How One Former Loan Officer Handles Reverse Mortgage Eligibility Obstacles

It is well-known that certain upgrades may be required by the Federal Housing Administration for someone to be eligible for a reverse mortgage, but there is a side of these types of situations that is often overlooked.

In many cases, the driving force behind applying for a reverse mortgage in the first place is to gain extra funds, so the chance of a reverse mortgage applicant having extra money sitting around for renovations they didn’t think they needed is slim to none.

A business in Westlake, Ohio has made handling these types of situations their speciality. David Michael, owner of Fidelity Homestead Associates used to be a reverse mortgage loan officer himself, but kept running into situations with his own clients in which they needed several renovations done to their home in order to be approved for a reverse mortgage, but couldn’t afford it.

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Michael then started his own business to help these types of clients. He has built up a network of contractors all over the country in the last four years since starting the business and makes sure that all of his clients get the necessary renovations done, regardless if the client can pay for it at the beginning. They take the chance on the client receiving the loan that once the renovations are finished they will be accepted and be able to pay back Fidelity Homestead Associates with some of the loan proceeds.

“Sometimes the jobs are small and only cost about five or six grand, but other times we have to do a whole gut rehab,” says Michael.

One area in particular that makes certain situations extremely unique is when a homeowner has trouble with hoarding, Michael explains.

It is not uncommon for adults age 65 and older with previous hoarding issues to increase these tendencies as they age, according to a qualitative study by Monika Eckfield, PhD, associate specialist in the University of California, San Francisco Department of Psychiatry.

When Fidelity Homestead Associates encounters a person in need of renovations to become eligible for a reverse mortgage, and this person happens to be a hoarder, there are certain steps they take to make sure the situation goes smoothly, explains Michael.

“First of all, the contractor has to have the right demeanor and needs to be able to actually talk to the homeowner and be able to show compassion,” he says.

One homeowner who required this attention was living by himself in California in a very nice area, surrounded by homes that were worth millions of dollars, Michael shares.

“We had to do a whole gut rehab, he says. “The homeowner was wheelchair bound and a hoarder. The home had no running water and was infested with rats. There were holes the size of a small child in the floors that the rats had made, but he was very attached to his belongings and didn’t want to leave.”

In most cases of hoarding, it usually takes a number of phone calls and comes down to giving the homeowner options on how they prefer to handle going through all of their belongings. Many times, Fidelity rents a storage unit to put the remaining items after all of the trash has been removed.

“When we clear these types of homes out, we usually end up taking out about six 40-yard dumpsters full of trash from the homes,” he says.

In addition to having a customer agree to allow someone in their home, in most cases, a gut rehab is necessary, so they have to move out of the house completely for a few weeks. “Most of the time we put the homeowner in a hotel and pay for it,” Michael explains.

These types of projects are common for Michael and his network of contractors at Fidelity Homestead Associates, and though they do end up taking a large amount of time, it all becomes worth it in the end to be able to see homeowners stay in the home they never wanted to leave in the first place, he shares.

“A couple weeks after the the rehab was finished, it was Christmas and one of the contractors and his wife went over to visit the homeowner and sent me a picture. He was all cleaned up and had just the biggest smile on his face,” Michael says. “That’s why I do what I do, to make people happy.”

The majority of Michael’s business at Fidelity Homestead Associates is working with homeowners who are in need of renovations that the FHA has required of them in order to get a reverse mortgage.

“We do provide a valuable service to the reverse mortgage industry,” says Michael. “If we didn’t exist all of those homes would fall through and people could potentially lose their homes altogether.”

Written by Alana Stramowski

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    • Hi Nelson. We understand your concern. When I was an LO, it was very difficult to find a reputable company to help my clients with repairs. We have been assisting clients to address their inspection and repair needs for over 4 years now. We work with most of the largest Lenders in our industry and have established a great reputation with them. We are also an accredited member with the BBB and maintain an A+ rating. We can be found in the Vendor Directory on the NRMLA website and we are an active member. I would be happy to answer any questions or concerns that you or others might have.

  • I think what David Michael is doing is very innovative and he is providing a needed service. I just hope Michael has done his homework?

    What I mean by that is, first of all, David can do a pre-review to see if the potential customer/borrower can qualify for a reverse mortgage, taking into consideration the amount of renovations needed. Secondly and most important as the last protective measure, before the renovations are started, is to record a second or first mortgage or deed of trust against the property. Obviously, once David knows if the customer/borrower will qualify for the reverse mortgage!

    All in all, the concept is a good one!

    John A. Smaldone
    http://www.hanover-financial.com

  • There’s a big difference between what a home “could use” with regard to upgrades, and what upgrades are required to become eligible for a Reverse Mortgage. Gut renovations seem wildly excessive.

    • Agreed. We are not a “Home Improvement” company. We ONLY address repairs/inspections that are required by Underwriting as necessary for their client’s loan to be able to close.

  • What about the priority of mechanic’s liens? Hud won’t allow these to remain in place after closing because these liens have priority to a hecm. Hud also has a problem with liens secured by the property that have been put in place just ahead of a hecm. The only way I see these being allowed is through lien waivers and subordination to the hecm which has not been discussed so far.

    • Good question. We do not place mechanic’s liens. We have our clients sign a Security Agreement if our service exceeds $2000.00. This consists of a Promissory Note and Deed of Trust. We do not place the lien on the property unless the loan doesn’t close for some reason. We have checked with HUD, and have been assured that required repairs are allowed to be paid for in the loan disbursements.

      • Mechanics Liens do not need to be recorded prior to the hecm to be superior. I don’t know of a title company that will insure title without Lien Waivers prior to closing of a hecm or any other mortgage. So long as you prepare lien waivers and submit them to the title company prior to closing of the hecm everything might go well so far as title insuring requirements are concerned. Your business model certainly formalizes the concept but over the past 25 years of originating hecms I have had countless contractors agree to hold off on being paid until after closing but none were asked to accept installment payments which is a real benefit to the consumer. I still suspect HUD will have much to say about hecm borrowers “borrowing” money, either secured or unsecured prior to obtaining a hecm in order to reduce loan balance or to do improvements to raise appraised value. I don’t agree with them but……..they often persist in making decisions about hecm rules and regulations in a vacuum.
        good luck.

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