Reverse Mortgage Information: October 2009

I just finished watching this video from "Inside E-Street" by AARP.  An extremely balanced piece on reverse mortgages.  The video is a half an hour in length and is packed all the way through to the end with great information.  I heartily recommend listening to the whole piece.

http://link.brightcove.com/services/player/bcpid24036493001?bctid=44798109001

They don't really mention all othe other options that senior homeowners should look at, besides a traditional home equity line.  So I will fill you in here.

• Alternative Options that should be looked at when considering a reverse mortgage.
• Regular Line of Credit
• City, County & State Property Tax deferral programs
• Selling the Home
• Renting out a portion of the home.
• Obtaining part or full time employment

Can you think of any others?

If you do a little bit of research on reverse mortgages, you will notice that everyone talks about reverse mortgages "making sense" or "they are not for everyone".  How do you know if a reverse makes sense for you or your parents (or clients)?  One way is to find out how others have used reverse mortgages and ask them how their lives have been since then.  

Finding negative stories abour reverse mortgages is easy, but I want to show you some stories where a reverse mortgage has changed the lives of retired homeowners for the best.  You'll have to do a little work to find the stories, as they're not mine and not made up.  They are located at the NRMLA Reverse Mortgage website.  On the Borrower Profiles page - http://www.reversemortgage.org/BorrowerProfiles/tabid/238/Default.aspx

You will find stories there of homeowners who opted to get a reverse mortgage for varying different reasons. 

• Adding a Ground Floor Addition
• Paying off Debts
• Funding In Home Care
• Avoiding Foreclosure

I have also seen homeowners use a reverse to access funds to purchase additional real estate, for themselves or their family.

For the right reasons, with education on all of the pros and cons of a reverse mortgage, they can be a great tool. 

Finding negative articles about reverse mortgages is easy, and with a little investigating it usually a story of the borrowers taking the funds from the reverse and investing them unwisely (often due to an unscrupulous lender or salesperson).  A recent story features an adult child who has been living (rent free) for over a year in the home since the senior passed away and is just now facing foreclosure. 

Remember, Reverse Mortgages are Non Recourse Loans, insured by FHA and only the home itself is liable for repayment of the loan.  The heirs would never be responsible for any shortage.  If the home cannot sell for the balance due, then too bad for the lender, they will have to go to FHA for payment of a claim againts the Mortgage Insurance that was purchased at the time of the loan origination.  (Realtors - You will be familiar with this language as it is just like the FHA guarantee on traditional mortgages)

Please do check out the website of NRMLA, they are a great organization and I recommend that you check with them about any reverse mortgage provider you are thinking of doing business with. 

I will add this link to my "links" section of my blog. By the way, there are some great links there for anyone looking for unbiased, factual information about reverse mortgages!

 Thank you for reading!  Please share your thoughts, comments and concerns.

Here are a few situations when a reverse mortgage is not a wise choice.

A reverse is not the right loan for short term needs.  If you only need the money for a short period of time and are planning on paying it off prior to 5 years, a reverse mortgage is just not an appropriate financial tool. The upfront closing costs will make the cost of the money (APR) non competitive. The minimum recommended amount of time is five years.

Both homeowners should be on title for a reverse mortgage.  If your spouse is under age 62 beware of lenders who encourage you to remove them from title.  A reverse mortgage must be repaid when the last person on the title moves out of the property permanently or passes away. So, if you were to pass away before your spouse and your spouse was not on title, the reverse mortgage would become due even though your spouse is still living in the property.

Risky investments If you are being encouraged to get a reverse mortgage so that you can use the money to invest in stocks, start-up companies, real-estate, or any other type of investment, you should take a good hard look at what the person encouraging you stands to gain. Chances are they're asking you to take big financial risks at a time in your life when you should be conservative. If your home is your only asset, don't risk it.

Annuities - Unethical life insurance salesmen have on occasion encouraged homeowners to take out a reverse mortgage and then try to sell the homeowner an annuity. That is wasteful because the reverse mortgage has a built-in annuity feature called "term" or "tenure" payment. I'm sure that there are some perfectly good annuity products on the market, but if the person encouraging you to get a reverse mortgage also brings up annuities.... BEWARE! They may have their own financial interest as a priority and not yours!

