Reverse Mortgages

Are reverse mortgages really a good deal?

2007-03-16T05:27:00.000-07:00

A growing number of senior homeowners, age 62 and older, seem to think they are a good deal. Their popularity is increasing every year and is on record pace for this year.

A reverse mortgage is a special loan that can provide extra money to help seniors supplement their income - an increasingly important necessity considering today's rising costs, like health care. The reverse mortgage can provide a monthly check for the borrower for the rest of their life, or until they sell or move away from the residence. Or the reverse mortgage can be paid out as a lump sum or line of credit.

The most popular type of reverse mortgage is the home equity conversion mortgage, insured by the Federal Housing Administration. There were 76,351 of these reverse mortgages sold last year, up from 43,131 in 2005. The number of sales is obviously growing at a rapid clip, and a bill was passed recently by the U.S. House of Representatives that would temporarily suspend the cap of the number of HECMs that can be insured by the FHA. That cap is now 275,000 HECMs.

The key reason for the rapid growth in sales of HECMs is the dramatic increase in home values. In a very short time, equities in homes have increased substantially, making it possible for senior homeowners to access a larger flow of income from HECM payments. Also, rising costs of almost everything makes it more important to generate added income. And seeing the potential for added profits, more lenders are now offering reverse mortgages.

But are the a good deal?

Before rushing out to purchase a reverse mortgage, study it carefully and shop around to more than one firm offering it as the Terms and fees can vary greatly with different companies. Also understand the fees involve, because they can be substantial. Most lenders are quick to point out that the fees can be rolled into the loan, but they are still being paid which will reduce the amount of money that you will receive from the reverse mortgage.

Beware of advisor shilling 'lump-sum' reverse mortgage

2006-08-28T05:01:00.000-07:00

Here is another great question and answer article from Bob Russ that cautions about listening to any advisor that pushes lump-sump reverse mortgages for investment purposes:

Q: I began getting Social Security last February. This year I lost my job. A financial advisor suggests I take a reverse mortgage ''lump sum'' and invest it to supplement my Social Security income. I have no other income and no heirs. My home is worth about $400,000 with a $77,000 mortgage at 4.25 percent interest, which adjusts by 2 percent next year. I love my home and want to stay here as long as possible. Do you think a reverse mortgage will work for me?

A: Yes. But I am very worried that so-called financial advisor might have suggested you take a reverse mortgage lump sum so he can sell you an annuity or other investment to earn himself a large sales commission.

If you want to receive monthly lifetime income from a reverse mortgage to supplement your Social Security income, you can elect that choice direct from the reverse mortgage lender. You don't need that financial advisor to help you.

However, you will need to use $77,000 of your reverse mortgage entitlement to pay off your current mortgage. Then you won't have any more monthly mortgage payments. The balance of your reverse mortgage can be taken as lifetime monthly income, a credit line (except in Texas), lump sum or any combination.

Robert J. Bruss is a California lawyer and licensed real estate broker. Leave your questions at www.bobbruss.com

Reverse Mortgage Costs

2006-08-21T10:49:00.000-07:00

People interested in getting a reverse mortgage, need to know the typical costs that are involved in order to make an educated choice. Just like most home loans, the typical mortgage fees apply to reverse mortgages. Typically you will be chareded an origination fee, up-front mortgage insurance premium (HECM loans), an appraisal fee, and other standard closign fees.

In many cases, these fees can be financed as part of the reverse mortgage. This makes it even more important to look at the fees because you will not be paying them upfront, so they can be easy to look over. Here is a quick run down of the typical fees:

Origination Fee
The origination fee is charged by the lender to cover certian operating expenses like administrative costs, marketing costs related to the reverse mortgage.

For HECM reverse mortgages, which account for 90 percent of all reverse mortgages made in the U.S., the origination fee will be set to the greater of $2,000 or 2 percent of the maximum claim amount. Currently the limites vary by county, from $200,160 up to $362,790. This means the 2 percent origination fee will generally be between $4,003 and $7,256. Home Keeper reverse mortgages from Fannie Mae charge borrowers an origination fee that may not exceed 2 percent of the value of the home. With either product, the entire amount of the origination fee may be financed as part of the mortgage.

