Insight into Reverse Mtg. deals, please

[JSmith43]

Rick, thanks for the fax. It would help to have the title commitment in front of me along with a payoff statement for prior liens, but here's how it looks like it shakes out:

Taking out the septic repair item of $2,610, total closing costs are $6,535.

$2,000 origination fee (a minimum, set by HUD to my understanding). The LO gets part of it, probably about $1,100.

$1,800 HUD up front MIP (2% for RM).

That leaves $2,735 left for those rascally title companies, the greedy appraiser ($600):icon_mrgreen:, and recording, etc.

The settlement fee is $550, but let me advise the readers that closing a RM is the mother of all residential closings. Documents up the wazoo.

The Texas fees aren't too bad, hardly anything in the scheme of things Here's to Texas!

The $38,810.67 payoff of what is no doubt a first mortgage is reported on lines 109 and 220. So, the owner now has no mortgage payment. The owner may also have a line of credit not reflected on the settlement statement-not sure. I will check with an active RM specialist Monday. I office with 2 very seasoned RM guys. Maybe one of them could use a Texas Closing Costs Template update in exchange for a second opinion!

This looks like a square deal to me. On the level. Is it suitable for the owner? There is no way I can evaluate that short of an in depth interview.

Edit: I noted the entity to be paid off on line 213. It happens to be the B/C branch of a major lender, serving customers with credit issues, etc. It would be a good bet the rate on that MH loan was well into the double digits. The RM is currently about 4%, I think! This person got rid of an ugly payment without having to qualify based upon credit or income, just the value of the asset. She may have gotten a line of credit that will grow at the note rate plus 1/2% as well.....No, on line 205 it shows she got $7,308.11 in cash. The transaction you faxed me indicates $55,264 was disbursed (the payoff, closing costs and cash disbursement to owner).

I ran the AARP calculator using 90,000 appraised value, assumed 75 years old. She would get about $55,679 on a RM HECM but the on line calculator nets out "average" closing costs. It is roughly in line with what I see here & I am guessing at the lady's age.

 

[Rick Neighbors]

Info

Well, I appreciate your input on this! Having not ever seen one of their closing statements, I was rather suprised at some of the figures. How can folks find fault with Appraiser's fees, in the greater scheme of things? My $600 fee included $100 for additional work, after the fact.

It appraised for $90K, so I guess the little old lady got enough to live on for a while.

Seems like everyone makes more money than us!

Rick

 

[JSmith43]

Well, I appreciate your input on this! Having not ever seen one of their closing statements, I was rather suprised at some of the figures. How can folks find fault with Appraiser's fees, in the greater scheme of things? My $600 fee included $100 for additional work, after the fact.

It appraised for $90K, so I guess the little old lady got enough to live on for a while.

Seems like everyone makes more money than us!

Rick

Rick, it looks like you were part of a good deed and I'm sure you earned your fee. The LO probably consulted with the owner and family members for months and at odd hours. I have had to take some of the RM customer calls while on floor duty. Good grief, it's hard to gently guide them to the appropriate direct number sometimes The LO earned his $1,100 and probably has more hours on the transaction than you. They are doing well to have 3-4 RM transactions a month. That was not a highly profitable loan for the LO.

 

[Riick]

Riick, perhaps you are mixing equity sharing programs with RM?
<<<< snipped >>>>
People getting a RM can be quite vulnerable and may absorb an attitude from an ill informed appraiser. They may talk your ear off. Having a few clues about the bigger picture, and I am sure most appraisers will do the right thing. It's not your job to poison or promote a program and an accidental poisoning by an uninformed appraiser is a real possibility.

As I said, things may be different today, the RMs I went out to - for several different lenders - we far far far from new loans, they'd been made minimum 10-15 years earlier.
On one near me, the Heirs were livid, they'd tried to buy-back the contract from the Lender, who point blank (according to them) said "No".
.. But they didn't bid on the property when it went up for sale either, so they weren't willing to pay the lender retail. :icon_idea:

 

[JSmith43]

Early on, in the history of RM, there were typically equity sharing arrangements. I remember reading sensational stories in the press.
No doubt, there were crooks in the mix.

But, can you imagine the risk associated with rolling out such a product? Do you really think actuarial tables are static? What about unforeseen breakthroughs in life expectancy?

Of course there had to be the chance of profit in order to attract investors who won big time due to home appreciation beyond the model predictions. They could have lost. They won, so because of that they are crooks?

I hope history will sort that stuff out on a case by case basis. If not, it is a wonder anything of use ever gets brought to market in this litigous society.
Of course, I believe Michael Milkin got screwed by prosecutors for the most part, simply because there were losses. Appraisers should have sympathy for Milken. He created a very useful product (a market for moderate to high risk bond funds) that on net, helped our economy greatly.

 

[Financially Feasible]

Dave - I just picked up on this thread and haven't read most of the responses... so, if this has already been mentioned, I apologize. What I would do is start tape recording EVERY phone call... that's just as good as having anything in writing.

