Picking The Right Reverse Mortgage Lender
Taking out a reverse mortgage is a major decision (for a quick refresher, see Reverse Mortgage Pros And Cons). Picking the right lender is a crucial part of it. As with any mortgage, it will determine whether you get the best loan for your situation and the best interest rate and fees. And, because this is a field that attracts the unscrupulous, it can even mean the difference between getting a legitimate loan and getting robbed (see 5 Reverse Mortgage Scams).
Here's a step-by-step guide to finding the right reverse-mortgage source for you.
1. Make a Little List
Before you can choose a reverse mortgage lender, you need to know which companies are in the business of reverse mortgage lending. Unlike purchase mortgages and home-equity loans, the major players are not household names. Many big banks have exited the reverse-mortgage business in recent years, citing the risks associated with issuing these loans. Even the biggest reverse mortgage lenders, such as American Advisors Group (AAG), RMS/Security One Lending and One Reverse Mortgage, might be companies you’ve never heard of.
So how do you find potential lenders? Rather than just doing an online search for “reverse mortgage lender,” try these two starting points:
1. National Reverse Mortgage Lenders Association (NRMLA) Lender Locator. Lenders who belong to the NRMLA have agreed in writing to interact with you “in an ethical, professionally responsible, and lawful manner.” That includes telling you about both the benefits and the costs of taking out a reverse mortgage, and encouraging you to seek independent professional advice about whether this sort of loan is even right for you. Just because a lender has agreed to a code of ethics doesn’t mean they’ll follow it, of course, but you have to start somewhere, and at least these firms have placed their ethics on record.
That being said, most reverse mortgage lenders in the U.S. belong to the NRMLA, so this screening tool won’t help you narrow your selection of potential lenders so much as it'll just let you know which reverse mortgage lenders do business in your state. It will even give you the names of specific people to contact at those companies, along with their phone numbers and email addresses.
2. U.S. Department of Housing and Urban Development's Lender List. Most reverse mortgages today are insured by the Federal Housing Administration (FHA), as part of its Home Equity Conversion Mortgage (HECM) program. Located on the HUD website, this search tool will give you a list of FHA-insured company names and phone numbers operating in your state; you can even narrow your search by zip code, city or county if you’d like the ability to meet with a loan officer in person.
2. Narrow the Field
If you work with other financial professionals, such as a money manager or a CPA, ask them for recommendations in general and about the reputation of the lenders you’ve found in particular. If you have any financially savvy friends or relatives who’ve taken out reverse mortgages, ask whether they would recommend that you contact or avoid that firm. (To learn about the problems some consumers have had, see Reverse Mortgage Pitfalls.)
If you can’t get a personal recommendation, you’ll have to settle for an impersonal one. One place to look is the Consumer Financial Protection Bureau’s Consumer Complaint database. You can search consumer narratives if you filter by subproduct (e.g., reverse mortgage) and/or lender name. You can read the details of the consumer’s complaint and the company’s response, if there is one. Also check out online sources like your local Better Business Bureau listings and ConsumerAffairs. While you should take online reviews with a grain of salt, each of these three entities moderates user-submitted reviews, takes measures to filter out fake and spam reviews, and gives companies a chance to respond to complaints.
You can also seek the services of a fee-based reverse mortgage counselor. (HUD has a list of these too). Unfortunately, these folks cannot recommend specific lenders or tell you anything about a specific lender’s fees. But they will tell you which HECM costs you must pay and which you might come across that aren’t required, which costs will be the same no matter which lender you choose – and which will vary– and the maximum amount lenders can charge for certain services. Armed with that information, you can rule out unscrupulous lenders who are charging unethical or illegal fees.
Also take a close look at lenders’ marketing. Some lenders make misleading claims that should cause you to question whether you want to do business with them. For example, many lenders advertise that HECM loans are federally insured, as if this were a feature that benefits you. While reverse mortgages might be harder to come by if the government didn’t guarantee them, FHA loan insurance protects the lender, not you. In addition, these loans are not government-funded or government-operated, despite what some ads might lead you to conclude.
Finally, many reverse mortgage lenders’ websites feature testimonials from satisfied customers. Testimonials certainly seem compelling when you read them, but, of course, companies aren’t likely to publish complaints. Unfortunately, you have no way of knowing whether the testimonials are legitimate. At worst, they could be complete fabrications, meaning that the company is not only willing to lie but is willing to break the NRMLA’s code of ethics and violate federal truth-in-advertising regulations. Don't let testimonials convince you to use a lender that otherwise seems questionable.
3. Make Contact
Picking a good reverse mortgage company is a start, but you also need a good loan officer: No matter what the company's reputation, your experience will come down to your interaction with that individual. A good way to get a sense for these things is to ask the loan officer some questions, either in person or on the phone. Areas to cover:
- How experienced are you with reverse mortgages? Ideally you will work with someone who has been doing this for at least a couple of years and who has closed dozens, if not hundreds, of loans.
- How can I decide if I should take out a reverse mortgage or if another option would be better? The ideal answer will explain various options and who a reverse mortgage is and isn’t right for, or at suggest you consult a financial advisor. (For more on this question, see 5 Top Alternatives To A Reverse Mortgage.)
- What are the drawbacks of taking out a reverse mortgage? If you’ve done your research, you’ll know the answer to this question. A loan officer who denies there are drawbacks or tries to gloss over them isn’t trustworthy.
Your goal should be to pick someone who is patient, knowledgeable, experienced and doesn’t pressure you.Try to find three people you’re comfortable with, because you’ll need them to:
4. Comparison Shop
Of course, lenders' interest rates will vary. So may costs such as origination fees, closing costs and servicing fees. If you’re getting an HECM, other reverse mortgage costs should not vary from one lender to another, assuming each lender is providing estimates based on the same home value. These fixed costs include up-front mortgage insurance and monthly FHA mortgage insurance premiums. Also, government regulations cap how much lenders can charge for certain fees, so make sure the estimates you receive fall within those guidelines. For example, lenders cannot charge more than 2% of the first $200,000 of your home’s value, plus 1% of the rest of your home’s value as an origination fee. The overall fee is capped at $6,000.
Although dealing with someone in person is usually preferable, you might save money by using an online lender. In theory, because online lenders have lower overhead, they can pass on the savings to consumers in the form of lower interest rates and fees, But you still need to comparison shop – don’t make the mistake that nearly half of regular mortgage borrowers make and only get a quote from a single lender. And an online lender might not be right for you if you need a lot of hand-holding during the process.
The Bottom Line
You worked hard to accumulate equity in your home, and you want to get the most out of it. Picking the right reverse mortgage lender is a key step in making that happen. Follow these steps and the chances are good you’ll find a trustworthy and competent firm. (For further reading, see Find The Top Reverse Mortgage Companies.)