in your home belongs to you or to your heirs. None of your other assets will be affected by HUD's. Reverse mortgage loan. This debt will never be passed along to the estate or heirs.
Mrs. Jones how much money can I get from my home?
Mike Maddy A.
As I said earlier it varies from individual to individual. The most important things to remember is that we lend based on your age, the current interest rate and the appraised value of the home or FHA’s mortgage limits for your area, whichever is less.
The calculations can be done by using a reverse mortgage calculator.
Mrs. Jones Are Seniors protected from scams?
Mike Maddy A.
Yes. There is an organization called the National Reverse Mortgage Loan Association. Here at Wells Fargo we follow the code of conduct that they have established as fair trade practices.
Mrs. Jones Q How do I receive my payments?
Mike Maddy A.
You have five options:
· Tenure - equal monthly payments as long as at least one borrower lives and continues to occupy the property as a principal residence.
· Term - equal monthly payments for a fixed period of months selected.
· Line of Credit - unscheduled payments or in installments, at times and in amounts of borrower's choosing until the line of credit is exhausted.
· Modified Tenure - combination of line of credit with monthly payments for as long as the borrower remains in the home.
· Modified Term - combination of line of credit with monthly payments for a fixed period of months selected by the borrower.
When I answered all Mrs. Jones questions we proceeded to fill out the application. I explained to her that it will take about 30-45 days to process the loan and I would keep her up to date on the status.
The day came when we financed the loan and paid off the $170,000 lien against her home and got her out of the foreclosure and eliminated her $1,200 a month payment. She now lives happily in her home with the peace of mind she always dreamed of having in retirement.
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