Silver Tsunami: Making the Case for Reverse Mortgages - Financial Planning

I came across a good article about reverse mortgages from the financial planning standpoint.

Silver Tsunami: Making the Case for Reverse Mortgages - Financial Planning

Reverse Mortgage As An Alternative To Foreclosure

I just came across a great article written by an Oregon Real Estate Broker. She talks about using a reverse mortgage to stop foreclosures against senior homeowners. Some seniors who even have their house paid off but are behind in property taxes just a few thousand dollars are facing foreclosure because they don't know that they have any options.
I recently was able to help a senior couple who had lived in their home over 20 years save their home from a Sheriff's Sale. It was one of the most satisfying transactions I have ever done in this business and my clients were truly grateful.
If you know any senior homeowners who may be having a hard time making ends meet, I would love to talk to them.
Here is a link to the article.

New Scam Targets Elderly Homeowners with Reverse Mortgages

We came across this story about a new scam targeting seniors with reverse mortgages.

Because it's so new, there isn't an official name for it, so we are calling it the "Reconveyance" scam.

Basically, the con is to scare seniors into paying the scammers to ensure they have clean title.

To read the article, click here.

Using a Reverse Mortgage as a financial planning tool

Using home equity as part of their retirement planning was never part of the equation for Older Generations according to Financial Planning.

Older generations considered the home something to be preserved, paid off free and clear before retirement and left to heirs as a legacy. However, many in the industry feel it’s time to reconsider and a reverse mortgage as an integral part of a client’s long-term portfolio and to figure out strategies for leveraging clients’ homes that go beyond basic reverse mortgages

“Historically, the previous generation was dead set against ever using the house to fund retirement,” says Brad Davis, vice president of retirement income solutions for Nationwide Financial. And financial planners often view their job as asset preservation rather than the drawing down of assets. “When advisors talk to clients about assets for retirement, home equity really hasn’t been part of that discussion,” says Sandra Timmerman, director of the MetLife Mature Market Institute (MMI).

In the past many advisors have viewed reverse mortgages as complicated and expensive, used primarily by seniors in lower income brackets as a last-ditch solution says FP.

Yet seniors have a sizable portion of their net worth tied up in their homes. In today’s economy, even affluent clients may need to reconsider utilizing their home equity as a resource. “A lot of affluent people have been hit hard by the stock market crash, lost their shirts investing in real estate or perhaps their golden parachute or retiree pension has evaporated,” says Barbara Stucki, PhD, director of the Reverse Mortgage Initiative for the National Council on Aging. “What may at one point have seemed like a secure future may seem less so now, and they may need to fall back on assets [such as the home] they once would not have considered using.”

House Money

Benefits Check Up from the NCOA

The National Council on Aging has a great website that can help seniors find benefits that they might not be aware of. You can go through the checklist and get all the benefits you deserve. Find and enroll in federal, state, local and private programs that help pay for prescription drugs, utility bills, meals, health care and other needs.

Making Reverse Mortgages Part of Older Americans Month

May is Older Americans Month, which the Obama administration has declared is part of the theme of "Age Strong, Live Long."



As part of this theme, Pulitzer Prize-winning journalist Saul Friedman is back writing about reverse mortgages. He writes that there is a way for older Americans to protect themselves against too many medical bills, high property taxes and the downers in your retirement savings plans by using a reverse mortgage.

"I am referring to the federal government’s reverse mortgages which too many beleaguered older Americans have ignored. Some don’t want to mortgage a home that’s free and clear; some are discouraged from tapping the equity in their homes by children who are waiting for their inheritance.

So here’s some welcome news for older Americans who own their homes and can use some extra income and cash. The up-front costs for many FHA-guaranteed reverse mortgages have gone down, which means the possible proceeds will go up by as much as $10,000.

I’m referring to the most popular and safest reverse mortgage, the Home Equity Conversion Mortgage, fondly known as the HECM. It is the safest for the lender as well as the homeowner-borrower because it is backed, insured by the Federal Housing Administration which has never defaulted on a mortgage that it has guaranteed.

Indeed, of all the mortgages that have fallen on hard times, or have been the subject of scandalous behavior by bankers and investors, the HECM has been largely untouched by these troubles. Last year, the Department of Housing and Urban Development raised to $625,000 the value of a home that could qualify for a HECM.

