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Paying off a Reverse Mortgage

How do you sell a home that has a reverse mortgage on it?

Recently we have had quite a few questions from realtors wanting to know how to sell a home that has a reverse mortgage on it.  The answer to the question depends on whether or not the property is under water.

If the house IS NOT underwater…

If the loan balance is less than the current property value it is handled like any other sale. There is nothing unusual about paying off a reverse mortgage with one exception: there are certain time constraints the servicer (lender) must – I repeat MUST – follow once the last person on title no longer occupies the home as his/her primary residence. If the property is NOT under water the reverse lender or servicer provides a written payoff to the title agent. At closing the loan balance is paid off – just as it would be with any other lien holder.  After the loan is paid off, any and all remaining equity goes to the seller, which typically is the borrower’s heirs or estate.

If the property IS underwater…

If the loan balance exceeds the property value / sale price it gets a little more complicated. HECM payoffs are not negotiated like other short sales or short payoffs.  The lender must accept 95% of the current appraised value as satisfaction of the lien. HECM loans are non-recourse in nature so the borrower and his/her estate CANNOT be held responsible for any shortfall.  This is true even if the borrower has millions in other assets.  The house repays what it can, and any shortfall is covered by the FHA insurance fund. It is important to understand that this is NOT a short sale… there is no negotiation required or permitted and the lender is prohibited by HUD from accepting any amount less than 95% of the value.

What about non-arm’s length transactions?

The 95% figure noted above holds true for family members also.  If heirs who inherit the property want to keep it, they would be responsible to repay the loan balance subject to a MAXIMUM of 95% of the property value based on the lender’s appraisal. Note that there are time constraints and the clock starts ticking the day the last surviving borrower ceases to occupy the property as a primary residence.

Important note on time frames…

A reverse mortgage technically becomes due and payable on the first day the last surviving borrower no longer occupies the home as his/her primary residence. The clock starts ticking from that date. Under normal circumstances, the borrower or his/her estate have an initial period of six months to pay off the loan. In addition to the initial six months, up to two three-month extensions can be requested (for a total of one year) if more time is needed. Extensions are not automatic; documentation that the home is listed for sale, a sale is pending, etc. will be required in order for an extension to be granted. The lender does not care how the reverse mortgage is paid off, only that it is paid off.  Typically this happens through a sale of the home. However, the loan can also be satisfied by refinancing, cash payoff or other means, if the family desires to keep the property.

Communication is the key

The loan servicer should be contacted IMMEDIATELY!  Reverse mortgage servicers deal with these situations every day and will work with borrowers and family members. However, they can’t help if they don’t hear from anyone. All reverse mortgage servicers send monthly loan statements to borrowers. Those statements should contain all loan and contact information necessary to make contact with the lender.

Fannie Tells Lenders to Get Microscope

Fannie Mae Loan Quality Initiative

Fannie Mae (FNMA) released an update earlier this month that will make committing loan fraud even tougher.  Under the new guidelines, lenders will be required to dig a little deeper when verifying a borrowers identity, credit information and occupancy of the subject property. 

Following is a summary of the changes that will impact most of us:

  • Verification of each borrowers Social Security Number
    Lenders must now verify each borrowers Social Security number with the Social Security Administration (SSA).  If your SSN can’t be verified with the SSA your loan won’t be eligible for a Fannie Mae loan.
  • Verification that all parties involved in the transaction are not on “the list”
    Lenders must now verify for every transaction that all parties (Lender, Loan Officer, Real Estate Agent, Real Estate Company, Appraiser and Appraisal Company) are NOT on the HUD or GSA excluded list.  Offenders are essentially being removed from participation in any part of the transaction. 
  • Occupancy Verification
    Borrowers with multiple properties and/or conflicting addresses will be required to provide sufficient documentation to justify the new transaction.  This has been a particular issue in instances where a borrower is purchasing as a primary residence a property with lesser value than the current residence.
  • Undisclosed Liabilities
    All credit inquiries UP TO THE DAY OF CLOSING must be addressed and all debts must be disclosed on the final application.  Borrowers that apply for other credit during the loan process (for example to buy appliances) will most certainly face closing delays.

It is fully expected that these measures will be adopted industry wide to include other loan types.  Borrowers should be forwarned that the government is putting significant pressure on lenders to report instances of fraud to the appropriate authority.  Omission of a material fact is fraud.  

Implementation of the new guidelines will occur over the next several months.

Mortgage Rates hit 38yr Low… but can you get one?

Mortgage rates hit 38 year low!

The Wall Street Journal is reporting today that mortgage rates “generally” fell this week to the lowest level in 38 years according to the most recent Freddie Mac Survey after falling for the 5th straight week in a row.  Clearly this is great news for homeowners and home buyers but the question is, with today’s more stringent underwriting guidelines… will you qualify and can you get the lowest rate? Continue reading

Credit Check Nightmare…

Your information is a hot commodity

Having credit checked is an important and necessary step in the home buying process. But very few people realize that each time their credit is checked, the “inquiry data” that the credit bureaus (Equifax, TransUnion, Innovis or Experian) have on file have now become a commodity. This information is being sold by the credit bureaus to other lenders…and also to companies that sell and resell the same names and personal information.

That’s right – the credit bureaus have found a way to increase their revenues at your expense….and without your permission.

These “inquiry leads” include name, address, phone numbers (including unlisted), credit score, current debt and debt history, property information, age, gender and estimated income. They are marketing personal, confidential information to competing creditors…and making millions. Your privacy is being sold, not just once, but over and over again.

And lenders that purchase these leads at a premium will then do everything they can to recoup their investment and turn a hefty profit. Super sneaky bait and switch tactics are being used to lure clients away from their reputable lender. Clients have even been called by disreputable lenders and told that the lender they had been speaking to previously “passed on” the information to them, because they knew that they’d be able to offer much better interest rates and terms. Ouch!

Just Say “No”

The consumer credit reporting industry has provided a way to “opt out” and remove your name from these lists. You can contact them by phone at 1-888-567-8688 or online at www.optoutprescreen.com You must opt out at least 48 hours prior to having your credit checked to make sure it is processed in time. You can choose a five year or lifetime option, and the lifetime option does require a signed form. If a credit report needs to be run prior to the 48 hour waiting period – at least you are aware and informed, and can be on the lookout for suspicious phone calls or mailers from someone who has purchased your data.

The good news is by opting-out you can make it stop right away and protect yourself from “pre-approved credit offers” arriving via mail, which is one of the leading causes of identity theft in the US.

Take Your Privacy Back.  Take five minutes right now – opt out, and pass it on. Refuse to be a part of this system.

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