PHILADELPHIA, PA--(Marketwire - Dec 4, 2012) - Jack Guttentag, emeritus professor of finance at the University of Pennsylvania's Wharton School and a long-time consumer advocate in the mortgage marketplace, sees properly-structured, government-insured reverse mortgages as an excellent way to meet the financial needs of millions of American homeowners 62 and older. Unfortunately, unscrupulous lenders and negative news coverage have frightened away many eligible homeowners who could benefit from legitimate, government-designed reverse mortgages -- officially known as Home Equity Conversion Mortgages (HECMs).
To help senior homeowners understand the potential value of HECMs, avoid rip-offs, find the best unbiased advice and choose loans from pre-vetted lenders while protecting their privacy, Prof. Guttentag has added a HECM shopping service to his popular, consumer-oriented mortgage-shopping website The Mortgage Professor.
"The HECM reverse mortgage -- designed, administered and insured by the Federal Housing Administration -- is one of the best engineered and most valuable financial tools of our generation and can meet a wide spectrum of senior needs -- home repairs, grandchildren's education, travel," said Prof. Guttentag, who has been a consumer mortgage ombudsman since 1997. "A survey by AARP found more than 90 percent of seniors were satisfied with their HECMs. The major challenge to the program is that millions of seniors whose lives would be improved by a HECM don't take one, either because they don't know about it, are confused by the options or are scared off by media accounts focused on dishonest brokers or lenders."
According to the U.S. Department of Housing and Urban Development, homeowners 62 years of age or older who own or have sizeable equity in their homes can participate in the HECM program to withdraw some of that equity in one lump sum, a line of credit, or various forms of monthly annuities. (HUD's HECM site). HECM participants make no payments while they live in their home. The money loaned plus interest becomes due when HECM participants move or die and their home is sold. (According to Prof. Guttentag, it's important for both members of a couple to be HECM signatories. Some of the horror stories reported in the media focus on a surviving spouse who didn't sign a HECM agreement and is then forced to pay off the loan or move when one spouse dies.) The rules of the program are set by the Federal Housing Administration, which also insures HECM loans. All homeowners considering a HECM reverse mortgage must meet with an FHA-approved counselor to fully understand the program's ramifications.
After studying the potential pitfalls of the HECM process and the need for a consumer-oriented "safe place" for seniors to research HECMs and find lenders of integrity, Prof. Guttentag designed a HECM shopping process with these elements:
- An in-depth, step-by-step process walks homeowners through qualification criteria, options for receiving the money (lump sum, line of credit, annuities, etc.) and selection of the best interest rate and lender.
- This process is augmented by unbiased advice from Prof. Guttentag or a member of his team and supported by a sophisticated but easy-to-use set of decision-support calculators that provide the precise HECM option or combination of options that meets the homeowner's specific needs. The calculators also report the status of the transaction (including outstanding debt and unused credit line) every year until the homeowner reaches age 100.
- Importantly, in contrast to some "lead generation" websites, homeowners go through the entire process without revealing their identities, so they are not pestered by lenders trying to sell them loans or other services. Homeowners choose the lender, if they wish, and will be contacted only by the lender they have chosen.
- The Mortgage Professor is paid a flat fee by lenders when homeowners ask to have that lender contact them. Unlike other online shopping sites, The Mortgage Professor makes the same fee regardless of what happens next, so the site has no incentive to promote any one option over others.
The Mortgage Professor's Certified Lenders Network
Lenders listed on The Mortgage Professor site are all members of The Mortgage Professor's Certified Lenders Network (CLN). To be a CLN lender, organizations must agree to: transmit their actual pricing directly to The Mortgage Professor website in real time; disclose complete price data, including interest rate, points, origination fees, and all fixed-dollar fees; for Adjustable Rate Mortgages (ARMs), disclose complete information on all factors that could change future rates; provide "lock" requirements and extensive lock confirmation statements. Click here for a more detailed discussion of the CLN.
About The Mortgage Professor
Jack M. Guttentag is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. He served as chief of the Domestic Research Division of the Federal Reserve Bank of New York; was a member of the senior staff of the National Bureau of Economic Research; and was managing editor of both The Journal of Finance and The Housing Finance Review. Prof. Guttentag has been advising consumers and the media on mortgage-related issues since assuming emeritus status in 1997.