Gray Matters: Safest Reverse Mortgage

The Financial Health of Aging Seniors

With our current economic challenges, those of us looking forward to retirement need to be well-informed about our financial needs in coming years. And not only pre-retirees, but individuals already in retirement need to be wise to the changing economic environment. The good news is there are trained professionals who keep abreast of changes in the current economy, changes in laws and changes in government programs for the elderly. Professionals in this field are equipped to handle everything from help with retirement savings accounts, investment advice, guidance on government programs, estate planning or even new funding options such as reverse mortgages. A little planning prior to retirement will allow you to maintain your current lifestyle; whereas, a lack of planning may require you to live on an extremely tight budget. For those already retired, taking time right now to deal with financial problems instead of waiting for a crisis to happen is well advised.

A large number of retired individuals feel that they have planned well for the future only to find that rising medical costs, damage done to investment portfolios (by the current economy) and many other factors have caused them to go into debt. According to an article in "USA Today" seniors are racking up debt like never before. Elderly individuals who are in debt live with a constant burden over their heads. Most of these people are on fixed incomes and have no way of paying off credit cards and home equity loans that continue to mount to cover household budget deficits. In order to meet ongoing payments, seniors often forego purchasing medications and skimp on food budgets. They live like hermits -- never going out and pinching every penny -- in order to pay their obligations.

Most of these people worked hard their entire lives and managed their debt. They never anticipated the rising costs of prescriptions, expensive medical care or depletion of savings by living too long. The good news is there is help for these individuals. Here are just a few examples of some relief options that could be available. There are many more besides these.

Reverse mortgages - A Home Equity Conversion Mortgages (HECMs), also known as a reverse mortgage, is a risk-free way of tapping into home equity without creating monthly payments and without requiring the money to be paid back during a person's lifetime. Instead of making payments the cash flow is reversed and the senior receives payments from the bank. Thus the title "reverse mortgage". For those seniors who are less fortunate financially but own a home, a reverse mortgage can allow them to remain in the home by creating extra income.

Life settlements -- A life settlement enables older individuals, businesses and other organizations to sell life insurance policies they currently own – but no longer want or need – for an amount greater than the cash surrender value. In some cases the value can be 2-3 times the cash surrender value. Even some term life insurance policies with a conversion option to permanent coverage can qualify for a life settlement.

Government Programs -- Some government programs such as food stamps provide temporary financial help for food. Other programs provide subsidized housing, help with medical expenses and provide tax credits. For veterans there is free health care, inexpensive prescriptions and disability income. Area agencies on aging offer individual counseling, legal help and advice with Medicare costs. (National Care Planning Council)

For some, living on a fixed income and dealing with debt can be an overwhelming burden. There are knowledgeable professionals and debt relief strategies that can assist in easing this burden. The National Care Planning Council keeps a list of financial advisers and attorneys who specialize in this area of planning at www.longtermcarelink.net.

The Unexpected Caregiver | Myths of Reverse Mortgages, Part II with Beth Paterson

Here is part 2 of the radio interview with Keri Berit, The Unexpected Caregiver, and Beth Paterson. Beth is a fantastic reverse mortgage originator from Minnesota and this part talks about a lot of the myths regarding reverse mortgages. She also shares stories of some of her clients and how the loan has changed their lives.

The Unexpected Caregiver | Myths of Reverse Mortgages, Part II with Beth Paterson

Beware of Grandparent Scam

A VERY SUCCESSFUL telephone scam from way back has been uncovered again by the Federal Trade Commission. It goes something like this over the phone:

Caller: "Grandma! Hi, How are you?"
Grandma: "Hi,... Billy, Is that you? How are you?"
Caller: Actually, I'm in some trouble, and don't want Mom and Dad to know..."

The phony grandchild claims that he or she needs emergency cash to fix a car, get out of jail or leave a foreign country. "Billy" begs his grandparent to keep the request confidential and to wire money right away. Wiring money through Western Union and MoneyGram is much like sending cash, with little chance for tracking it or getting it back.

The Federal Trade Commission (FTC) says complaints about this scam are on the rise. In many cases the scammers know names of family members and are successful in impersonating the grandchild. It's also easy to trick the other person onto revealing a grandchild's name or other information. The con artists count on a grandparent's love and concern. It can often outweigh any skepticism. The victims often don't realize they've been taken until much later, when they speak to their real grandchild, who knows nothing about any phone call. By then, the money is long gone.

