Why the Professor Is Offering Reverse Mortgages

The professor’s objective in developing the HECM reverse mortgage program for seniors was to remedy 5 major shortcomings of the current market.

  1. Lack of personalized guidance on HECM options available prior to contacting a loan provider.
  2. Lack of a reliable and easy-to-use calculator enabling seniors to select the particular HECM option or combination of options that best meet their needs
  3. An absence of price competition enabling seniors to assure themselves that the interest rate and fees of the HECM option they selected were among the best available in the market at the time.
  4. The lack of protection against “lock abuse” – an unwarranted price increase after the senior is committed to the transaction.
  5. The absence of “ombudsman support”, in the event that something goes wrong in the process of dealing with the lender.

Available Guidance on HECM Options Prior to Lender Contact

The HECM market is unique in that the Government requires that before executing a contract borrowers must be counseled by an independent party unconnected to the lender. In principle, seniors can seek such counsel before contacting a lender, but in practice they almost always contact a lender first and the lender provides them with a list of counselors from which to choose.

A major reason why borrowers don’t get counseled before they see a lender is that counselors don’t provide guidance on specific HECM options, HUD rules discourage it, and in any case counselors don’t have the tools to assess specific options. To find out how much they can draw, which is the first question seniors generally ask, they have to go to a lender.

Now, seniors can contact me, and I or one of my associates will guide them through their options using our state-of-the-art calculator in the process. Alternatively, they can use the calculator on their own -- it is as user-friendly as I could make it. Either way, they are learning what their options are prior to contacting a lender.

State-of-the-Art Calculator

With a HECM, seniors can draw cash upfront, a monthly payment over some specified period or over the senior’s tenure in the house, or a credit line that can be drawn on in the future. The amounts available depend on the value of the home, the senior’s age, the interest rate, upfront fees, and any mandatory expenses of which the most important is repayment of existing mortgage debt on the senior’s house. In addition, the draw available on any one option depends on how much is drawn of other options. This makes for a complex set of calculations.

The only other quality calculator available to seniors is one provided by NRMLA, the reverse mortgage lender trade group. The MP calculator differs from the NRMLA calculator in the following ways.

  1. In addition to tenure payments, which continue for as long as the senior resides in the house, the MP calculator allows the user to specify payments for any term. The NRMLA calculator shows the tenure payment only.
  2. Under recent changes in HUD rules, total draws during the first 12 months are limited. The MP calculator will alert the user if the payments requested for the first 12 months exceed what is allowed by regulation. The NRMLA calculator does not flag excessive payments over the first 12 months.
  3. The interest rates and fees used in the MP calculator are the lowest of those quoted by the lenders pricing HECMs on the MP site. In contrast, NRMLA calls the prices it uses “ estimates” based on interest rates for the specified week, but it does not indicate whose interest rates these are or how they are selected. The interest rates used in the NRMLA calculator are consistently above the rates posted on this site, and the origination fees on the NRMLA calculator are always higher.
  4. The MP calculator shows not only the transaction features, but also projects the status of the transaction every year until the senior reaches age 100. These projections include not only outstanding debt and unused credit line, but also the tenure payment available each year from conversion of the credit line to tenure payment, and the credit line available each year from conversion of tenure payment to credit line. The NRMLA calculator does none of this.
  5. The MP calculator is accompanied by a text description that helps seniors understand what the calculator does and how to use it. The NRMLA calculator has nothing comparable.

Price Competition

There is virtually no price competition in the HECM market, even though there are hundreds of loan providers. Borrowers are concerned with whether or not they should take a HECM, and how much they might draw if they do, without fully realizing that what they can draw is affected by the prices charged by the lender.

But it would not matter if seniors were more alert, since there is no effective way to shop on their own because HECM lenders do not post prices on their web sites, and they are not bound to the prices they quote to shoppers who contact them.

One of the hazards seniors face in the current HECM market is that there is a long time lag between initial contact with the lender and the date when the terms of the HEC M are locked. Since HECM prices are reset every week, HECM lenders can raise the price on the lock day under the pre text that this is a “market change”. The senior has no way of challenging this action.

The MP remedy is two-fold. First, we have selected our loan providers from among the mavericks in the industry, and we persuade the others to follow their lead. The second remedy is that our calculator uses the lowest price from any loan provider, and the senior who goes through our process and wants to move ahead is informed as to which lender provided the best price on his deal.

However, the senior obtaining a HECM through the MP site is not vulnerable to this abuse. The senior can use the MP calculator to check the lock price against the price the lender has posted on the site on that day.

Availability of Ombudsman Support

Problems sometimes happen before the deal is done. HECMs are complicated, markets do change, sometimes the regulations change, appraisals sometimes surprise, loan officers sometimes make mistakes, and some seniors have misconceptions. Any of these could cause a rift between the senior and the lender. While such problems do not arise very often, if one does arise, the professor or his designee will act as the senior’s ombudsman in resolving it. The lenders on the site recognize this role of the professor.

In or near retirement? The Professor’s Retirement Funds Integrator (RFI) might enhance your life during retirement.

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