The above reasons are not the only reasons a reverse mortgage may be the wrong fit for you, a good reverse mortgage professional (like me!) will help you to understand all of the benefits and liabilities of a reverse mortgage for your situation.

Remember, all reverse mortgage borrowers must receive special reverse mortgage counseling from a HUD approved counseling agency before they can begin processing on a reverse.  I encourage homeowners to have their trusted advisers or children participate in counseling as well.  Your loan officer should not attend the counseling session with you, either on the phone or in person. 

I just read a very sobering article from the AARP Bulletin about Americans over 55 and debt.  I know that many senior homeowners I work with daily have 25 plus years to pay on their current mortgage and no plan of how they are going to pay it off.  In cases like that, a reverse mortgage may make good financial sense if the homeowner wants to remain in their home with no mortgage payments.  Homeowners should alwasy be aware though that they will continue to be responsible for payment of property taxes and homeowners insurance...

"A generation ago, many Americans worked toward paying off their mortgages and retiring with little, if any, debt. Today, a growing percentage of older workers are heading in the opposition direction. "  See link to AARP on my sidebar.

Certification Class - HELP is going to have another Professional Certification on November 6 and 7 at IVAR (Inland Valley Association of Realtors)

To Register: http://www.freehomeownershiphelp.org/why-become-cert.php

What is a HELP Certified Specialist?

There was a time when a professionals word and expertise could be counted on and their commitment to placing your needs above their own was a given.  Not only was it expected and accepted as the norm, for a professional to do otherwise caused them to be ostracized to such a degree that they had to literally leave the business.

Today, sadly, far too often the public encounters "professionals" who may have been able to pass the initial test in order to be affiliated with their chosen profession, but they fail to adhere to the sprit in which their professional standards originally called out for.

When Sociologists study what led to the worst housing crisis since the Great Depression, they point out two main culprits: ignorance and greed.  Ignorance on the consumers part and greed on the professionals side.  USA HELP's goal is to successfully address both of these issues now and into the future.

USA HELP, Inc. is a non-profit corporation dedicated to being a resource for consumers and professionals alike with respect to housing and lending.  We have set up training courses to assist homeowners and home buyers understand the process a little better and ensure that the consumer will be less likely to be taken advantage of.  We believe in consumer protection through education. 

So what is a HELP Certified Specialist?  They are the new Gold Standard.  A HCS is one who has agreed to be listed on our site, only after attending, at their own expense, a two day intensive course consisting of the following;

• Annual (As opposed to every four years) Ethics & Agency training
• Review of Fiduciary Responsibility and updates on the Business & Professions Code
• Critical cross training of Realtors & lenders to benefit the public
• Understanding FHA's mission and major benefits to the public
• Understanding VA's mission and major benefits to the public
• Short sale training and understanding the REO market to benefit the public
• Understanding loan modifications & what is legal & what is not & who qualifies
• Understanding ALL of the first time buyer programs and unique lending opportunities that exist today and where to find them.

The professionals must pass a written test with a passing grade of 80% or higher.  In addition, they will have signed HELP's Code of Conduct, which will afford HELP the ability to remove from our list, immediately, those who fail to uphold the standards we have set forth in order to best serve the publics interest.

It is an honor to be a HELP Certified Specialist and the potential referrals from the public is a reward that places you in control for the first time.  No longer will you the public have to file numerous complaints against those who refuse to honor their commitments and act in a professional manner.  A team of their peers will review consumer complaints and act in the best interest of the public.  Penalties may range from being removed from our list of Certified Professionals to HELP actually filing a complaint on the consumer's behalf. 

HELP's goal is to be a resource for the public and reward/highlight those are willing to set themselves apart.  HELP will educate you the public, for profit professionals, public agencies for non-profit professionals so that those who would deceive or otherwise act in a manner which does not place the clients interest above their own, will have a far more difficult time.  Knowing ones rights and the proper qualifying questions to ask will ensure those who act responsibly and honestly will no longer be at a competitive disadvantage.  Consumer protection through education, a goal we can and must achieve.

To Register: http://www.freehomeownershiphelp.org/why-become-cert.php