Selecting a Lender

 | April 25, 2003

Which lender should you use to get a reverse mortgage? It may depend on the type of loan you want.

Public sector reverse mortgages aren't available in most areas. And when they are, usually only one government agency offers any specific type of loan. Normally, you can't have more than one type of public sector reverse mortgage on your home. So you would be selecting a loan type—for example, a property tax deferral loan, or a deferred payment home repair loan—rather than a lender.

In the private sector, the federally-insured Home Equity Conversion Mortgage (HECM) is by far the most frequently selected reverse mortgage. That is why lenders offering proprietary private sector plans also offer HECMs. So this article focuses on selecting a HECM lender. But it also tells you which of them can give you the side-by-side comparisons of HECM versus proprietary loans that meet AARP's model specifications.

What lender should you use to get a federally-insured Home Equity Conversion Mortgage (HECM)? AARP advises that you consider cost, origination services, loan servicing, and a lender's professional commitment to meeting your needs.

Cost

HECM loan costs can vary by a lot from lender to lender, so it pays to shop around before deciding on a lender. Letting lenders know that you are shopping around may also help you get a better deal.

The only HECM costs that lenders do not control are the upfront and monthly mortgage insurance premiums. So you need to find out how much each lender you are considering would charge you for the origination fee, all third-party closing costs, the monthly servicing fee, and—most importantly—the interest rate. Some lenders may say that their interest rate is based on a specific rate index plus a “margin.” If they do, ask what the actual interest rate would currently be.

When comparing the cost of loan fees versus interest, keep in mind that the interest rate will apply to your total and growing loan balance for as long as the loan lasts. Ask lenders and your HECM counselor to show you what the impact of different available combinations of loan fees and interest rates would be on the amount you would owe in the future. If you are concerned about rising interest rates on an adjustable rate loan, ask them to show you how much more you would owe if the average rate on your loan would be higher than the rate initially charged on the loan.

Origination Services

The level of service a lender provides is more difficult to judge than cost is, but service is just as important. You want your loan officer to be knowledgeable, experienced, and respectful.

After reading all of AARP's Web site information on reverse mortgages, you will be better able to judge how well a lender knows reverse mortgages. How long a lender has been offering reverse mortgages and in how many places may be particularly important if your loan runs into any unexpected snags. An experienced lender has already encountered most of the issues that can cause problems, and is most likely to have a good working relationship with the nearest HUD office.

You also want a loan officer who respects your knowledge and preferences and helps you reach your own decisions. You don't want to feel pressured by a loan officer, And you don't want a loan officer who is clearly more concerned about selling you a loan than meeting your needs.

Loan Servicing

At loan closing, most lenders transfer their loans to another office or company that specializes in servicing the loan. Ask each lender you are considering, "Who will service my loan after it closes?" and request a sample of the account statements the servicer would send you.

Make certain you fully understand all the information on these statements. In particular, if you are considering a HECM creditline, find out how the servicer would keep you informed about the growing amount of cash that a HECM creditline provides.

Professional Commitment

A commitment to meeting consumer needs can be seen in a lender's professional relationships and consumer information. For example, members of the National Reverse Mortgage Lenders Association (NRMLA) have developed "best practices" for their industry. If you don't want to be contacted by a NRMLA lender, however, be sure to state that preference if you request any NRMLA publications.

Lenders committed to the highest standard of consumer information can provide loan analyses and comparisons that meet AARP's model specifications. The only computer software currently meeting this standard is the Reverse Mortgage Analyzer by Financial Freedom Senior Funding Corporation, and two programs by Ibis Software: the Reverse Mortgage Originator (RMO) and the Reverse Mortgage Analyst (RMA). Lenders currently using RMO are listed on the Ibis  Web site. The printout with the key side-by-side comparisons is called the "Reverse Mortgage Performance" report in the Financial Freedom software, and the "Reverse Mortgage Comparisons" report in the Ibis RMO and RMA software. Be sure to ask for these specific printouts, especially if you are considering a proprietary loan. 

 
AARP does not endorse any reverse mortgage lender or product.