The FTC offers some "fight back" advice if you gat a call from a family member asking you to bail him or her out af a phony problem.
Try to verify the caller's identity by asking personal questions a stranger couldn't answer.

Resist pressure to act immediately. Tell the family member you need to call "right back" on a phone number you know is legitimate. If you don't have that phone number, call the persons parent, spouse or another close family member to check out the story before you send any money, even if you've been sworn to secrecy.
If you can't reach a family member and still aren't sure what to do, call your local police on the non-emergency line for assistance and advice.
No matter how dramatic the story, don't wire money or send a check or money order by overnight delivery or courier. Con artists use these services so they can get your money before you realize you've been cheated.
And if you suspect fraud, report it immediately to www.ftc.gov and click on "contact us" or call 1-877-FTC_HELP (382-4357).
from Costco Connection

The Unexpected Caregiver | Basics of Reverse Mortgages with Beth Paterson-Part I

I just listened to a great radio interview with Keri Berit, The Unexpected Caregiver, talking to Beth Paterson. Beth is a fantastic reverse mortgage originator from Minnesota. Here is the link to the show and you can listen to the interview yourself. It is part 1 so I will add the remaining part of the interview as they become available.

The Unexpected Caregiver | Basics of Reverse Mortgages with Beth Paterson-Part I

Reverese Mortgages in the media spotlight again

The CBS Early show ran a feature on Reverse Mortgages this week during their Money Watch segment. While it was mostly positive and spoke about the recent reduction in closing costs, there were some this about the piece that bothered me.

The first thing they mention is a Consumer Reports "investigation" about how the number of reverse mortgages that have "failed" has quadrupled in four years.

2004 = $81 million

2008 = $381 million

It's enough to scare off seniors and have them ignore the rest of the story. But what does this really mean and how does it effect seniors who are interested in this product.

When you take out a reverse mortgage, the biggest upfront fee is the FHA mortgage insurance. This equals 2% of the value of your home. This is used to protect you and your heirs so that when the time comes when the loan is due, either because you pass away or move out of the home, you are not liable to the bank if the home is valued at less that the balance of the loan. This is whats called a non-recourse loan. So when they say that in 2008 $381 million of reverse mortgages failed, what they mean is that loans worth $381 million came due and the home were worth less than this amount. So the seniors and their families were protected. This should not scare you for any reason.

The second issue is that even though they talk about how closing costs have been reduced, they continue to raise the issue of the high costs of the reverse mortgage. With all costs associated with any loan, you have to weigh the cost against any benefit. With a reverse mortgage the cost are justified for many people. Now with those costs reduced, the product has become very attractive. Regardless of this, they still bring up the high costs.

Here is the spot.

Changes in the Reverse Mortgage Product

I know, I've been neglecting this blog and I've never been a very prolific writer so this is a little hard for me. My intention was to use this blog to highlight news articles and positive stories that I thought would be helpful to my readers. (if I have any). But I started using twitter for that when I added a twitter feed to my home page.

I don't know if this will be redundant but I am recommitting myself to add to this blog and hopefully get a discussion going.

There have been some very positive changes in the Reverse Mortgage market in the past month. Margins are starting to drop making the rates on the adjustable product lower. Some of the biggest changes are with the fixed rate reverse mortgage. First, our primary lender dropped the service set-aside fee. This is what they take and set aside to pay the $30 a month service fee and typically runs about $4,000. No monthly fee, no service set-aside to worry about. Shortly there after most lenders followed suit. Then we were able to reduce and then eliminate our origination fee because of better pricing. This is turning into an all out price war with our lenders and I'm curious to see where it will end.

For now, all I can say is that it is a great opportunity to take advantage of the savings.

A News Article that tells it like it is.

Reverse mortgages are not the next subprime
Reverse mortgages are not the next subprime

By Jack Guttentag

Saturday, January 23, 2010

Reverse mortgages are for seniors who don’t have enough spendable income to meet their needs but do have equity in their homes, which they don’t mind depleting for their own use rather than leaving it for their heirs. For reasons not clear to me, reverse mortgages are being bad-mouthed by an unlikely source: consumer groups that are supposed to represent the interest of consumers in general, and seniors in particular.