Mortgage Insurance Premium
For HECM reverse mortgages, borrowers are charged a mortgage insurance premium equal to 2 percent of the maximum claim amount, or home value, whichever is less, plus an annual premium equal to 0.5 percent of the current loan balance.

The mortgage insurance guarantees that if the company managing your reverse mortgage goes out of business, the government will step in and make sure you have continued access to your loan funds. In addition, the mortgage insurance guarantees that you will never owe more than the value of your home when the HECM must be repaid.

Appraisal Fee
As with any home loan, an appraisal will be ordered to determine the current market value for your home. Appraisal fees generally range from $250 to $400.

Standard Closing Costs
Here is a list of other standard costs that you will typically be charged as a reverse mortgage borrower:

Credit report fee (~$20): Verifies any federal tax liens, or other judgments, handed down against the borrower.

Flood certification fee (~$20): Determines whether the property is located in a federally designated flood plane.

Escrow, Settlement or Closing fee ($150-$450): Generally includes a title search and various other required closing services.

Document preparation fee ($75-$150): Fee charged to prepare the closing documents, mortgage note, and other recordable items.

Recording fee ($50-$100): Fee charged to record the mortgage lien with the County Recorder's Office.

Courier fee (~$50): Fee to cover the cost of any overnight mailing of documents between the lender and the title company or loan investor.

Title insurance (based on loan amount): Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against any loss arising from disputes over ownership of a property.

Pest Inspection (~$100): Determines whether the home is infested with any wood-boring organisms, such as termites.

Survey ($150-$250): Determines the official boundaries of the property.

Service Fee Set-Aside
The service fee set-aside is an amount of money deducted from the available loan proceeds at closing to cover the projected costs of servicing your account.

Federal regulations allow the loan servicer to charge a monthly fee that ranges between $30-$35. The amount of money set-aside is largely determined by the borrower's age and life expectancy. Generally, the set-aside can amount to several thousand dollars. (Note: The servicing set aside is just a calculation and not a charge. The only amount added to your loan balance is the monthly servicing fee, which ranges from $30-$35.)

Renting Your Reverse Mortgaged Home?

2006-08-21T08:57:00.000-07:00

The following article from Bob Bruss contains some excellent information on what happens when someone with a reverse mortgage moves into a nursing home. In this case, this could mean having to sell her home.

Q: DEAR BOB: My 90-year-old mother-in-law, who recently moved into a nursing home, has a reverse mortgage on her home to pay her living costs. My husband is to inherit her house after she dies. We plan to demolish the house and put a new house on the property. What are the financial ramifications of renting the house to tenants until her death? My husband is reluctant, but I don't want to see the house sitting there vacant, when it could bring in $2,000 monthly rent. -- Elaine H.

A: DEAR ELAINE: Because your mother-in-law moved out of her principal residence, her reverse mortgage will become due and fully payable in full after 12 months of her not occupying the house. Reverse mortgage lenders periodically check up on their borrowers to see if they are still alive and are occupying their primary residence, except for absences less than 12 months.

If the house is rented to a tenant, when the reverse mortgage lender discovers the owner no longer lives there, the lender can require the loan balance be paid in full or it will be put into foreclosure. For more details, read the reverse mortgage documents and consult a lawyer.

Readers with questions should write Robert J. Bruss at 251 Park Road, Burlingame, Calif. 94010, or contact him via his Web page, http://www.bobbruss.com

Reverse Mortgage Specialist Sentinel launches in South Africa

2006-08-18T06:42:00.000-07:00

Reverse mortgage (home equity release) specialist Sentinel has just launched in South Africa.

Its South African company is a joint venture to be known as "Senior's Finance", with financial services company the Alexander Forbes Group. The company is already well established in its home country New Zealand, Australia, and Ireland with its reverse mortgage model.

Sentinel sees South Africa as an ideal market for home equity release, as house prices have grown very strongly over recent years, but seniors have very little savings and pensions. Due to the low savings rate, the company estimates that 90% of retirees will not be able to maintain their pre-retirement lifestyles during retirement.

Sentinel is planning two further launches in the pipeline.

House Passes National Reverse-Mortgage Loan Limit

2006-08-18T06:27:00.000-07:00

Last month, the U.S. House of Representatives passed the Expanding American Homeownership Act of 2006 (H.R. 5121). This new bill would create a single national limit for the HECM (Home Equity Conversion Mortgage) program equal to the conforming Freddie Mac loan limit, which is $417,000 for 2006.

