How Did Reverse Mortgages Get Such A Bad Rap?

In this article, I’ve condensed 95% of the reasons reverse mortgages get a bad rap into four categories. These are short summaries, but I get into a bit more detail in the video. Please take a few minutes to read this article and the watch the video below and let me know if you have any questions.

Problems before FHA got involved

Most people don’t know that reverse mortgages have been around in different forms since 1961.  However, FHA did not begin insuring them until President Regan signed the FHA insurance bill called the Home Equity Conversion Mortgage Demonstration.  This was the pilot program that authorized FHA to insure 50 Home Equity Conversion Mortgage (HECM) loans, the first one being in 1989. (Over 1.2 million HECM’s have been originated since).

However, prior to 1988, reverse mortgages were the wild, wild west.  There was very little regulation or oversight.  Some lenders would do some things that were not in the best interest of the homeowners.  Some of these stories made it to the press.

When FHA began insuring reverse mortgages, these problems disappeared, but the stories live on to this day.

Family misunderstandings

Families don’t always agree or get along.   Sometimes parents do not feel the need to let the adult children know that they have taken a reverse mortgage out against their home.  When this is the case and the last homeowner passes away or has to leave (for example to a nursing home), the family thinks they are inheriting a free and clear home and find out quickly that is not the case.  

Unfortunately, there is really no way to resolve this issue except through communication among family members.  This type of thing does not happen very often, but enough to give the industry a black eye from time to time.

Two events in 2008

Of course, everyone recalls the “Great Recession” in 2008.  But what most people do not recall is it was in 2008 that FHA allowed lenders to offer fixed-rate HECMs on a lump sum basis (meaning the homeowner had to take all the funds in one lump sum at closing.  It is also referred to as a “closed-end loan”).

The fixed-rate HECM became very popular, very fast.  From 2008 to 2012, about 70% of all HECM loans were fixed-rate.  The two reasons why this program became so popular were:

  1. To a lot of people, adjustable-rate mortgages are bad.  They caused a lot of people to lose their homes in recession. They do not understand how they work in the reverse mortgage world.
  2. Lots of loan officers in the sub-prime mortgage business in the early 2000s saw the writing on the wall that the sub-prime market was going away and they jumped ship.  Unfortunately, the ship they jumped to was the reverse mortgage market.

From 1989 until 2008, all HECM loans were adjustable rate loans.  With an adjustable rate HECM, homeowners are not required to take all loan proceeds in one lump sum at closing, as they are with the fixed rate HECM.

In 2008, when FHA allowed fixed rates, homeowners and loan officers jumped at the offer.  

However, most people did not think it through and the new reverse mortgage loan officers were not much help.  They were making a lot more money on these loans than they were at the adjustable rate since the beginning loan balance was much higher because the homeowner was taking it all upfront as one lump sum.

The fact that lots of people were blowing their money and the loan officers were not emphasizing to them the need to ensure the property taxes and homeowners insurance be kept current, along with the fact that a lot of people were losing their jobs and had to retire before they were financially ready, led to about 10% of these loans not keeping current with their taxes and insurance.  This led to foreclosures, which led to bad press.

There have been a number of regulatory changes since 2008 to correct these issues including initial disbursement limits, lowering of the principal limit numerous times, advertising requirements that lenders must state the homeowner is responsible to pay their own property taxes and insurance and financial assessment, and more.

Each of these changes is an article in and of itself (maybe more than one), so I urge you to investigate them at your leisure or feel free to call me and I can explain them.  

Non-Borrowing Spouse

In the past (prior to August 2014), if a couple wanted to get a reverse mortgage, but only one person was 62 years old or older, the younger homeowner would take her/his name off the title so the older homeowner could get the loan.  

This was all well and good unless the older homeowner (who was also the only borrower), died or had to permanently leave the home.  When this happened, the loan was called due since the borrower did not occupy the home.  The younger spouse either had to sell the home or refinance the loan to pay it off.  

This situation caused a lot of problems, (and a lot of bad press).  

In 2013 AARP sued HUD to make a change. In 2014 HUD came out with a non-borrowing spouse (NBS), rule.  There are a lot of details to this, but in a nutshell, the younger spouse, even if he/she is not on the loan, can stay in the home if the older, borrowing spouse, dies or has to permanently leave the home.  The NBS needs to continue to occupy the home as their primary residence, keep his/her name on the title, maintain the home, and keep current on the property taxes and homeowners insurance.  But if they can do all this, the loan will not be called due and the NBS can stay in the home without paying off the reverse mortgage.

As you can see, most of the issues that caused the bad press have been corrected for years or even decades, but people still cling to old ideas and in some cases outright falsehoods.  Please watch the video I recorded explaining these issues and feel free to contact me with any questions.  

If you want more detail on this topic, please listen the podcast of my radio show from August 18, 2022 here.

