Tag Archives: reverse mortgages

FHA To Require Second Appraisal For Certain Reverse Mortgages

 Where a second appraisal is required, lenders must use the lower value of the two appraisals.

By Jeff Sorg, OnlineEd Blog

(October 2, 2018)

(WASHINGTON) HUD – The Federal Housing Administration (FHA) announced that it will begin requiring lenders originating new Home Equity Conversion Mortgages (HECMs), commonly referred to as reverse mortgages, to provide a second property appraisal under certain circumstances. FHA is instructing lenders to provide a second independent property appraisal in cases where FHA determines there may be inflated property valuations.

FHA’s new requirement takes effect for case numbers assigned on or after October 1, 2018 through September 30, 2019. FHA will periodically review this guidance and, based on the results, may renew these requirements beyond fiscal year 2019. Read FHA’s Mortgagee Letter.

FHA will perform a risk assessment of appraisals submitted for use in new HECM originations. Based on the outcome of that assessment, FHA may require a second appraisal be obtained prior to approving the reverse mortgage for an insurance endorsement. Under the new policy, lenders must not approve or close a HECM before FHA has performed the collateral risk assessment and, if required, a second appraisal is obtained. Where a second appraisal is required by FHA, lenders must use the lower value of the two appraisals.

The appraisal validation policy announced today will further reduce risks to FHA’s Mutual Mortgage Insurance Fund (MMIF) and protect the health of the HECM program. The financial soundness of FHA’s reverse mortgage program is contingent on an accurate determination of a property’s value and condition. The property value is used to determine the amount of equity that is available to the borrower and it is also used by FHA to determine the amount of insurance benefits paid to a mortgagee.

In a 2017 evaluation, the U.S. Department of Housing and Urban Development (HUD) found higher-than-expected losses in the HECM program could be attributed in part to “optimistic estimates of collateral value driven by exaggerated property appraisals when the loan was originated.”

FHA is addressing the accuracy of appraised property values due to continuing volatility in the HECM program. Last year, FHA’s Fiscal Year 2018 Annual Report to Congress found the agency’s reverse mortgage portfolio had a negative capital ratio of 19.84 percent and a negative net worth of $14.5 billion. To begin to address the financial solvency of the program, FHA instituted several reforms to the HECM program to improve its financial health and to ensure reverse mortgages remain a resource to allow senior borrowers to remain in their homes and age in place. FHA is continuing to analyze the impact of these reforms and expects to provide an assessment in its Annual Report on the financial status of the MMIF.

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OnlineEd blog postings are the personal opinion of the author and not intended as legal or other professional advice. Be sure to consult the appropriate party when professional advice is needed.

For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers visit www.OnlineEd.com.

All information contained in this posting is deemed correct as of the date of publication, but is not guaranteed by the author and may have been obtained from third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

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Financial Freedom Agrees to $89 Million Settlement

Financial Freedom Settles Alleged Liability for Servicing of Federally Insured Reverse Mortgage Loans for $89 Million

By Jeff Sorg, OnlineEd Blog

(May 17, 2017)

briefcase with money(US Dept. of Justice, May 16, 2017) – Financial Freedom has agreed to a settlement with the United States of more than $89 million to resolve allegations that it violated the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) in connection with its participation in a federally insured Home Equity Conversion Mortgages (HECM) or ‘reverse mortgage’ program, the Justice Department announced today. Financial Freedom is headquartered in Austin, Texas.

“The Department of Justice is committed to ensuring that those who participate in federal mortgage insurance programs comply with requirements essential to the success of its programs,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “Among these requirements are the deadlines imposed by the Federal Housing Administration (FHA) on those who service government insured mortgages. Those deadlines are designed to protect the government’s collateral and stop the unnecessary loss of government funds and resources.”

Through ‘reverse mortgage’ loans, older people are able to access the equity in their homes by borrowing money against the equity they have built in their home. To encourage reverse mortgage loans, the FHA protects lenders from loss by providing mortgage insurance. Under FHA’s program, a loan becomes due and payable when the home is sold or vacant for more than 12 months or upon the death of the homeowner, whichever comes first. The lender is repaid the amount of the loan, including the costs of servicing the loan and any interest that accrues on lender expenses after a loan becomes due and payable. FHA will reimburse a lender that is unable to recoup the full amount of the loan. In order to claim recoupment, the servicer is required to meet a number of regulatory requirements and deadlines.

