Reverse Mortgage Thievery

[dennis in se pa]

Yes, this has been covered, but a search turned up posts from long ago, and I wanted to make sure everyone knows this is a scam on elders that should only be used as a last recourse.

I wanted to educate myself in this area in case the need was to arise, hopefully it won't. A hypothetical home worth $200K would net a $120K payout or about $600 a month. There is more to it, but the closing costs are what scare me. In the case I was looking at the "origination fee" - what they get paid for just doing the paperwork - was $3000!!!! And the mortgage insurance was $4000!!!! WTF!!!! Around here mortgage/title insurance on such a property would be closer to $1500 or so.

My point is that this is a scam to suck cash from elderly people. Why is this not better regulated so the banks can only charge reasonable fees such as $1000 origination and standard mortgage insurance rates? Because the banks are among those who run our so called democracy.

A point on mortgage/title insurance. In my experience this is another scam from the banking industry who are in bed with the title insurers. You can go to the court house for free and see if there are any liens against a property you are buying. That is all your several thousand dollar title insurance policy will protect you against, and you won't get title insurance if there are liens that can't be immediately resolved. So your title insurance is worth NOTHING. But you have to buy it to get a mortgage. Hmmmmm....

There may be rare exceptions to this scenario, which I imagine those in the title insurance industry will jump on, but for the most part this is my experience. IMHO YMMV etc.

[ronster]

You mean you don't believe good-ol-boy Fred Thompson when he tells you they're the best thing since sliced corn bread? You've got to be un-Amarican.

[Rick Lee]

$3k closing costs on $120k is VERY reasonable. Closing costs are usually 2-3% of loan amount, so $3k is right in line. You don't specify what that $4k is. Title insurance sounds like a scam for a reverse mortgage, but if it's required by the lender, then the rate is regulated by the state and it's the same for everyone - X% of loan amount. I don't know why there'd be mortgage insurance on a reverse mortgage, since the only risk to the bank comes toward the very end of the loan. But it's not a scam. You can always shop elsewhere. If you need a reverse mortgage, chances are you're already pretty bad with money, so I'd not go calling the bank names just yet.

[dennis in se pa]

$3K for origination fee + $4k for title insurance plus this and that = way more than 3%. Probably closer to 10% till they are done.

No offense, but do people generally read and make an attempt at comprehending the entire post before they respond?

[Rick Lee]

I read the entire post. Origination fee can be a lot of things. It's usually 1% of the loan amount, so $3k probably includes some other stuff that would be obvious in a GFE. I'd like to see a GFE before passing judgment. Again, title insurance rates are set by the state. The bank doesn't get to make up that number. It's $X per thousand of loan amount, though different in each state. If that $4k includes both lender's and owner's policies (actually, I'm not sure who's considered the lender and the owner in a reverse mortgage), she definitely does not need both of them. If I were buying the house for low money down, I'd only want a lender's policy (which they'd require too), since they'll go to bat for you on title issues because they have much more to lose, meaning you don't really need an owner's policy. If she already has one from the purchase, they may be able to get a reissue rate. But again, those roles may be reversed in a reverse mortgage. Is this in PA? PA has very high closing costs anyway, so you can expect it to be expensive.

[Rick Lee]

This is a good read and it looks like the costs you list are well below what they legally could be if this is an FHA loan.

http://www.nytimes.com/2010/04/17/your-money/mortgages/17money.html?_r=1

[widebody911]

The invisible hand of the free market will sort this out.

[dennis in se pa]

They call it "mortgage insurance" on the web page. I wonder if it is a way to get a round state set rates on title insurance? Around here "origination fee" is a percentage of the loan, in this case around 3 %. I am familiar with HUD1's. All the extra fees quickly add up. Title insurance companies get around the state set rates with "enhanced policies" and "endorsements" that the lender requires, supposedly. I once walked out on a settlement because the fees were about $1000 higher on Friday than they had been when I looked at their HUD the day before. Funny how those fees got immediately "waived". The lending industry has it's predators. Beware.

[Rick Lee]

Well, from that link I posted, it looks like most reverse mortgages are FHA and ALL FHA loans have an upfront and a monthly MIP - mortgage insurance premium. These are about as heavily regulated as it gets because they're FHA, and they're not cheap by any means. Since that article was written in 2010, FHA's MIP rates have increased a lot, I think more than doubled, which is what prevents me from refinancing (I bought my last house in 2010). I'm actually better off paying the higher interest rate, since that's tax deductible than paying a lower interest rate and a higher MIP, which is not tax deductible. So be careful about getting upset over mortgage insurance. It's part of all FHA loans and it's a set rate for everyone, regardless of credit or loan amount.

I still don't see any shenanigans going on here unless you post a GFE. They're allowed to charge up to 3% of the loan amount as the "origination fee" and it looks like this one is well below that. So that probably means there are other junk fees (doc prep, application fee, underwriting, etc.) that would normally be covered by the origination, but will be listed outside thereof. You can always shop around, but FHA loans have a lot of set in stone fees you can't get around. If you think you're getting around them, they're just hidden in the rate or other fees, though new laws make those more difficult to hide.

[Zeke]

Originally Posted by widebody911

The invisible hand of the free market will sort this out.

So far, that hasn't been the case. There are more disadvantages to a RM than advantages. The target customer has his back against the wall and can't get anywhere with a line of credit, etc.

RM's are tantamount to a hard money loan. In those circumstances one can expect to get circumcised. You won't feel the pain until you wake up.