Under the current law, the location of the home dictates the maximum loan amount, which varies by county. These amounts range from $200,160 to $335,800. The new bill would set one national rate that would allow seniors to take out much larger reverse mortgage loans.

The Expanding American Homeownership Act also would provide other improvements to the FHA HECM program. The new legislation calls for a "home purchase" option that would allow people to use a reverse mortgage to purchase newer housing that better suits their needs (currently only Fannie Mae offers a reverse mortgage home purchase program.) It would also remove the current volume cap on the number of HECM loans that FHA can insure (currently at 250,000 loans.)

Reverse mortgages have already exploded in popularity over the last couple of years, but with the passage of this act, we could see even larger increases in the number of seniors utilizing this powerful program.

Reverse Mortgages on the Rise

2006-08-16T06:15:00.000-07:00

The popularity of reverse mortgages in the U.S. seems to be exploding as more and more people begin to use their home equity to help fund retirement. Just take a look at these reverse mortgage statistics from HUD.

The U.S. Department of Housing and Urban Development endorsed a total of 7,572 reverse mortgages in June. And it has endorsed 55,659 reverse mortgages thru the nine months of FY 2006 ending June 30.

To put that in prospective the FHA endorsed only 43,131 reverse mortgage loans for all of FY 2005. In fact year-to-date totals represent a 83 percent increase over the 30,404 loans endorsed during the same period last year. That is impressive growth for any industry.

Korean Goverment to Back Reverse Mortgages

2006-08-15T13:00:00.000-07:00

The South Korean government has decided to provide loan guarantees next year to financial institutions that sell reverse mortgages as part of its efforts to promote the products, the Ministry of Finance and Economy said.

These reverse mortgage loans will allow people to receive a certain amount of money on a regular basis from financial institutions using their homes as collateral, and the ownership of the home is taken over by the lender after the term of this kind of mortgage ends.

According to the ministry, the scheme, introduced in May last year, will help resolve the problems faced by the elderly with low incomes and strengthen the countrys social safety net. Also, the government plans to provide a variety of tax incentives for the products.

Reverse mortgage misconceptions: SEQUAL

2006-07-19T12:23:00.000-07:00

Industry body the Senior Australian Equity Release Association of Lenders (SEQUAL) has voiced its concerns that myths and misinformation surrounding reverse mortgages and equity release products is stopping retirees from enjoying a more comfortable lifestyle.

Executive director of SEQUAL, Kieren Dell, said that with the booming proportion of the population entering their 60s the equity stored in the home may be critical to funding retirement. Yet, many retirees would rather live poor than use part of the equity to fund a better lifestyle because of their false fears and misconceptions of reverse mortgages.

Some of the concerns spelled out by SEQUAL include:

Home ownership issues - many believe they will lose ownership of their homes when taking out a reverse mortgage.

Loss of capital growth - some believe that they will not be entitled to the appreciation in their homes upon getting a reverse mortgage.

SEQUAL wants to dispel these myths and let homeowners understand that a reverse mortgage is simple a loan against the home and the homeowner retains complete ownership of their home.

There are many myths surrounding reverse mortgages in the retirement community, but provided you deal with a reputable lender who is a member of SEQUAL, fear of these myths should not stop retirees from using these products in the right circumstances, Dell said.

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Better Business Bureau warns of Reverse Mortgage Scams

2006-07-19T11:45:00.000-07:00

The Better Business Bureau is urging homeowners in financial trouble to explore their options before signing papers transferring their deed to a third party or signing up for what they believe is a reverse mortgage application.

All Better Business Bureaus in the U.S. and Canada are issuing an international alert to help combat the growing incidences of real estate fraud, the local office said Tuesday in a news release.

Its understandable that people panic when facing the loss of their home, said Michael Coil, northeastern Indiana president and chief executive. Yet this is a situation that calls for clear-headed thinking. The BBB urges homeowners who are in financial distress to explore every alternative to keeping their home and falling victim to easy solutions.

Some scams can lead to consumers losing their homes and all the equity they had in it. Their best first step is to talk to their mortgage lender, the local office said. If a repayment schedule can't be worked out, they should consider hiring a real estate agent and selling the house to pay off the debt, the release said.

