508 NW Lambrusco Drive phone: 772/785-6174
Port St. Lucie, FL 34986 cell: 772/618-5288 FAX: 772/785-8164
e-mail: edandterri@bellsouth.net
June 15, 2009
Mr. John C. Dugan
Comptroller of the Currency
Administrator of National Banks
Washington, DC 20219
Dear Mr. Dugan:
I have read the transcript of your presentation, Consumer Protections for Reverse Mortgages, delivered before the American Bankers Association Regulatory Compliance Conference, on June 8, 2009 in Orlando, Florida.
Your background and experience is very impressive, but your knowledge of the Reverse Mortgage is sadly lacking.
1. You state that reverse mortgages, “…have some of the same characteristics as the riskiest types of subprime mortgages.” But you fail to enumerate comparable characteristics. The problems involved with subprime mortgages were the result of unscrupuously aggressive marketing by the private sector, and an apparent lack of regulatory oversight.
Don’t you know that the reverse mortgage is not a product of the private sector, but is the result of the Home Equity Conversion Act, created and passed by Congress and encacted into law on February 2, 1988? This legislation produced the Home Equity Conversion Mortgage (HECM) which by your own statement constitutes over 90% of all reverse mortgages. (The other 10% being “jumbo” loans for properties too large to qualify for the mandatory FHA mortgage insurance coverage for HECM loans.) These jumbo loans no longer exist.
Don’t you know that HECM reverse mortgages are totally controlled by the Department of Housing and Urban Development (HUD), and insured by the Federal Housing Administration (FHA)? HUD controls every aspect of the marketing of reverse mortgages; origination fees, interest rates, commissions, insurance costs, everything. No other form of indebtedness is so rigidly controlled by the Federal Government.
2. You state that, “This substantial pot of cash can tempt lenders to simultaneously and aggressively market investment, insurance, or annuity products, or worse, attempt to condition loan approval on the purchase of such products.”
Don’t you know that both the application documents and the the final closing documents require notitized statements, signed by both the applicant and the sales representative, specifically prohibiting such solicitations? You should know this, since you twice make reference to it further into your presentation. So the previously quoted statement contradicts your own further conclusion.
3. You state, “these loans can be more costly than other types for mortgages because… lenders need to be compensated for the risk in proprietary products that the outstanding balance may exceed the value of the collateral over time.”
Don’t you know that the mandatory FHA mortgage insurance policy protects the applicant, his/heirs, and the lender, from responsibility should the amount borrowed exceed the value of the property at the end of the loan period? There is no risk to the lender, as long as the FHA remains viable.
4. You state, “a HECM borrower may draw down his or her line of credit in a single lump at any time, and…HUD has estimated that borrowers choosing a line of credit typically withdraw at least 60% of their funds as soon as the loan is closed.” This statement is confusing, at best. But…
Don’t you know that if the lender is required by HUD to “expand the line of credit” (meaning tax-free interest) on any funds left with the lender at a rate of 0.5% greater than the interest charged on the funds the applicant chooses to withdraw? Why is this not mentioned?
There are many other mis-statements or omissions of fact that I could mention. There is a wealth of unbiased information on reverse mortgages available on-line from the Department of Housing and Urban Development, the Federal Housing Administration, the AARP, and others. Perhaps your staff can provide more thorough research before you further embarrass yourself.
Sincerely,
Ed Wood
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( 3 / 213 )With all the money the government is spending is a crash is coming?
There are repercussions for the actions of today's government spending and it will most likely hurt you more than help you!
As the government gives more and more money away the Dollar gets weaker and weaker. To entice investors to invest in the United States the government will have to raise interest rates, this will fuel inflation and in a down real estate market the economy may crumble. I am sure many of you remember the days of Jimmy Carter and interest rates well above 10%, I believe we will see those days again soon. Hopefully you have not lost a lot of your worth in the stock market, because as inflation kicks in you may need to access those Dollars. What can you do to protect yourself from what's coming?
A HECM may be the answer. Through a Home Equity Conversion Mortgage you can set up a credit line that grows year by year (guaranteed by FHA) giving you access to more money. This may be the cure for all of this for many American Homeowners.
Why should you do this now versus waiting until the problem presents itself?
Well actually you should have done this 3 or 4 years ago when home values were at an all time high and Interest Rates were at an all time low, but we won’t fault you for that, you may not have met anyone who has explained this to you like we are now.
Here is why you should do it now. Home values have not totally dropped yet so you still may have some equity to work with. A HECM is a loan based on the equity you have in your home so you will need to have some, if home values continue to drop it you may be too late. Interest Rates are on the rise, as Interest Rates rise the amount of money you can qualify for goes down, there may be a point where you will not qualify for any money under this program, we are already seeing that a lot of Homeowners can't get the HECM and if you are waiting until there is a problem it may be too late.
It is a painful thing to watch, when I see someone wait until there is a problem and there is nothing I can do to help... It really does hurt me to see people in that situation, knowing that I could have helped them if we would have crossed paths earlier, assuming they would have listed to what I had to say.
Now is the time to act. If you believe any of what I am predicting you should look into how we can help you. I urge you to get in touch with us... You never know when it may be too late.
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( 2.9 / 215 )As aging Baby Boomers enter retirement age and beyond, opportunities to serve this segment of the population have risen. People are living longer and have needed to make adjustments to their finances as they have exceeded their savings.
A reverse mortgage gives a homeowner the ability to access some of the equity they hold in their home in order to pay for living expenses. They are not required to repay the funds as long as they live in the home. Borrowers must be at least 62 and have adequate equity in order to qualify. Borrowers can access the equity as a single lump sum, as monthly cash advances, as a line of credit, or as any combination thereof. A reverse mortgage is an option for senior citizens who have little cash with which to pay their living expenses but who have a large amount of equity in their property.
In a reverse mortgage, the lender takes a lien position on the equity when the loan is granted. Without careful planning, this may leave the homeowner and his or her heirs without assets. Reverse mortgages are also considered rising-debt loans – meaning interest is added to the principle balance each month – the loan balance can grow significantly each time interest is compounded and added. Homeowners are still responsible for any origination and servicing fees as well as property taxes (since they retain the title) and interest on reverse mortgages is not tax deductible until all or part of the loan is paid off.
Government backed products also add a mortgage insurance premium (MIP), although this amount can be financed into the loan and it guarantees that a borrower will never owe more than the value of their home in total debt.
There are a number of reasons why a reverse mortgage might become due and payable, some of which are:
* The homeowner dies
* The homeowner moves out of the home (for a period of one continuous year)
* The homeowner sells the home
* The homeowner fails to pay property taxes or keep the home insured
* The homeowner fails to maintain or repair the home
* The homeowner declares bankruptcy
* The homeowner abandons the property
* Perpetration of fraud or misrepresentation
* Eminent domain or condemnation proceedings
Additionally, acceleration clauses may be added, which make the reverse mortgage due or payable:
* Renting all or a portion of the home out
* Adding a new owner to the home’s title
* Taking out any new debt against the home
* Zoning classification changes
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( 3 / 301 )Tenure. This is where the lender will make payments to you each month for as long as you live. If you like the security of having stable, steady monthly checks deposited in your bank account, monthly tenure payments is the way to go. The big advantages here is that you don't have to worry about investing the money or losing it or running out of money, no matter how log you live, as long as you keep your home as your primary residence you will keep getting paid.
The only real downside to this is you do not have access to the lump sum if you need money for a large expense for something you need or desire.
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