The United States alleged that Financial Freedom sought to obtain insurance payments for interest from FHA despite failing to properly disclose on the insurance claim forms it filed with the agency that the mortgagee was not eligible for such interest payments because it had failed to meet various deadlines relating to appraisal of the property, submission of claims to HUD, and pursuit of foreclosure proceedings. As a result, from March 31, 2011 to August 31, 2016, the mortgagees on the relevant reverse mortgage loans serviced by Financial Freedom allegedly obtained additional interest that they were not entitled to receive.

The United States’ investigation arose from a declaration filed pursuant to FIRREA by Sandra Jolley, a consultant for the estates of borrowers who took out HECM loans. Under FIRREA, whistleblowers may file declarations concerning alleged violations of the statute and may obtain a share of the recovery. Ms. Jolley will receive $1.6 million from the settlement.

“This settlement represents our office’s continued commitment to protecting the financial solvency of vital financial programs designed to benefit America’s seniors,” said Acting U.S. Attorney Stephen Muldrow of the Middle District of Florida. “HECM servicers must be held accountable for failing to adhere to FHA requirements that are designed to ensure the continued viability of the HECM program. We are pleased that Financial Freedom agreed to accept financial responsibility for these failures.”

“Today’s settlement agreement resolves allegations that this lender failed to comply with FHA servicing requirements and sought to receive financial gains that it was not legally entitled to,” said HUD Inspector General David A. Montoya. “These actions today demonstrate our continued commitment to address and halt business practices that pose a serious risk to the FHA program and the public’s trust in HHUD-administered programs.”

The settlement was the result of the coordinated efforts of the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Middle District of Florida, and the Department of Housing and Urban Development’s Office of Inspector General and Office of General Counsel. The case was handled by Assistant U.S. Attorney Kyle Cohen, along with Trial Attorneys Sean O’Donnell and Christopher Reimer of the Department of Justice Civil Frauds Section.

The claims resolved by the settlement are allegations only, and there has been no determination of liability.

[Source: US Department of Justice press release]

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

All information contained in this posting is deemed correct as of the date of publication, but is not guaranteed by the author and may have been obtained from third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

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CFPB Takes Action Against Reverse Mortgage Lenders

The CFPB has long warned against deceptive reverse mortgage advertising

By Jeff Sorg, OnlineEd Blog

stack of 100 dollar bills(December 7, 2016) –  Today the Consumer Financial Protection Bureau (CFPB) took action against three reverse mortgage companies for deceptive advertisements, including claiming that consumers could not lose their homes. The CFPB is ordering American Advisors Group, Reverse Mortgage Solutions, and Aegean Financial to cease deceptive advertising practices, implement systems to ensure they are complying with all laws, and pay penalties.

“These companies tricked consumers into believing they could not lose their homes with a reverse mortgage,” said CFPB Director Richard Cordray. “All mortgage brokers and lenders need to abide by federal advertising disclosure requirements in promoting their products.”

A reverse mortgage is a special type of home loan that allows homeowners who are 62 or older to access the equity they have built up in their homes and defer payment of the loan until they pass away, sell, or move out. The loan proceeds are generally provided to the borrowers as lump-sum payments, monthly payments, or as lines of credit. Homeowners remain responsible for payment of taxes, insurance and home maintenance, among other obligations.

The Mortgage Acts and Practices Advertising Rule prohibits misleading claims in mortgage advertising. In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits institutions from engaging in deceptive acts or practices, including with regard to advertising of consumer financial products or services.

American Advisors Group – American Advisors Group, headquartered in Orange, Calif., is licensed in 49 states and the District of Columbia. It is the largest reverse mortgage lender in the United States. The company ran television advertisements almost daily and disseminated its information kit to approximately 1 million consumers. The information kit included a DVD and several brochures with information about reverse mortgage products.

