JAMES ROBERT DEAL ATTORNEY PLLC
PO Box 2276, Lynnwood, Washington 98037
Telephone 425-774-6611, Fax 425-776-8081
VIDEO BY PARTNER MARTIN ANDELMAN ON REVERSE MORTGAGES
REVERSE MORTGAGE ATTORNEY
I am James Robert Deal, reverse mortgage lawyer. I am registered with the NMLA, the National Mortgage Licensing System. My NMLS number is 64871. I am also a commercial real estate broker. And I am also a real estate lawyer. Martin Andelman in the videos posted here is one of my partners.
I like being a real estate broker and being a real estate attorney. But my favorite work is introducing people to the reverse mortgage concept. I am a student of the many kinds of reverse mortgages.
I advise those who are thinking about taking out a reverse mortgage. There is no charge for initial telephone or Zoom consultations. I try to figure out if I can help a person before I start charging fees.
Disclosure: If you decide to obtain a reverse mortgage, I will refer you to my wife, Emelyn Deal, who is a licensed and active loan officer. I will assist her in getting the reverse mortgage approved.
Once I figure out that I can help a person, I can then usually quote a flat fee payable at closing. I offer add-on services such as preparing wills, trusts, powers of attorney, and medical directives. Sometimes I set up needed LLCs or corporations. My flat fee, if any, is payable at closing, out of the proceeds of your new reverse mortgage. If there is no closing and if for any reason you do not get your reverse mortgage, my legal fee is zero.
Most people have questions, questions, questions about reverse mortgages. Below are some of the most common questions in no particular order:
REVERSE MORTGAGE FAQ
Have reverse mortgages been improved? YES.
Yes, in 2014 provision was made for non-borrowing spouses. Read.
Before 2014, if one spouse was under 62, the only way for the primary borrower, age 62 and over, to obtain a reverse mortgage was for the younger spouse to quitclaim off title and have the older spouse obtain the reverse mortgage. The plan was for both spouses to refinance their reverse mortgage jointly when the younger spouse reached 62. However, life happens. The older spouse dies before the younger spouse reaches 62. The younger, surviving spouse was not able to assume the reverse mortgage. She would have to sell or refinance.
The rules changed in 2014. If one spouse is under 62, she can enjoy all the benefits of the reverse mortgage. But for them to get the reverse mortgage they will have to have more equity in the property than if they were both 62 or over.
If Jack takes out a reverse mortgage when he is over 62 and Jill is 50 and a non-borrowing spouse (who can still be on title) and if Jack promptly dies, Jill can continue to live in the home with no required mortgage payments. If Jill lives to age 90, she will have had no required payments for 40 years. And the property will probably increase in value more than the interest will accumulate. She will have equity to leave to her heirs.
There was further protective clarification in 2019. Read.
And there was additional clarification in 2021. Read.
Can I get a HECM reverse mortgage if my personal residence needs repairs?
Yes. Just like the standard FHA 203 rehab loan, FHA offers a reverse rehab loan. Get an estimate and enter into a fixed fee contract with a general contractor. If the repairs needed are no more than 15% of the value of the home, the repairs can be done after closing and paid for out of the reverse mortgage.
It is easier to get a HECM rehab refinance than to get a HECM rehab purchase loan. This will be discussed on a separate page.
It is easier to qualify for a HECM involving repairs than a regular FHA rehab loan because the borrower does not have to prove a high income ratio.
Can I use a HECM to buy or refinance a condo? Yes, if the condo as a whole meets FNMA Standards. Read.
Is a HECM reverse mortgage better than a standard HELOC?
The HECM is a HELOC with optional payments only. A bank can freeze a HELOC so the borrower cannot borrow the supposedly available equity. Listen to my partner Martin Andelman on this point:
What can a HECM mortgage be used for?
To pay taxes and insurance. To replace the roof and paint the house. To upgrade the kitchen and bathroom. To buy a vacation home. To travel the world. Listen to my partner Martin Andelman discussing this question:
Why do some advisors bad mouth reverse mortgages?
Most reverse mortgage critics do not know about the changes made in 2014, 2019, and 2021. Recall that these changes allow a non-borrowing spouse under age 62 to enjoy the benefits of the HECM as long as she lives and lives in the property. Most criticisms come from people who have not studied the new reverse mortgage rules.
Assume that the husband is 62 or older and the wife is younger. She can remain on title, but she will not sign “on the loan”. She is called an eligible non-borrowing spouse. When her husband dies, she will enjoy all of the borrowing husband’s benefits under the HECM. Even if the husband has moved to assisted living, she will enjoy the benefits of the HECM as long as she lives in the property as her personal residence.
Sometimes the complaint is not about the borrower “losing the home” but about the younger spouse “losing the home.” The changes made in 2014, 2019, and 2021 now protect the younger spouse from losing the loan and therefore being forced to sell.
Further, “losing the home” was generally not as disastrous as the critics implied because the surviving spouse could sell the home. The bank is not taking the property except in very rare cases where the borrower lived in a declining market and lived to a very old age.
If the wife has moved from the home for more than a year, she would be able in most markets to sell the home and walk away with the equity – minus closing costs.
