Health-care expenses and home repairs represent other common motivations for obtaining reverse mortgages, as well.

Aging baby boomers

One stumbling block to reverse-mortgage originations has been a persistent lack of understanding of the HECM program. This comes from brokers who don't know how to qualify to participate in the program and from homeowners who mistakenly believe they must turn over ownership of their homes to a bank.

These misconceptions also are changing as more baby boomers turn 62 and gain eligibility for reverse mortgages. These potential reverse-mortgage borrowers tend to have more familiarity with debt financing, such as that offered by home-equity loans. For many baby boomers, it doesn't seem unusual to tap into their home equity.

A 2008 AARP report on readiness for retirement noted that many baby boomers nearing retirement will find that housing equity makes the difference between a difficult retirement and a comfortable one.

Sealing the deal

By affiliating with FHA-approved lenders, independent brokers can gain access to all FHA programs. These brokers can receive reverse-mortgage applications and have them funded by the FHA-approved mortgagee.

Although brokers must be FHA-approved to originate HECM and other FHA-insured mortgage loans, two different levels of approval are open to brokers under HUD-established restrictions. An FHA-approved loan correspondent, or mini-eagle, often is the easiest approval to obtain. Brokers can originate and process HECMs and other FHA loans. A sponsor underwrites the loan, and the loans can be closed by that sponsor or the broker correspondent.

The mini-eagle approach is similar to the forward wholesale channel, in which a mortgage bank funds a broker's loan. In the FHA reverse-mortgage world, however, it's an FHA mortgagee funding the correspondent's loan.

This brokerage relationship with the FHA's stamp of approval allows brokers to do reverse mortgages as well as low-downpayment, government-insured loans. It's also a supervised relationship, with the FHA supervising the broker as a correspondent, which is especially important in light of fraud concerns. It adds a layer of protection and can offer brokers additional credibility with consumers.

The other level of FHA approval is mortgagee, or full eagle. These brokers can process, underwrite and close loans in their name.

At some point, however, they must qualify for direct endorsement. These mortgagees also can contract with another mortgagee to be their agent in processing and underwriting HECM loans.

Brokers also should note that various companies offer online and other technology-based loan-origination systems that help FHA correspondents originate reverse mortgages, provide proper disclosures and serve other customer needs. In addition, a restriction established by the Housing and Economic Recovery Act of 2008 prohibits lenders from subsidizing HECM counseling.

As reverse mortgages become a necessity for more older homeowners looking to avoid foreclosure, eliminate debt and manage cost-of-living increases associated with aging, mortgage brokers who take the right steps and educate themselves can be ready to help.

Robert D. Yeary is chairman and CEO of Reverse Mortgage Solutions Inc., which provides private-label subservicing as well as a state-of-the-art loan-origination system for reverse mortgages. RMS is the fourth-largest servicer of reverse mortgages in the country. Yeary has held many senior-executive positions in his nearly 40 years in the mortgage industry. Before forming RMS, he was a consultant to Senior Loan Link. Contact Yeary at (281) 404-7818 or byeary@rmsnav.com.

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