Through its investigation, the CFPB found that since January 2012 American Advisors Group’s advertisements misrepresented that consumers could not lose their home and that they would have the right to stay in their home for the rest of their lives. The company also falsely told potential customers that they would have no monthly payments and that with a reverse mortgage they would be able to pay off all debts. In fact, consumers with a reverse mortgage still have payments and can default and lose their home if they fail to comply with the loan terms. These terms require, among other things, paying property taxes, making homeowner’s insurance payments, and paying for property maintenance. Moreover, a reverse mortgage is a debt and therefore cannot be used to eliminate all of a consumer’s debt.

Under the terms of today’s consent order, the company must make clear and prominent disclosures in its reverse mortgage advertisements and implement a system to ensure it is following all laws. It will also pay a civil penalty of $400,000.

Reverse Mortgage Solutions – Reverse Mortgage Solutions, headquartered in Houston, Texas, is licensed to conduct business in 48 states. The company marketed its product through various media, including television, radio, print, direct mail, and the Internet.

Through its investigation, the CFPB found that since January 2012 Reverse Mortgage Solutions’ advertisements misrepresented that consumers could not lose their home and that they would have the right to stay in their home for the rest of their lives. The company also falsely told potential customers that they would have no payments with a reverse mortgage and that they would “always retain ownership” and “can’t be forced to leave.” In fact, consumers with a reverse mortgage still have payments and can default and lose their home if they fail to comply with the loan terms. These terms require, among other things, paying property taxes, making homeowner’s insurance payments, and paying for property maintenance.

The CFPB also alleges that the company misrepresented that heirs would inherit the home, without disclosing any conditions of the inheritance. In fact, heirs frequently are not able to keep the home after the death of a consumer with a reverse mortgage. Heirs are only allowed to retain ownership of the home after the consumer’s death if they either repay the reverse mortgage or pay 95 percent of the assessed value of the home.

The company also created a false sense of urgency to buy the reverse mortgage product and misrepresented that time limits constrained the availability of a reverse mortgage. For example, one call script required representatives to tell potential customers that if they didn’t call back by close of business, they would “turn your file down and you will miss out on a tremendous money-saving opportunity.” In fact, it was not a limited time offer. Lastly, the company misrepresented that a reverse mortgage could “eliminate debt.” In fact, a reverse mortgage is a debt and therefore cannot be used to eliminate all of a consumer’s debt.

Under the terms of today’s consent order, the company must make clear and prominent disclosures in its reverse mortgage advertisements and implement a system to ensure it is following all laws. It will also pay a civil penalty of $325,000.

Aegean Financial – Aegean Financial, headquartered in El Segundo, Calif., is licensed to conduct business in California, Louisiana, Oregon, Texas, and Washington. The company also operates under multiple names in the jurisdictions in which it is licensed. Under the name Jubilados Financial, the company advertises reverse mortgages to Spanish-speaking consumers in California. Under the name Reverse Mortgage Professionals, the company advertises reverse mortgages in California, Oregon, Washington, and Texas. Aegean Financial markets its product across various media, including print, direct mail, radio, and the Internet.

Through its investigation, the CFPB found that since 2012, Aegean Financial’s advertisements misrepresented that consumers could not lose their home and that they would have the right to stay in their home for the rest of their lives. The reverse mortgage broker also falsely told potential customers that they would have no payments with a reverse mortgage and claimed that consumers would not be subject to costs associated with refinancing a reverse mortgage. In fact, consumers who refinance reverse mortgages do incur costs, including credit report fees, flood certification fees, title insurance costs, appraisal costs, and other closing costs. And consumers with a reverse mortgage still have payments and can default and lose their home if they fail to comply with the loan terms. These terms require, among other things, paying property taxes, making homeowner’s insurance payments, and paying for property maintenance.

The CFPB also alleges that the company falsely affiliated itself with the government in its Spanish-language advertisements. For example, one advertisement said, “if you are 62 years old or older and you own a house, we have good news for you; you qualify for a reverse mortgage from the United States Housing Department.” In fact, although the Department of Housing and Urban Development provides insurance for the most popular type of reverse mortgage, a reverse mortgage is not a government benefit or a loan from the government. Nor is the product endorsed or sponsored by the government. The disclosures associated with Aegean Financial’s advertisements were in small type or rapidly recited at the end of commercials. The CFPB also alleges that the company failed to keep records of its advertisements as required by law.