And if the non-borrowing surviving spouse could keep the home if she could refinance into a regular loan. Again, all this has been changed under the 2014, 2019, and 2021 rule changes. Non-borrowing surviving spouses can in most cases keep the reverse mortgage.
Sometimes the complaint is not about the borrower “losing the home” but about heirs “losing the home.” Again, “losing the home” is generally not disastrous. The heirs cannot expect to keep the reverse mortgage with its no-payment provisions. The reverse mortgage fund would lose money if heirs could keep the property and pay no mortgage payments for life.
The heirs will not lose the home if they can refinance. And if they cannot refinance, they can can sell the home and walk away with money.
The “losing the home” criticism was never presented accurately. It was misrepresented as the house going back to the bank, which almost never would happen anyway.
What if the house does not go up in value?
Sometimes the complaint is that the home has not appreciated in value or has gone down in value. Maybe the borrower has lived so long and drawn so much money that there is no equity left. Maybe it is under water. Maybe the home is located in a depressed area.
Even if the property is under water, the heirs are protected. If they really want to keep the old homestead, they can buy it for 95% of appraised value. But realistically, most heirs already own a home and do not want to move into the old homestead.
Who has lost out here? The borrower did not lose out. The borrower got free housing maybe for decades. She had equity to draw on so she could hire in-home assistance and remain in her home. The heirs should be happy that Mom was housed securely in her own home at no cost. Who loses money? It is the FHA fund that loses money. But FHA makes it up with mortgage fees that are higher than a standard FHA loan.
Back to the home that does not appreciate. In most cases the value of the property will increase faster than the unpaid interest will accrue. In many urban areas real estate is escalating in value at a rapid rate. If the parents of those heirs had not been able to obtain a reverse mortgage, they might have had to sell it at the low prices current at that time. But because the parents were able to retain the home, there will probably be much more equity in the home than there would have been remaining cash from the parents’ sale of the home.
So those who attack the HECM reverse mortgage just do not know what they are talking about.
How to make sure that the heirs can get a refinance loan
if they really want to keep mom’s home in the family?
Let’s say the husband has died and the wife sees the end coming. She wants her partially disabled son George to be able to live in the home and not worry about housing. But disabled son has no income. The solution for the wife is to leave the property to a large number of trusted relatives and friends of George. Together they will have the income to qualify for a refinance. The will could set up a trust with all the trustees signing on the refinance loan.
What if the property really has no equity left for heirs to inherit?
There are areas where real estate does not accumulate in value. Read. And if the borrowers live to be ancient, the interest accumulated might increase the debt to the point where the property is underwater. But recall that the HECM provides that heirs can buy the property from their parents’ estate for 95% of appraised value. And the parents did not lose because they had no mortgage payments for many years. The only loser would be the HUD fund, and that is one reason why there is a large mortgage insurance fee with a HECM reverse mortgage.
Are there reverse mortgages other than the FHA HECM?
You bet there are. There are jumbo reverse mortgages that go up to $4 million, meaning jumbo borrowers can borrow up to around 50% of the value of the home, not counting value in excess of $4 million.
There are non-FHA, proprietary loans that do not charge up front or monthly mortgage insurance fees. Instead they charge a higher interest rate. Such loans are available is at least one borrower is age 60.
Who should not get a reverse mortgage?
Do not get a reverse mortgage if you are planning to move. Reverse mortgages are only for primary residences.
Do not get a reverse mortgage if you cannot even afford to pay your real estate taxes, insurance, and HOA or if you cannot even afford to keep up with repairs.
Do not get a reverse mortgage if you are wealthy and have no need for more money.
Do not get a reverse mortgage if you have enough plenty of money to pay for senior care insurance.
Do not get a reverse mortgage if you have enough money to pay for in-home professional care, which may allow you to stay in your residence.
Do not get a reverse mortgage if you do not need money to start a new business.
Do not get a reverse mortgage if you do not need money to buy a vacation home or an RV.
Do not get a reverse mortgage if you do not need money to travel to all those places you did not get to see.
Who cannot qualify for a reverse mortgage?
If a single borrower is not at least 62 years old.
For married couples, if neither borrower is at least 62 years old. At least one borrower must be at least 62 years old.
If you have not paid your current mortgage or taxes or insurance or HOA regularly and on time, the reverse mortgage lender will tell you to get caught up on all your housing payments and reapply in a year. With a reverse mortgage you will still have to pay taxes, insurance, and any HOA dues.
Is a HECM reverse mortgage expensive?
A HECM reverse mortgage has closing costs that are comparable to standard FHA loans. The only cost that is higher with a HECM is that FHA mortgage insurance is higher. For a home with a $400,000 HECM line of credit, the FHA mortgage insurance might be around $16,000 instead of $9,000 for an ordinary FHA mortgage. It is a difference of around a $7,000. But it is not that much when you consider the advantages and protective features the HECM includes.
HECM protects the housing asset. The borrower will have a line of credit that cannot be cancelled, that will grow every year, and that will cover putting on a new roof and painting the home from time to time. HECMs prevent foreclosures. Payments are optional.