Reverse mortgages have always been a tough sell. Potential clients are elderly, who tend to be cautious, especially in connection with their right to continue living in their home. Fears about losing that right were aggravated by some early reverse-mortgage programs, which allowed a lender, under certain conditions, to force the owner out of his house. These actions are the reasons why, until recently, reverse mortgages never caught on.

In 1989, however, Congress created a new type of reverse mortgage called the home equity conversion mortgage, or HECM, which completely protects the borrower’s tenure in his or her house. So long as he pays the property taxes, maintains the property and doesn’t change the names on the deed, he can remain in the house forever. Furthermore, if the reverse-mortgage lender fails, any unmet payment obligation to the borrower is assumed by the Federal Housing Administration.

The HECM program was slow to catch on but has been growing rapidly in recent years. In 2009, about 130,000 HECMs were written. Feedback from borrowers has been largely positive. In a 2006 survey of borrowers by AARP, 93 percent said their reverse mortgage had had a mostly positive effect on their lives, compared with 3 percent who said the effect was mostly negative. Some 93 percent of borrowers reported that they were satisfied with their experiences with lenders, and 95 percent reported that they were satisfied with their counselors. (All HECM borrowers must undergo counseling prior to the deal.)

But while all is well for almost all HECM borrowers, some of their advocates in consumer organizations, alarmed by the program’s growth, are bad-mouthing it. I hasten to add that there is a major difference between bad-mouthing and educating. Legitimate issues exist regarding who should take out an HECM and when they should do so. Seniors face hazards in this market, as in many others. Advice and warnings to seniors from authoritative sources on issues such as these are useful. I try to provide useful advice and warnings myself.

What is not useful is needlessly and gratuitously fanning the flames of senior anxiety about losing their homes. In its September issue of Consumer Reports magazine, Consumers Union warned: “The Next Financial Fiasco? It Could Be Reverse Mortgages.” The centerpiece of its story is a homeowner who is “likely to be evicted” because of an HECM balance he can’t pay off. How is that possible?

It was his wife’s HECM, not his, and when she died, ownership of the house reverted to the lender because the husband was not an owner. At the outset of the HECM transaction, he was too young to qualify, so he had his name removed from the deed so his wife could qualify on her own. She could have lived in the house forever, but as a roomer in her house, he had no right to remain.

This was painted as a reverse-mortgage horror story, but it was nothing of the sort. HECMs are for owner-occupants, not roomers, which was what the husband had made himself into. The correct moral is that the program should not be misused.

Even less useful are spurious claims that growth of the reverse-mortgage market has major similarities to the growth of the subprime market, and could lead to the same kind of “financial fiasco.” The major source of this nonsense is an October monograph by Tara Twomey of the National Consumer Law Center titled “Subprime Revisited: How Reverse Mortgage Lenders Put Older Homeowners’ Equity at Risk.”

In fact, the two programs could hardly be more different, and there is no chance of a similar fiasco.

Subprime loans imposed repayment obligations on borrowers, many of whom were woefully unprepared to assume them, and which tended to rise over time. The financial crisis actually began with the increasing inability of subprime borrowers to make their payments, and as a result, defaults and foreclosures ballooned to unprecedented levels.

But reverse-mortgage borrowers assume no repayment obligation at all. Their only obligations are to maintain their property and pay their property taxes, which they have to do as owners whether they take out a reverse mortgage or not. They cannot default on their mortgage because the obligation to make payments under an HECM is the lender’s, not the borrower’s. There are no reverse-mortgage foreclosures.

Subprime foreclosures imposed heavy losses on lenders and on investors in mortgage securities issued against subprime mortgages. Such securities were widely held by investors, which included Fannie Mae and Freddie Mac. Losses by the agencies on their subprime securities played a major role in their insolvency.

In contrast, no lenders have suffered or will suffer losses on HECMs because they are insured against loss by the FHA. The FHA assumes the losses when HECM loan balances grow to the point where they exceed property values. However, this is an expected contingency against which the FHA maintains a reserve account supported by insurance premiums paid by borrowers.

It is true that the unprecedented decline in property values over the last few years has increased losses and eaten into the FHA’s reserves. But the FHA has responded to that by reducing the percentage of home values that seniors can access. According to a recent study by New View Advisors, who are seasoned experts on HECMs, this should allow the FHA to break even over the long run.

In sum, the current state of the HECM market has no resemblance whatsoever to the conditions in the subprime market that led to disaster.

Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania. He can be contacted through his Web site, http://www.mtgprofessor.com.