Reverse Mortgages Are Complex; HUD Should Make It Easier For Seniors TO Compare Them
The HECM reverse mortgage – a product designed for those 62 and older – is by far the most complex financial instrument that homeowners are likely to encounter in their lifetimes, and they must deal with it after many have passed their intellectual prime. Shopping for HECMs on lender web sites is an exercise in futility because lenders do not provide information that allows users to compare one lender’s offers with those of another.
Homeowners seeking a HECM can draw funds in four different ways, depending on their particular needs. They can draw cash up-front, a monthly payment that lasts as long as they reside in their home (“tenure payment”), a monthly payment for a specified period (”term payment”), and a credit line on which they can draw at any time. To shop effectively, homeowners must be able to compare the amounts offered of the draw option they need.
I recently examined the web sites of 24 HECM lenders including all the largest ones to see what information they provided on the 4 HECM draw options. I found 5 lenders of the 24 who provided information on the amount of cash draw, 3 who provided information on credit lines, and none who provided information on monthly payment options.
The major objective of all the lender web sites is to obtain identifying information about the shopper, allowing a loan officer to contact them and begin a sales process. HECM borrowing decisions are based not on price but on referrals, advertisements, third-party endorsements, and the persuasiveness of loan officers.
There is an exception, however, consisting of 6 lenders who “dare to compare” their terms to those of others. To distinguish them from other HECM lenders, I will call them “DTC Lenders”. They are All Reverse, Goodlife Home Loans, Longbridge Financial, Mid America Mortgage, Mutual of Omaha Mortgage, and Signet Mortgage.
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DTC lenders report their loan terms to my two web sites (www.mtgprofessor.com and www.kosher-reverse-mortgage.com). The information they provide to prospective borrowers contrasts sharply with industry practice:
- Shoppers are not required to identify themselves until they have made a selection from among the 6 lenders.
- All 6 lenders provide rate/points/amounts for all the draw options available.
- Bottom line, the shopper can find the one DTC lender that offers the best terms on the particular features of a HECM that best meets their needs.
Here, some full disclosure is in order. These lenders do pay me a small fixed lead fee that does not depend on whether or not a loan materializes. Free help is provided directly to prospective borrowers.
But there is a need for comparative information that’s more important than my web sites or fees. If the U.S. Department of Housing and Urban Development, which regulates HECMs, wants to mandate a uniform disclosure format, I would happily license mine at no cost while eliminating the lead fees paid by DTC lenders.