Accumulating HECM interest is tax deductible, although there is a debate as to whether it is deductible yearly as it accrues or when the HECM is paid off and the cash for interest goes to the lender. Read.
When HECM borrowers need money, they can draw it tax free from their HECM instead of drawing it from their asset-protected 401k. Money drawn from a 401K is taxable when drawn. Money can remain in the 401K and continue to earn dividends.\
I have a reverse client who owns numerous very valuable guitars, many of them made by Martin. These are worth $5,000 and $10,000 and $20,000, and they are rapidly increasing in value. He only owes $200,000 on his home, and it is worth over $1 million. With his new reverse mortgage line of credit of around $200,000, he will be able to take money out of his home rather than sell off guitars. He can keep making money on his guitars instead of selling them and having to pay tax on the capital gain. And when he dies, his wife will inherit the guitars at a “stepped up basis”, meaning that she will be able sell them and pay no capital gain.
If the borrowers obtain a HECM, there is a greater likelihood that the borrowers will be able to keep the home and therefore have more equity to leave to their heirs.
But I have been told the closing costs of the HECM reverse mortgage are high.
Closing costs for the HECM are the same as for regular FHA mortgages except that the initial mortgage insurance fee is higher. And the reason why it is higher is because the HECM contains so many features that are highly beneficial to borrowers:
Feature: There are no required principal or interest payments for the life of the borrower and then for the life of the borrowing or non-borrowing spouse.
Feature, The home equity line of credit increases at the current interest annual rate, around 2.75% per year plus .5%. My client with the guitars will pull around $250,000 from his new $400,000 line of credit. If he pays no interest payments, which are optional, his balance will go up around $7,500 per year, while his home will go up in value $100,000 per year.
Feature: There is a guarantee that heirs can buy the family home for 95% of appraised value. This would be the case in an area where properties are not appreciating or are falling, especially if the borrower is living to a ripe old age and has drawn a lot of money from the reverse mortgage.
Feature: The parents are more likely to have been able to retain the property and leave it to their heirs if they obtain a HECM reverse mortgage. And the property value probably would have increased substantially.
What credit score is needed to get a HECM?
There is no minimum credit score requirement. But borrowers must demonstrate that they pay their housing related bills such as taxes, insurance, and HOA dues. They must show that they have enough income to cover these housing related expenses going forward. There must not be any judgments owing against the residence, nor debt owing to the federal government such as income tax, nor federally owned student loans, although these can be paid off using proceeds from the reverse mortgage.
Why is a reverse mortgage called a “reverse mortgage”?
Partner Martin Andelman answers this question.
The name reverse mortgage is a misnomer. The thing that is reverse about it is that the borrower can take money out of the mortgage instead of paying into the mortgage. A regular mortgages that requires monthly payments is called a “forward mortgage” in the mortgage business. The HECM is a Home Equity Conversion Mortgage. It is a home equity HELOC line of credit with special features: Monthly payments are optional. The line of credit increases yearly by the interest rate on the loan plus .5%.
Does the HECM provide protection to LGBTQ couples?
It does now. The 2019 and 2021 provisions allow a surviving same sex partner to keep the HECM even if the two were not formally married nor part of a registered domestic partnership. This would benefit the couple where the two were residing in a state that did not recognize same sex marriages or registered domestic relationships at the time that one of the two took out the reverse mortgage.
Now that same sex marriage is legal nationwide, LGBTQ couples must be married or must be part of a registered domestic partnership in order for both of the borrowers to benefit from the reverse mortgage.
Where can I read more about the rules and regulations
pertaining to HECM reverse mortgages?
James Robert Deal
Real Estate Attorney
Real Estate Managing Broker
Reverse Mortgage Attorney
PO Box 2276 Lynnwood WA 98036
KW Everett Office Line: 425-212-2007
Flat fee payable at closing
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- The FHA reverse mortgage is a powerful retirement tool. • If you are 62 years or older and have around 50% equity in your home, you can take out an FHA reverse mortgage that will greatly reduce your house payment. Because you have so much equity in your home, your only mandatory payment is the taxes, insurance, and maintenance. Interest payments are optional. • The property must be your personal residence. • The FHA reverse mortgage has had rule changes: Now the spouse under 62 remains on title and will inherit the low payments. • Gay couples now qualify. • It is a line of credit that cannot be cancelled or reduced in size, but instead grows every year. • On a home worth $970k, the borrower can access as much as $485k. Or the borrower can buy a home worth $970k by paying $485k down. Jumbo reverse mortgages lend up to $2 million. • Property values in most areas go up faster than interest will accumulate, so when both partners have died, there will usually be more equity in the property than at the beginning. • If you sell your home and buy a new one, you can move the mortgage to the new home with most fees waived. • In the unlikely event that accumulated interest exceeds property value inflation, the surving heirs can refinance and keep the property for 95% of appraised value. • If the family wants to retain the property after the borrowers have died, they should have an exit strategy. Wills should leave the property to enough heirs so that there will be sufficient income to qualify for a refinance. • Read more at https://reversemortgageattorney.us/introduction-to-reverse-mortgages/
Emelyn Deal is a loan officer with Magnolia Bank specializing in the FHA reverse mortgage.