 

[Elliott]

I'm confused:

"total closing costs are $6,535
This looks like a square deal to me.
on line 205 it shows she got $7,308.11 in cash.indicates $55,264 was disbursed (the payoff, closing costs and cash disbursement to owner).
90,000 appraised value, assumed 75 years old. She would get about $55,679 "


So, I know this requires a few minutes of calculations, but what is the TRUE (really,
really cost) APR for a 1 year loan, 2 year loan, etc.

Even though I know this 'might' be a difference between eating cat food or going
on a round the world cruise for the rest of your life, I think its pretty steep
'interest' and costs. Maybe selling the house and renting might be a better deal,
at least more real money.

 

[Mike Boyd]

Early on, in the history of RM, there were typically equity sharing arrangements. I remember reading sensational stories in the press.
No doubt, there were crooks in the mix.

But, can you imagine the risk associated with rolling out such a product? Do you really think actuarial tables are static? What about unforeseen breakthroughs in life expectancy?

Of course there had to be the chance of profit in order to attract investors who won big time due to home appreciation beyond the model predictions. They could have lost. They won, so because of that they are crooks?

I hope history will sort that stuff out on a case by case basis. If not, it is a wonder anything of use ever gets brought to market in this litigous society.
Of course, I believe Michael Milkin got screwed by prosecutors for the most part, simply because there were losses. Appraisers should have sympathy for Milken. He created a very useful product (a market for moderate to high risk bond funds) that on net, helped our economy greatly.

"New oceans cannot be discovered if you stay within sight of the shore."

I don't know who said it, maybe Columbus?

 

[JSmith43]

"New oceans cannot be discovered if you stay within sight of the shore."

I don't know who said it, maybe Columbus?

Mike, I like it! "There are no favorable winds for a ship without a destination" is also a pretty good sailing metaphor.

Elliot said: "Maybe selling the house and renting might be a better deal,
at least more real money."

Of course, one of the many choices. But, why do people own homes in the first place rather than rent? Many like the control aspect. For older people, perhaps they like their neighbors, the familiarity of the neighborhood.

You can play "what if", the owner can play "what if", the kids play "what if", the HUD approved counselor can play "what if" and, I guess, even the appraiser can play "what if" and that overdose of "what if's" does tend to confuse and delay in many cases. RM LO's typically earn every cent of their commission.

I might as well play "what if" with you, Elliot:laugh:. What if the owner wants to keep living in their house rather than lose it to foreclosure? Let's make some "what if" assumptions.

Assume that lady had an original mortgage balance of 60,000. I have reasonable evidence it is a B/C loan, but even if it isn't, try and get a non-FHA loan on a MH at a reasonable rate. Considering the loan size, it was probably a 15 or 20 year term, but let's say 30 year. At 12%, it is 617/Mo. A conventional MH loan for people with normal credit and income qualifications is a 4 discount point hit. That plus the size adjuster brings the rate to 8% assuming 20% down and we know that is unlikely. So, I am swagging at the 12% given some knowledge of the lending entity,meaning that poor credit and high loan to value were probably involved as well.

Let's assume the lady has social security of $1,000 and works at Wal-Mart part time, day shift. That brings in about $900 gross per month, net, say $700.

So, she has $700 + 1,000 = 1,700/Mo. Her housing expenses are $617 P & I, taxes & insurance correct me Rick, $125/Mo., utilities $100 (only uses the AC when she gets heat stroke symptoms) which total $842, conservatively.

She eats $275/Mo. Medicine co-payments, home maintenance, transportation, cable TV, internet (dial up-sorry lady). What's that add up too? I think she's a shut in or rides a bike. I don't see room for a car, insurance, gas, maintenance, etc. Certainly not enough for a car payment.

We got the income pretty much used up that we estimated for a typical female retiree that lives in a double wide.

One emergency expense and it all comes crashing down. We don't really know if she has a part time job at Wal Mart. But, if she wants to keep her home and calls me, I will screen her for possible referral to a RM specialist.

She is going to get to tell me her needs. If it is simply that she can't meet ends meet, then it just might be to sell and move into subsidized housing, if it is suitable and she can stand it. Maybe she would rather die then live there, maybe she will like the idea. She will tell her senior pals about the nice mortgage man and one or more of them might want a RM solution.

But, if she just wants enough money left over to buy a car and enough monthly to take care of her needs and maybe give a grandson $100 for graduation, I may have a possible RM solution for her.

In this scenario, the woman got rid of a 617/Mo house payment (assumed amount), she did in fact draw $7,300 cash (perhaps the replacement car).
Maybe her hips hurt and she has to quit her Wal-Mart job. It gives her a reasonable way to keep what she has.

Let's say she is in good health, understands the chance that she breaks a hip or otherwise cannot occupy her home for quite some time, there will have to be a forced sale. She gets remaining equity,if applicable, in that case. If she doesn't change her mind about where she wants to live, she can't lose. If she dies unexpectedly soon, her heirs get what equity remains, and they can carp about the closing costs that were paid. But, it is hard for RM candidates with a certain set of needs to lose with this product properly matched.

 

[JSmith43]

I'll send a practicing RM specialist here for Q & A, if there is an interest. My knowledge retained is just enough to do a reasonable sort of likely candidates. The specialists know this stuff cold and have seen everything, or close to it