Doss Guides

As most readers know, reverse mortgages are an extremely popular method for senior citizens to supplement their retirement income, because there are no loan payments during the senior citizen’s lifetime.  The loan balance simply accumulates until all seniors on title have passed away or moved out.  It is estimated that $5.5 billion in reverse mortgages will be made in 2022, which is an increase of 12.5% over 2021.  Senior citizen housing wealth is estimated to be $9.2 trillion.  FHA insures most reverse mortgages made in the USA today, but there are a number of private reverse mortgage companies that typically specialize in higher value homes.

There is a huge opportunity in the reverse mortgage market for private money lenders and brokers.  Some conventional reverse mortgage applicants get turned down for loans because the homes do not meet HUD guidelines, for example they live in a condo that is not FHA approved, the homeowners have questionable ability to pay ongoing expenses (e.g., property taxes, homeowner’s insurance, home maintenance, HOA dues, etc.) or they have been late on mortgage payments within the past 24 months.  These turndown applications are a great opportunity for a private money mortgage lender or broker.  Nothing prohibits a mortgage lender or broker from making or arranging a private money reverse mortgage.  However, since private money is more costly, an ethical broker should always try to secure a conventional reverse for a client before resorting to private money.

How do you underwrite a private money reverse mortgage?  There are a few moving parts to consider.  First, you must determine the life expectancy of the youngest of the seniors.  Next, you have to determine the current market value of their home and how much your loan balance will grow until one year after both seniors have passed away.  You also need to consider whether the house will appreciate or depreciate over the expected remaining life of the seniors.  Lastly, you must examine the ability of the seniors to pay their property taxes, fire insurance, home maintenance, and HOA dues.

Reverse mortgages can be disbursed in a lump sum or as a line of credit.  Interest rates can be fixed or adjustable.

A well underwritten reverse mortgage is a perfect investment for investors with pension plans, high net worth individuals seeking to defer income into the future, and other investors who have no current need for income.

After you have figured out the underwriting, the next step is to give the seniors a Good Faith Estimate (“GFE”) and a list of HUD approved counselors for reverse mortgage counseling.  The borrower cannot be required to incur any expense until the GFE has been delivered, so most lenders will wait until completion of counseling before ordering an appraisal or processing the loan.

Reverse mortgage loan documentation differs significantly from other private money loan documents.  There are unique California and federal disclosure requirements and calculations that require expertise; thus, expect to pay more for attorney prepared loan docs. 

At Doss Law, LLP, we document many private reverse mortgages every month using our own proprietary loan documentation program.  Let us know if we can help you.

Prudent legal advice comes from experience.  We have over 50 years of it.