Matt Ellis of Wells Fargo specializes in Reverse mortgages for brokers. He wrote this for my blog a while back
Here’s a rundown from him on the most frequently asked questions about their program.

Topics covered:
1. What is a reverse mortgage?
2. Are there different kinds?
3. What are the requirements for a reverse mortgage?
4. What is the LTV, Credit Score, etc. needed to qualify?
5. How much money can a senior get?
6. How are they different from a refinance or HELOC?
7. Why would a senior do a reverse mortgage (example)?
8. How much do reverse’s cost the senior?
9. How do you as brokers participate in the program?
10. How do you get paid?
11. Thanks!!

Qstn1: What is a reverse mortgage?

Ans1: A reverse mortgage is a program that allows seniors, who are 62 and older, to unlock a portion of the equity in their home. There is no required monthly payment during the life of the loan. The loan is repaid when the youngest borrower dies, moves, or is no longer the principal resident in the home.

Qstn2: Are there different kinds of reverse mortgages?

Ans2: Yes. There are 3 programs that are currently available.

1. The most popular is the FHA/HUD insured reverse mortgage which is called the Home Equity Conversion Mortgage (or HECM).
2. The second is a FNMA product called a Home Keeper.
3. The third is a private program by Financial Freedom called a cash account.

Qstn3: What are the requirements for a reverse mortgage?

Ans3: The requirements are as follows:

1. Both borrowers must be age 62 or higher.
2. They must own their home.
3. The home must be the principal residence.
4. Any and all existing liens or loans must be paid with the proceeds of the reverse (if applicable).

Qstn4: What is the LTV, Credit Score, Income, etc. needed to qualify?

Ans4: There is no LTV, Credit Score, Income, etc. needed to qualify for a reverse mortgage. This one blows most mortgage brokers away!! The only requirements for a reverse are listed in the previous question.
Qstn5: How much money can a senior get?
Ans5: Each program listed in Ans2 has a different way of calculating how much a senior can get. I’ll only reference the FHA HECM loan because it’s by far the most popular.

Okay, the amount that a senior can get is based on:
1. The youngest borrower residing in the home (but both must still be over 62).
2. The expected interest rate (currently around 5.5 to 5.7).
3. And the lesser of the home’s appraised value or the FHA lending limit. The FHA lending limit varies from state to state and county to county. Here in Orange County, CA. our FHA lending limit is $312,895.

Example: Mr. Smith (72) and Mrs. Smith (80) have a home in Anaheim, CA that has been appraised at $600,000. They have $50,000 left on a mortgage that was refinanced last year.

The amount they would qualify for would be based upon:
1. Mr. Smith’s age (72) because he’s the youngest.
2. The lesser of the home’s appraised value or the FHA Lending Limit for that county, which in Orange County is $312, 895.
3. And the expected interest rate which is now currently around 5.5 to 5.7.
4. On a reverse mortgage calculator, the amount they would be able to access after paying off the $50,000 existing mortgage and all applicable fees would be around $143,000 (this is using today’s interest rates). They can take that money in a lump sum, convert it to a monthly payment, put it in a line of credit, or use any combination of the three.

Qstn6: How are they different from a refinance or a HELOC?

Ans6: Simply put, a traditional refinance or a HELOC must be paid back monthly with principal and interest. A reverse mortgage does not require monthly payments during the life of the loan!! The loan is paid back in one lump sum when the last borrower dies, moves, or is no longer the principal resident. The estate of the borrowers can elect to refinance the amount that is owed with a traditional mortgage or they can sell the house, pay off the debt from the reverse, and keep the proceeds.

Qstn7: Why would a senior do a reverse mortgage?

Ans7: The best way to answer that is by a personal example. Mr. X is 85 and Mrs. X is 80. Both live off of their Social Security income which amounts to about $1,200 total a month ($600 each). Their mortgage on the house that they’ve owned for 30 years is $800 per month (they refi-ed and took out some cash 5 years ago).

Just last week, Mr. X passed away. Mrs. X is now stuck with and $800 per month mortgage payment and her Social Security is only $600. She can’t afford the payment and is thinking of selling the house and moving, which she doesn’t want to do. Her house is worth about $430,000 and the mortgage that is left is about $20,000 which she is currently paying $800 per month. With a reverse mortgage, she could pay off the current mortgage thus eliminating the $800 per month and additionally have a line of credit in the amount of $198,000 which she could draw on whenever she wants. She keeps the house, doesn’t need to move, and everyone’s happy.

There are many other reasons a senior would do a reverse; this is just a personal example.

Qstn8: How much do reverse’s cost the senior?

Ans8: Again, talking about the HECM, the costs include (but are not limited to) the 2% origination, another 2% mortgage insurance premium that HUD charges, a loan servicing fee (typically between $25 and $35 per month), and the more common charges like appraisal, pest inspection, title fees, etc. Here in Orange County, the costs are around $15,200 to get one set up. But keep in mind these costs are not out of pocket. They are immediately attached to any loan balance that needs to be paid off. The only out of pocket charge the Wells has is $300 which is transferred to the appraisal cost.

Qstn9: How do brokers participate in the program?

Ans9: There are only a limited amount of lenders in the nation that are approved to do reverse mortgages. Each of them has a sort of broker-in program or partnership that broker’s can be apart of.
For Wells Fargo, we offer a broker-in program that pays 25% on the origination. We are heavily regulated by HUD on this program so the maximum origination we can charge is 2% on the lesser of the home�s appraised value or the maximum lending limit in the county. You’ve heard that before right?

Qstn10: How do you get paid?

Ans10: Check out different lenders. With Wells, you get paid when we do (obviously). Here in Orange County, CA. the check is usually between $1200-$1500. All brokers are required to do is pre-qualify the candidates. 10 or 15 minutes of work usually. A name & phone number is usually all I need.

Please note that the amount a broker will receive depends on the lending limits in the county that loan is being done in.

Thanks!! I haven’t covered everything there is to know about a reverse, and some of the subject matter above might be confusing. These are the questions I get most frequently from brokers. Don’t hesitate to email me or reply to this and I’ll answer as much as I can. Please note that reverse mortgage policies vary from state to state!!

Matt Ellis
Reverse Mortgage Consultant
Wells Fargo Home Mortgage
matt.d.ellis@wellsfargo.com