Reverse Mortgage for Home Purchase

2006-06-12T08:43:00.000-07:00

Most people assume that a reverse mortgage can only be used for getting money out of a home they already own. But a specialized Reverse Mortgage from Fannie Mae allows seniors to purchase a new home. This is great for seniors looking to sell their current large home and move into a smaller home with no monthly mortgage payments.

The Fannie Mae reverse mortgage home purchase program does require the purchaser to put pay a small downpayment and then the proceeds from the reverse mortgage covers the remainder of the purchase price. Here are some of the benefits to using a reverse mortgage to purchase a new home:

No borrower income limits and no credit requirements. The loan is based on your age and the value of the home being purchased.

You can lower your down payment and keep more of your cash by choosing to use all or part of the loan proceeds toward your home purchase.

No monthly payments for as long as your life in the new home.

Loan proceeds do not affect Social Security or Medicare benefits. (If you receive Supplemental Security Income or Medicaid, these benefits may be affected.)

You do not pay back the loan until you sell your home, no longer use it for your primary residence, or pass away.

You will never owe more than the value of the home at the time of repayment, even if the loan balance exceeds the value of your property. This means no debt will ever be passed along to your estate or your heirs.

Source: www.fanniemae.com

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Reverse Mortgage Case Study - Home Environment Modification

2006-06-09T06:52:00.000-07:00

A 74 year old wife needs a way to help her husband stay in their home. Her 76 year old husband has been wheel-chair bound by a debilitating stroke that has left him partially paralyzed on his left side. Their current home will not accomodate a wheel-chair and the wife does not want her husband put into a nursing home.

One solution is for them to take out a reverse mortgage on thier current home and use the reverse mortgage proceeds to add on a wheel-chair accessible addition to the home. The reverse mortgage would provide them with a $95,000 line of credit, part of which would be used to build the new addition.

They remaining part of the reverse mortgage line of credit could be used to cover any additional expenses needed to help care for her husband.

With the reverse mortgage, the husband and wife would be able to stay in their home together. The wife would not have to worry about making payments on the reverse mortgage while caring for her sick husband.

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Ready for Retirement?

2006-06-07T07:26:00.000-07:00

Millions of Americans - 43 percent of all working-age households - are at risk of lower living standards when they reach 65, according to a new National Retirement Risk Index released Tuesday by the Center for Retirement Research at Boston College. Even two-earner households are at risk, because Social Security replaces less of their preretirement income.

The retirement risk index is drawn primarily from analysis of the federal government's Survey of Consumer Finances, which is updated every three years. By applying research methods to the federal surveys since 1983, the center found we're in substantially worse shape than we used to be.

The retirement risk index is based on a best-of-all-possible worlds scenario. It assumes workers don't retire until they are 65, that they spend down the equity in their homes by getting a reverse mortgage and that they create their own pensions by putting all their savings in an inflation-adjusted annuity at retirement - three things most Americans don't do.

Change those assumptions to workers retiring at 63, not tapping into home equity and investing their assets themselves, and a whopping 66 percent of working-age households are at risk.

One reason retirement readiness has declined over the last two decades is that fewer workers can count on a traditional pension plan. Instead, many have retirement savings plans, such as 401ks, which they have to fund and manage themselves.

Younger people and those in low-income households are most at risk of being unable to support their current lifestyles when they reach retirement age. Retiring later and saving more are ways to tackle the problem.

Source: Center for Retirement Research at Boston College

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Financial Planners Say Retirement Income Market Will Grow Slowly

2006-06-06T06:29:00.000-07:00

The 2006 FPA Financial Advisors' Attitudes and Perceptions survey about
the Retirement Income Distribution Market, sponsored by OppenheimerFunds
Inc. and produced by the Diversified Services Group, Inc. (DSG), indicates that
the majority of financial planners believe that the retirement income market will grow substantially, but at a slow pace.

"Regardless of the pace of growth, retirement continues to evolve into
a more and more complex financial planning issue," said Kathleen Beichert,
Senior Vice President of Retirement Plans at OppenheimerFunds, Inc.

Key findings of the study:

Systematic withdrawal strategies and dividend-paying investments are by far the most commonly recommended retirement income solutions.

