Huffington Post: There’s More Than One Reverse Mortgage

In the latest reverse mortgage coverage published in the Huffington Post, an article originally posted by NowItCounts.com covers the three “types” of reverse mortgages. 

We thought they might mean fixed rate, or full-draw, or reverse mortgage for purchase, but the article actually delves into the Federal Housing Administration insured Home Equity Conversion Mortgage (HECM); a “reverse annuity with HECM;” and the option to borrow with a lender offering a private reverse mortgage. Currently, Urban Financial of America is the only lender offering a non-HECM private reverse mortgage. 

Among the benefits of the HECM, the article notes, relative to alternatives: “…it often comes with lower rates and lesser fees than those that would be offered by private lenders. In addition, the FHA backs these loans, making them a more lucrative option for the banks that issue them.”

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And for specifics private reverse mortgages, the Huffington Post reports, “…these types of mortgages are typically based upon income and credit score as well as existing home equity, since they are privately backed, and can often come with higher interest rates and more fees because they are offered by private lenders.”

Ultimately, the article advises researching all of the options before making a reverse mortgage decision. 

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Written by Elizabeth Ecker

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  • Earlier this month Michael Lazar tried to convince us that HECMs were lucrative to borrowers in saying: “…one recommendation made in the paper was that a reverse mortgage line-of-credit is more lucrative than selling investments.” See the following:

    http://reversemortgagedaily.com/2015/08/04/huffpost-are-reverse-mortgages-lucrative-options/

    and the actual article at

    http://www.huffingtonpost.com/michael-lazar/is-a-reverse-mortgage-a-lucrative-option-with-your-financial-situation_b_7886284.html

    Now Michael uses the word “lucrative” to describe the FHA insurance that covers principal and more importantly the interest and upfront and ongoing MIP that HECMs generate in case the net proceeds from the sale of the collateral are insufficient to pay off the balance due on the HECM. When FHA insurance is being reimbursed by borrowers, is there any doubt that this business practice would not be more lucrative than having loans that are subject to market volatility? FHA insurance protects the profit of the mortgage that the lender is creating. If other problems arise such as unpaid taxes, insurance, or HOA dues, it is up to the lender to pay off such debts if the borrower does not.

    In a forward FHA loan, the borrower is required to pay ongoing FHA on an ongoing basis. Even upfront MIP is not folded up into the balance due. With a HECM the situation is entirely different. HUD still gets paid upfront and ongoing MIP on a current basis but generally borrowers pay none of the MIP costs until loan termination. This leaves FHA insuring their own MIP and the interest that accrues on those costs.

    Allowing insurance premiums to accrue is one of the many reasons why the HECM portion of the MMI Fund is in such financial trouble.

  • The columnist has a rather unusual way to look at HECMs. Separating them by tenure and non-tenure payout options is odd since there have been so few HECMs where the borrowers have selected the tenure distribution option. It is clear Michael has little experience or knowledge when it comes to HECMs.

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