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
Friday, April 30, 2010
Thursday, April 29, 2010
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.
Tuesday, April 27, 2010
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.
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.
Friday, January 29, 2010
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.
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.
Tuesday, September 1, 2009
Seniors Drawn to Mortgages That Give Back
I came across a great article in the Wall Street Journal about reverse mortgages. I am seeing more and more positive articles about the reverse mortgage product lately. I think that the need is out there and as more people learn the truth about reverse mortgages, some of the stigma is starting to fade.
Wednesday, July 29, 2009
MetLife Reports on Changing Role of Reverse Mortgages in Retirement
In today’s economy, more and more senior homeowners are looking for new sources of retirement income. Many are looking to their home equity as an option to supplement other income sources. A new report from The MetLife Mature Market Institute looks at different strategies for coping with financial shortfalls later in life.
Tapping Home Equity in Retirement was released jointly with the National Council on Aging and found that 35% of older Americans see their homes not just as secure places to live, but also as collateral for a loan. About 14% are taking cash out of their house through a home equity loan or reverse mortgage. “Tapping home equity in a timely and appropriate way can keep small budget shortfalls from becoming overwhelming problems,” said Barbara R. Stucki, Ph.D., director of the Reverse Mortgage Initiative for NCOA.
The study highlights different options for using home equity that are not part of the current national conversation. These include:
- The use of reverse mortgages to delay the age at which one might begin to collect Social Security, thus increasing the amount of one’s ultimate monthly Social Security income.
- Reverse mortgages as a stopgap measure to consolidate credit card debt, to cover investment losses or to defer mortgage payments.
- Periodic distributions that would tap home equity to help people meet expenses if they outlive their savings/retirement income.
- Programs that combine public benefits with modest amounts drawn from home equity to help seniors stay at home.
- Home equity lines of credit for emergency spending, such as home maintenance, without which many homes decay and lose value.
- Reverse mortgages with a line of credit option for borrowers to pay out-of-pocket health and home care expenses. Borrowers only pay the amount they use from the loan.
Solving everyday financial problems is becoming increasingly complex and difficult in later life. Although there are still many unanswered questions, the financial services industry, policymakers, and consumer advocates complacent about the potential benefits and risks of using this asset to address the challenges facing older Americans.
Monday, June 15, 2009
A little bit about me
Since this is a new blog, I thought I’d introduce myself.
I have worked in the Mortgage industry for the past 7 years as a Loan Officer, Principle Lending Manager and Owner of Northfields Mortgage.
I now work at Integrity First Financial as a Loan Originator and as the Director of the Reverse Mortgage Division.
One of the greatest joys I have in the mortgage business is in being a part of something that can have a huge impact in someone's life.
One loan product that can make a huge difference on the lives of my clients is a reverse mortgage. This specialized loan for people 62 and older enabling them to use the equity in their home.
It’s empowering and humbling at the same time to be able to help someone change their lives for the better, and I’m very pleased to be able to offer this service to Utah’s senior population.
I have worked in the Mortgage industry for the past 7 years as a Loan Officer, Principle Lending Manager and Owner of Northfields Mortgage.
I now work at Integrity First Financial as a Loan Originator and as the Director of the Reverse Mortgage Division.
One of the greatest joys I have in the mortgage business is in being a part of something that can have a huge impact in someone's life.
One loan product that can make a huge difference on the lives of my clients is a reverse mortgage. This specialized loan for people 62 and older enabling them to use the equity in their home.
It’s empowering and humbling at the same time to be able to help someone change their lives for the better, and I’m very pleased to be able to offer this service to Utah’s senior population.
Subscribe to:
Posts (Atom)