Specific income-generating products such as annuities and Certificates of Deposits (CDs) are recommended far less frequently.

60 percent of the planners surveyed have recommended reverse mortgage products at some point, however, only 6 percent recommend them often.

75 percent of those surveyed use some type of retirement income planning software program. Two-thirds of these programs are modified accumulation programs or were designed by the planners themselves.

Respondents typically rely on existing clients to fuel their retirement income business. It appears that this group waits for their clients to reach retirement age and/or leverages their existing relationships for referrals.

"While existing clients and referrals are always a good way to target this market, there is a real opportunity for planners to reach out toothers who need help with retirement planning," said Beichert. "Planners should look for ways to partner with financial services companies and expand their retirement income client base."

About the Financial Planning Association:
The Financial Planning Association(R) (FPA(R)) connects those who need, support and deliver financial planning. We believe that everyone is entitled to objective advice from a competent, ethical financial planner to make smart financial decisions. FPA members demonstrate and support a professional commitment to education and a client-centered financial planning process. For more information on FPA, visit http://www.fpanet.org.

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Free Reverse Mortgage Informational DVD

2006-05-31T08:08:00.000-07:00

Reverse Mortgage of America, a division of Seattle Mortgage Company, today announced the release of a new informational DVD to help seniors and their families better understand reverse mortgages. This free DVD, titled "Understanding Reverse Mortgages", will address frequently asked questions and dispel myths and misperceptions related to reverse mortgages.

"Understanding Reverse Mortgages" features several one-on-one interviews with senior homeowners who have completed the reverse mortgage process, thus providing insight into the process from the homeowners perspective. It also presents industry experts as they weigh in on how a reverse mortgage can serve as a useful financial tool. The 18-minute informative video explores all aspects of the lending process, including mandatory counseling, matters for consideration and the benefits of a reverse mortgage loan.

"Seniors across the nation are eagerly seeking alternate sources of additional income," says Sarah Hulbert, Senior Vice President and National Director of Reverse Mortgage of America. "It is important that seniors understand and fully examine their options. As our population ages, reverse mortgages will supplement retirement and enhance the quality of life for many more of our community's senior homeowners."

Seattle Financial Group, a growing network of innovative financial services, is dedicated to constantly meeting the consumer's ever-changing needs. Comprised of Seattle Mortgage, Seattle Savings Bank, Seattle Escrow, Seattle Capital, Reverse Mortgage of America and other brands, the company provides real estate financing, savings products, and associated services for all stages of life. General information about the company can be found at www.seattlefinancialgroup.com or by calling 800-643-6610.

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Fifth Record Year for Top Reverse Mortgage Lender

2006-05-25T11:52:00.000-07:00

Financial Freedom, a subsidiary of IndyMac Bank F.S.B. (Indymac Bank), the nation's largest lender of reverse mortgages, announced that 2005 was its fifth consecutive year for a record number of reverse mortgage loan fundings and applications. Last year, Financial Freedom closed 30,991 loans, representing a 56 percent increase over 19,817 in 2004.

"The number of loans closed this year clearly demonstrates the increasing consumer understanding and appreciation of reverse mortgages as an answer to a wide range of seniors' financial needs," said Jim Mahoney, CEO of Financial Freedom.

Even more impressive then the increase in the number of reverse mortgages funded, was the most dramatic increase in volume dollars. In 2005, Financial Freedom closed $2.9 billion in loans, compared with $1.6 billion in the same period ending December 31, 2004. This represents an 81 percent increase, which indicates that in addition to closing more loans, the average home value per loan has increased as well.

Financial Freedom's loan volume is comprised mainly of two types of loans: FHA's Home Equity Conversion Mortgage or (HECM), the predominant reverse mortgage product in the marketplace; and the Financial Freedom Cash Account, which is the only jumbo reverse mortgage available and designed for homes in excess of $450,000 in value.

ABOUT FINANCIAL FREEDOM: Financial Freedom is a founding member of the National Reverse Mortgage Lenders Association. NRMLA is a nonprofit trade association, based in Washington, DC, whose mission is to support the continued evolution of reverse mortgages as an important financial option for senior homeowners while educating both its members and consumers about the varied applications of this unique loan. For more information, visit the Financial Freedom Web site at www.financialfreedom.com.

