Reverse Mortgage Information

Hi all,  

Just wanted to tell you a quick story about a client I met with today that we will be helping with a reverse mortgage very soon. She was referred to me by a friend of mine.  

• She is 83 years old and lives alone.  She is active, healthy and vibrant!
• Her home is worth $400,000. 
• She has a small mortgage for $36,000 with a $367 monthly payment.
• Her social security is $600 per month.

With her reverse mortgage she is planning on:  

• The reverse mortgage will payoff her existing loan, saving her $367 per month in payments!
• She will take $20,000 cash to upgrade her master bath and install a safe, walk in tub & shower system!
• She will leave $135,000 in a line of credit to have for emergencies and in home care should something happen in the future. (Smart woman!)
• She will receive $500 per month tenure payment from us to her for the rest of her life as long as she lives in the home.  

Now she will be able to age in place, with an increase in income, a safer home, and money to pay for care when she may need it.  

Now you know why I love my job!  It is so heartwarming to be able to help a senior be safe and secure in their home.

I love talking with my clients, prospects and closed clients alike.  They are my inspiration for most of the posts on my blog.

Yesterday, I was speaking with Jerry, a client who currently has a reverse mortgage.  He was interested in refinancing out of his reverse mortgage into a 30 year fixed rate "forward" mortgage in order to maintain plenty of equity in his home to leave to his children.  He has a great income, excellent credit and plenty of equity and should easily qualify for a conventional loan.

"Why don't you just make payments on the reverse mortgage?" I asked.

"Can you do that?"

"You sure can!" I replied.  "And let me tell you why I think that would be the best idea for you."   I went on to explain the following to him.

The current rate on your adjustable reverse is at a 1.25% margin over the One Month T-Bill (A HECM CMT 125 in reverse speak.) One of the lowest margins ever offered on the HECM. 

1. By making payments on the reverse mortgage you will not only eliminate or slow down the current principal balance increases, you increase the available line of credit. This feature is only available on the FHA Adjustable Rate Reverse product.
2. You avoid the cost of refinancing.
3. Payments on a 30 year fixed are mostly interest during the first half of the loan life, so basically the bank is now making @5.5% on the loan instead of the current less than 2%.  This reduces the amount of principal reduction you would see from the same monthly payment.
4. In the event the interest does adjust upwards,( and yes, everyone agrees that is bound to happen) you will have lowered your principal balance more than if you had refinanced AND.... Ready???  Here comes the best part!    The growth feature on your line of credit is directly tied to the interest rate being paid on your loan (plus .5%)!  That means that should you need to access equity in the future, due to an emergency of any kind, you will have more funds available to you when you need it. 
5. There is never a prepayment penalty on n FHA Reverse Mortgage, and yes, you can refinance at anytime, but carefully weigh the benefits of other options before you spend your hard earned equity.

Needless, to say, although I talked Jerry out of what would be an easy refinance for one of my forward team mates, I helped him to accomplish his goal of reducing his debt in order to leave more for his children AND be prepared for whatever the future may bring. 

As always, I love to hear your thoughts, comments and especially differing points of view.  Please let me know what you think.

I have posted on this topic before, and recently have had more questions and visits from seniors who are concerned about their reverse mortgage balances being higher than their home's current value.

I want to go into a bit of detail, but before I do here's the answer in a nutshell: 

As long as the borrower is living in the home, paying taxes and insurance and maintaing the home in good condition, there is nothing to worry about.  So please, do not lose any more sleep over this or don't let your loved ones lose any sleep.  All is well.

1. Is this a bad thing? 
2. Is the lender going to call the loan? 
3. What about my line of credit?
4. Can I sell my home? 
5. Will my children have to pay the difference when they inherit?

Here's the answers:

1.  It's never fun to owe more than your home is worth, but you should know that an FHA Insured reverse mortgage is a non recourse loan.  In fact all of the Jumbo Reverse Mortgages that I've ever dealt with are also "non-recourse" loans.  Non recourse means there is no "personal" liability for the borrower.  If the lender takes a loss on the loan, they cannot obtain a judgment or lien against the borrower.