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Bruce Simmons

I absolutely love what I do - working with senior homeowners to help them live a more comfortable, flexible and secure retirement. I have the absolute best customers in the world, and even though I worked in the forward mortgage business for a number of years, I could never go back to doing conventional loans. I'm a 100% reverse mortgage specialist.

5.0

My wife and I are retired and had a mortgage that was quite high. We contacted Bruce regarding a Reverse Mortgage and were pleased with his knowledge and experience. He made the whole process very easy and explained everything along the way. Since then, I have had a couple of questions and contacted him regarding the RM. Bruce has always been very responsive and returned our calls within minutes. We couldn't be happier having used Bruce for the Reverse Mortgage and highly recommend him.

Bruce has been serving my interest over and above what one might expect during the whole process of handling my reverse mortgage dating back to 2010 and continues to be available at present whenever a question may arise. He is one of the most reliable, trustworthy and knowledgeable experts regarding reverse mortgages that I have had the privilege to do business with! I would highly recommend Bruce to anyone who is considering a reverse mortgage. Thank you Bruce!

I met Bruce from a referral who just love what he did for them on their Reverse Mortgage, So I contacted Bruce and told him my story and he came up with a great Reverse Mortgage for me and my needs and now I am living good and not worrying about Finances anymore. He had it done in a timely manner. If you are looking for the MAN to help you get the best Reverse Mortgage you need to call him and hope you let him help you.

Bruce is one of the most professional, knowledgeable and efficient experts I have worked ŵith ever in any field. He is fast to answer and always ready to help...and he's a great guy!

Gerald Cook
Gerald Cook
5.0

Bruce did our original reverse mortgage and has also refinanced it twice. He works hard to get the best deal possible while making it as easy for us as possible. When our first refinance received a low initial appraisal, Bruce helped the appraiser find better information and increase the appraised value. He's the best.

I was hesitate about getting a reverse mortgage until Bruce Simons put my mind at rest. He is easy to work with, extremely knowledgeable and efficient. Things get done and he will make sure that you understand every part of the process. I interviewed several other people and he was hands down.....The only choice.

Doing a Reverse Mortgage is a major decision, when working with Bruce he came out personally to go over every thing in detail, there was no pressure to finalize the transaction, I had even put the loan on hold for awhile even though I had locked in my rate, I had called Bruce off and on for a few weeks to ask questions that I had concerns about and he was always available to talk to me. In the end it gave me time to feel comfortable about my decision to move forward with the Reverse. Bruce was very pleasant to work with and would certainly recommend Bruce if you are going to consider a Reverse Mortgage.

Bruce Simmons at American Liberty is one of the best in the reverse mortgage industry. I have known and worked with him for years and he always does a great job. You are in good hands with Bruce and know that he will take good care of you or your loved ones every step of the way.

Best thing I ever did! Bruce Simmons at American Liberty Mortgage is the best. He is always there to answer your questions, and can easily explain the whole idea of a Reverse Mortgage. He takes the time and goes through the entire process with you. It worked out so well for me. Thank You Bruce!

We had researched Reverse Mortgages for 5 years and after hearing about Bruce Simmons and meeting with him, we finally decided to move forward with the Reverse Morgage. It has been over a year now and we are still very pleased with our decision. We think Bruce is very professional, knowledgeable and honest. Thank you, Bruce, for all your help.

I first met Bruce Simmons 2017. I found him on the internet. I was looking for someone local. I called him and explained I was only looking into doing a reverse mortgage, so I did not want him to think this was something I was ready to do. Bruce was friendly, very open about the basics of a reverse mortgage. Bruce came to my home and presented the figures and other details that he could offer. The first thing that impressed me was this was not a hard sell, more of a informational meeting. He was very open about all of the details, and answered my questions without hesitation. What really was evident was he was establishing a relationship with me, and I realized he knew I would not take the loan at that time. There was not enough equity in my home, and I would have to bring money to the table. Although I was not ready to do a loan, Bruce assured me he is always available for questions. Four years later, I finally did do a reverse mortgage, and I couldn't be happier with having done it. I have done away with a mortgage payment which allows me to fund my retirement account with that mortgage payment. We did some much needed landscaping with our cash out transaction, and will move on to improvements inside of the house. My reverse mortgage has a line of credit, and I feel sense security knowing it is there if I need it. Bruce explained that a reverse mortgage is not for everyone, but I feel certain that he paved the way for a strategy that worked for me. I will definitely do a refinance when the time is right. I will check in with Bruce to be sure what the benefits are when I do it again.

I have worked with Bruce Simmons for 15 years. Bruce is one of the best in the industry. He is extremely knowledgeable, kinds and detailed in what he does. His clients love working with him and trust him to help them with their Reverse Mortgage loans. I would recommend Bruce to anyone I know that is thinking about or wanting to do a Reverse Mortgage. He will always take very good care of the customers and make sure their needs are met! Class act and one of the best in the industry by far!

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Unlock the secrets to a more secure retirement with our exclusive Consumer Guide! Discover if a reverse mortgage is your golden ticket to financial freedom and comfort in your later years. 

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