Under the terms of today’s consent order, the company cannot imply affiliation with the government, must make clear and prominent disclosures in its reverse mortgage advertisements, implement a system to ensure it is following all laws, and maintain complete and accurate records. It will also pay a civil penalty of $65,000.

A copy of the American Advisors Group consent order can be found at:http://files.consumerfinance.gov/f/documents/201612_cfpb_AmericanAdvisorsGroup-consentorder.pdf

A copy of the Reverse Mortgage Solutions consent order can be found at:http://files.consumerfinance.gov/f/documents/201612_cfpb_ReverseMortgageSolutions-consentorder.pdf

A copy of the Aegean Financial consent order can be found at:http://files.consumerfinance.gov/f/documents/201612_cfpb_AegeanFinancial-consentorder.pdf

The CFPB has long warned of the dangers associated with misleading and deceptive reverse mortgage advertising given the complexity of the product and the consumers to whom the product is offered. For example, in a June 2012 Report to Congress on Reverse Mortgages, the CFPB stated that “[f]alse and misleading advertising poses a serious risk to consumers.” The CFPB also published a June 2015 study, and accompanying advisory warning, reaffirming the risk to consumers as a result of deceptive and misleading reverse mortgage advertising.

[Source: CFPB press release]

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

All information contained in this posting is deemed correct as of the date of publication, but is not guaranteed by the author and may have been obtained from third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.

OnlineEd® is a registered Trademark

FHA Announces New Loan Limits to Take Effect January 1st

There is no change to the FHA national loan limit “ceiling” which remains at $625,500

By Jeff Sorg, OnlineEd Blog

(December 15, 2015) – The Federal Housing Administration (FHA) announced the agency’s new schedule of loan limits for 2016. These loan limits are effective for case numbers assigned on or after January 1, 2016, and will remain in effect through the end of the year.  Read FHA’s mortgagee letters (for forward and reverse mortgage programs).

Due to changes in housing prices, the maximum loan limits for forward mortgages increased in 188 counties.  There were no areas with a decrease in the maximum loan limits for forward mortgages.

Each year, FHA recalculates its loan limits based on 115 % of the median house price in the area. For counties, or equivalent, located in Metropolitan Statistical Areas (MSAs) the limit for all areas in the MSA is calculated based on the highest cost county.

There is no change to the FHA national loan limit “ceiling” which remains at $625,500 and the “floor” which remains at $271,050.   FHA’s minimum national loan limit “floor” is set at 65 percent of the national conforming loan limit of $417,000. The floor applies to those areas where 115 percent of the median home price is less than 65 percent of the national conforming loan limit.

Any area where the loan limit exceeds the “floor” is considered a high cost area. The maximum FHA loan limit “ceiling” for high cost areas is 150 percent of the national conforming limit.

Additional information and loan limit adjustments for two-, three-, and four-unit properties, and in Special Exception Areas, are noted in FHA’s mortgagee letter. An attachment to the Mortgagee Letter provides information on which counties are eligible for loan limits above the national standard. Borrowers with existing FHA insured mortgages may continue to utilize FHA’s Streamline refinance program regardless of their loan balance.

The mortgage loan limits for FHA-insured reverse mortgages will also remain unchanged. The FHA reverse-mortgage product, known as the Home Equity Conversion Mortgage (HECM), will continue to have a maximum claim amount of $625,500, with actual limits based on property value, borrower age, and current interest rates. Reverse mortgages allow homeowners age 62 and older to age in place by borrowing against the value of their homes without any requirements for monthly payments; no repayment is required as long as a homeowner lives in the home. The reverse mortgage is repaid, with interest, when the homeowner leaves the home.

To find a complete list of FHA loan limits, areas at the FHA ceiling, areas between the floor and the ceiling, as well as a list of areas with loan limit increases, visit FHA’s Loan Limits Page.

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For more information about OnlineEd and their education for real estate brokers, principal brokers, property managers, and mortgage brokers, visit www.OnlineEd.com.

 All information contained in this posting is deemed correct as of the date of publication, but is not guaranteed by the author and may have been obtained by third-party sources. Due to the fluid nature of the subject matter, regulations, requirements and laws, prices and all other information may or may not be correct in the future and should be verified if cited, shared or otherwise republished.