Reverse Mortgage Safeguards
How do you know you can trust the loan broker or senior adviser selling you a reverse mortgage? If you apply for a reverse mortgage how do you know you won’t be taken advantage of or over charged by high fees and hidden costs?
Reverse Mortgage Safeguards Answers Those Questions
FHA/HUD-AARP and Others Safeguard Seniors
Some companies and loan agents in the mortgage industry have been known to steer consumers toward products that may not be the best for the borrower, but are highly profitable for those that are selling these products. Because some mortgage lenders use predatory practices, the government has intervened in a BIG way when it comes to reverse mortgage loans. They have implemented many safeguards to protect seniors. FHA/HUD in conjunction with groups like AARP, NRMLA, (National Reverse Mortgage Lenders Association) and NAIPC (National Aging in Place Council) have been instrumental in devising reverse mortgage safeguards as well as education for seniors and their families considering this unique type of mortgage.
Loan Fees Are Capped
The government has gone overboard to create reverse mortgage safeguards to protect seniors that are considering this unique home equity loan. HUD and FHA dictate the fees that are allowed to be charged by the mortgage originator, or loan officer. They have also established a range for all the other third party fees, such as appraisal, title, escrow, pest inspection etc. and have limited those fees to what is usual and customary for the geographical area where your property is located.
Consequently, since the loan broker fee or origination fee is capped by the government, and considered “low” compared to what is allowed in the general mortgage market, the predator type brokers just naturally shy away from originating reverse mortgages. In the well regarded book, “Reverse Mortgages for Dummies”, the authors say: “The reverse mortgage has been called the antidote to predatory lending.”
Since the less than scrupulous loan brokers aren’t allowed to charge exorbitant fees, they are not attracted to the niche market of reverse mortgages. You, the senior, benefit by getting loan counselors and loan brokers that are more interested in providing a beneficial service and high quality product to you, rather than gouging you for the highest commission they can get away with. You will find for the most part, that the loan officer that works in this industry is interested in educating you and your family about how a reverse mortgage works and making sure that you are comfortable with your decision before you move toward the application process.
AARP-HUD Counseling – Another Reverse Mortgage Safeguard
The Second Huge Safeguard for seniors considering a reverse mortgage, is that mandatory third party counseling is required BEFORE you can even apply for a reverse mortgage. Advance counseling by a non-profit or public agency approved by HUD is required. The counselors are independent and are not affiliated with any lender or loan originator. One of the most respected independent counseling services is offered through the AARP network of approved HUD counselors. The AARP counselors have been trained to use loan comparison software that meets the AARP Foundation’s Reverse Mortgage Education Project specifications. It is the counselor’s job to review the transaction with you, answer any questions you may have and suggest alternative options. You can get the name of a local counseling agency or qualified telephone counselor by calling AARP – American Association of Retired Persons (800-209-8085), the National Foundation for Credit Counseling (866-698-6322), Money Management International (877-908-2227), or HUD’s Housing Counseling Clearinghouse (800-569–4287).
What Happens During Reverse Mortgage Counseling
The counseling session can be done in person or by telephone. Following the counseling session the applicant receives an FHA/HUD Certificate of Counseling by mail that must be included with the reverse mortgage loan application.
The counselor will play the “devils advocate”. They will drill you on whether you have considered every other option instead of the reverse mortgage. They will quiz you to see if you truly understand how the loan works and what impact it may have on your estate. They will ask you if you have considered selling your home instead. They will ask you if you have considered moving in with your children. They will ask you if you have considered applying for low income housing or other community funded programs. It may feel like they are trying to talk you out of getting a reverse mortgage loan. However, they are actually trying to trigger a thought process in your own head that allows you to confidently say to yourself, “Yes, I should think about those other alternatives.” or “No, those alternatives are not what I want for myself or my family.” At that point you will have a confident, empowered feeling that you have made an informed decision without any outside “sales” influence. If your decision is that a reverse mortgage is not really for you, then so be it. But if the counseling session points out the alternatives and none of those are appealing, you may say to yourself, “Yes, this is a great solution for me, my family and my situation.”