2. As long as the senior homeowner occupies the home as their principal residence, pays insurance and taxes, and maintains the home in good condition the loan is not in default.

3. If you have an available balance in the line of credit for your reverse mortgage, it is available to you to withdraw.  Even if the home value has exceeded your loan balance!  That is not true for traditional HELOCs (nice feature for seniors, I wish they had it for me...)

4.  Yes, you can sell your home. Anytime.  But if it will be a short sale you will need to work with the lender.  They will want to have an appraisal so that you don't "dump" the house and the sale will need to be an arm's length transaction.

5. Nope, the kids are fine.  If you pass away with a reverse mortgage and the loan balance is higher than the value, your estate will need to payoff the loan.  If there is no equity left, or the home is "upside down" the estate will most likely allow the home to go into foreclosure (which takes a minimum of 6 months on a reverse) and the lender will then sell the home and any loss will wind up being a claim for the lender to FHA. 

Note- If the family inherits the home, and the loan is upside down, the family cannot purchase the home for the current value.  Just as it is in the regular mortgage world any short sales must be "arm's length" transactions.

I hope that I have alleviated some fears and if you know of a senior who is losing sleep over their reverse mortgage or worred about whether or not getting a reverse is the right thing to do.  Please direct them to my activerain blog or my linked outside blog, www.coronareverse.com where they can find links to lots of free and interesting information without any pressure.

Save these dates!  Let your friends, neighbors, coworkers and family know that if they have questions about their home and the process of foreclosure, loan modifications, short sales, and deed in lieu of foreclosure that they need to be at this seminar.  This free 90 minute presentation is a great first step to understanding where to go for help.  Presented by HELP "Homeowner Education Learning Program" a non-profit agency, this seminar will educate troubled homeowners about the options available to them.  Knowledge is power.

HELP USA Also provides professionals within real estate and related fields an excellent 2 day class that will certify them as "HELP Certified Professionals"  I recommend going to the homeowners free seminar first. There you will get fired up to become an educated, top notch professional.  Please click on my link to HELP on the right side of this page.

FREE HOMEOWNER SEMINAR SCHEDULE

December 7th, 2009
6:30pm-9:30pm
Moreno Valley Senior Center
25075 Fir Avenue
Moreno Valley, CA

December 9th, 2009
5:30pm-8:30pm
Temecula Public Library
30600 Pauba Road
Temecula, CA 92592

90 Minute Seminar Agenda

Topic:    Can, or Should I keep My Home?
Introduction:

-Panel Members, present and not.  Web Site resources and introduction to blog.
-What happened?  In brief, how did we get here? 
-Prediction of the market in general.
-Time frames for foreclosure process / Why the banks don't foreclose? / Should I stay if I'm not making my payments?
-Try To Modify, If To No Avail, Short Sale!  Never Walk Away.
-Credit damage and when will I be able to buy again?  Take action early!
-Modify? Short Sale? Foreclose?  Understanding why each situation is unique.  One size does not fit all.
-Why is it better to cooperate with a Short Sale than to just let the bank foreclose?

Statistical Data:

-Power Point presentation providing current data to help clarify what is happening in the region by the numbers.

Modifications: 

-What's legal and what's not.
-Who's legally set up with The Department of Real Estate.
-What you must know to avoid being a victim.
-Why are we hearing stories of great success when I've been waiting for months?
-What is the Banks motivation?

Taxes:

-What is Prop-8?
-I paid 300k but I'm paying taxes based on 450k, why?
-What if I can't pay my property taxes?
-What are the potential tax consequences under a short sale, foreclosure, forbearance, modification, etc.
-What is the difference between what the Franchise Tax Board is doing and the IRS?
-What exactly is debt relief?  Does the lender have to give me a 1099 for said relief?
-Can I file bankruptcy against these future taxes?

Q&A:

*Please note-All information is deemed reliable and was researched prior to this presentation.  The presenters are expressing their opinions only and are not offering any legal advice.  The County of Riverside is not endorsing any company or individual.  All attendees are encouraged to seek individual advice structured around their own unique circumstances.

I've been reading posts, listening to the news and the talking heads and I have an idea.  Not an original one to be sure. But one worth posting.

Small business seems to have been completely left out of any economic stimulus, with the government figuring that all their printed dollars used to bail out Wall Street and Auto Manufacturing will somehow filter down to small business.  I'm no economist and I hope that some of that money does... but I know that there is something I can do personally and I am challenging each of us to do the same.

Patronize a small business in your community TODAY. Make it your goal to do business with small, professionally run businesses.  Alternatively or in addition, give/donate to a local charity who can help our local troubled neighbors to get through this tough time.

I'm thinking of all I have to do today and how I can use my neighborhood businesses to get it done.  I'll have to buy more moving boxes.  Check.  I need a hostess gift.  Check.  My car needs an oil change and a wash.  Check.

What are you going to do?  Please post it!  Or better yet - post what you've done to help your community small businesses tonight after your done.

What Is Reverse Mortgage? (edit/delete)

Reverse Mortgages are a type of home loan.  Most reverse mortgages are a HUD/FHA insured home loan that allows you to liquidate some of your equity in order to payoff existing mortgages as well as generate additional cash flow.  They are called HECM Loans.  HECM stands for Home Equity Conversion Mortgage.

There are 3 types of HECM Loans.

• Adjustable Rate HECM (the original FHA Reverse Mortgage!)
• Fixed Rate HECM
• HECM For Purchase (either Fixed or Adjustable)

Reverse Mortgages are regulated and insured by the Federal Housing Administration (FHA).  By law, you can never be forced to sell your home or move.  You will always retain the title to your home, and you can still leave your home to your children or whoever you choose. You will never have to make a monthly mortgage payment (although you can if you wish!). Even if your reverse mortgage balance should outgrow the value of your home, a payment is never due.  In fact, there is almost no risk of losing your home if you will always do the following:

• Live in the home as your Primary Residence (at least one spouse must live in the home)
• Keep the home insured and property taxes current.
• Keep the home in good condition.

Who Qualifies?

• Senior Homeowners with enough equity, over the age of 62.
• Most 1 to 4 family Residences qualify.
• FHA Approved Condominiums
• Post 1976 Manufactured Homes on their own lots.*

Some of the best features of an FHA Reverse Mortgage are the methods that you can access the equity in your home!

• Lump Sum - Take all the money you are entitle to in cash/direct deposit at the close of escrow.
• Tenure Payments* - Monthly payments to the homeowner for as long as they live in the home!
• Credit Line* - Leave the funds in a line of credit (that has a guaranteed growth feature!) to be accessed as you need it - Even if you have run out of equity and are upside down.
• * Both the Tenure and Credit Line Options are not available on the Fixed Rate Reverse Mortgage.
• Any combination of the options listed above.

As with all other FHA Home Loans, a reverse mortgage is a "Non Recourse" loan.  This means that the lenders only security for repayment of the loan is the home itself.  The lender has no rights to lien any other assets of the borrower or their estate.  Only the home itself can be used as the lenders recourse to a foreclosure.  If the home is worth less than the outstanding balance of the reverse mortgage then the lender must go to FHA for reimbursement of any loss.  The loss will not generate any judgements or liens against the borrower or their heirs. 

To see if you or your clients may benefit from a reverse mortgage please email me the following information.  I will not call you unless you ask me to and provide your number, but in order to get you a decent estimate I need the following information.

• Birthdays of all persons on title to the home.
• Home Value.  (if you provide your address I can do a value check for you)
• Current Home Loan and Equity Loans on the property.
• Zip Code

Deborah Nance, Reverse Mortgage Professional for Corona, the Inland Empire and Southern Californa.

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.