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Dealer Group Count Takes Stock of Reverse Mortgages

2006-05-24T06:40:00.000-07:00

The Dealer Group Count has added reverse mortgages to its recommended product list. Speaking at the groups annual conference held in New Zealand this week, chief operating officer, Marianne Perkovic, discussed why reverse mortgages were added to the recommended product list.

According to Perkovic, the aging population and changing retirement landscape were the main drivers behind adding Reverse Mortgages to its recommented product list. "Due to strong consumer interest and a changing marketplace, we have chosen a panel of lenders with quality and cost-effective products. Count advisers will initially have access to ABN AMRO, Bluestone Equity Release and Macquarie Mortgages products. All of whom hold SEQUAL membership", she said.

For more information about Count visit their website at http://www.count.com.au/

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Using Real Estate to Pay for Retirement

2006-05-17T03:56:00.000-07:00

Have you wondered how you are going to pay for your retirment? Well a new book "Retire on the House" by Gillete Edmunds and Jim Keene may open your eyes to new possibilities. If your like most homeowners, you only think of your home as a place to live and not as a powerful financial tool.

In the book the authors discuss almost every possible way to turn your home into a an income stream without selling it. The suggestions provided will give retirees who own their home many different ideas to suppliment their retirement income.

Some of the suggestions include converting your home into a boarding or rental house, refinancing your home, downsizing, moving to senior community and investing sell proceeds, or taking out a reverse mortgage.

The book does an excellent job of explaining the pros and cons of each alternative, especially its discussion on the complex subject of reverse mortgages. The authors present an easy to understand overview of the pros and cons of using a reverse mortgage.

Although this book tackles some complicated topics like reverse mortgages and can get a little heavy, the information provide is absolutely invaluable. Any Senior that owns their own homes should pick up a copy and study it, if only just to open their eyes to the possibities.

Information brought to you by the Reverse Mortgage Guide and the Reverse Annuity Mortgage Blog.

Widow Reeling from Reverse Mortgage Equity Grab

2006-05-14T18:01:00.000-07:00

The following story shows exactly why you need to understand all terms of a mortgage contract before you sign.

Katherine Stephens and her husband signed up in 1988 for what they thought was a great concept for seniors: a reverse mortgage that would pay them $312 a month virtually in perpetuity -- until they died or moved out of their house.

At the time, Katherine was 76 and Harold was 78. Harold later died, leaving Katherine alone in the house. The $312 checks came in like clockwork every month, until early this year when she moved to the nursing home.

The loan contained an "additional interest provision" which gives the lender the right to 100% of all gains in the market value of the property from the date of settlement to the date of final payoff. At the time of the loan settlement in 1988, the appraised value of the Stephenses' house was $83,500 and is now worth appraised at roughly $500,000.

The current lender Wilmington Savings Fund Society (WSFS) is now damanding that Stephens pay:

$67,586 for the monthly payouts

$158,218.19 in compounded interest at 11 1/2%

100% of the house appreciation since 1988 that is entitled as "additional interest" under the contract

The total owed would be $642,000 but the contract puts the cap on the payouts to the lender at 100% of the current appraised value of the house, $500,000, less selling expenses.

Bottom line: WSFS wants nearly half a million dollars in compensation for total loan advances of $67,586, dribbled out at $312 a month over 18 years.

This information brought to you by the Reverse Mortgage Guide and Reverse Annuity Mortgage Blog.

Home Equity May Save Baby Boomers Retirement

2006-05-11T10:45:00.000-07:00

Baby Boomers have not been diligent in saving enough money to fund their retirements. But with the soaring real-estate prices many of their homes have appreciate in value giving them a large asset base.

Many of these baby boomers will have to look to their home equity to help fund their retirements.

Keene, a regional manager in private client services for San Francisco-based Wells Fargo & Co., added that baby boomers will have a number of options to "monetize" their homes, from buying a less-expensive house or condominium for cash and investing the proceeds, to reverse mortgage loans or interfamily deals.

But seniors that haven't saved money for retirement had better be cautious:

To be sure, there are mortgage experts who are skeptical of putting too much faith in tapping home equity to fund retirement.

"If somebody has no savings, the chances are they don't own a million dollar house free and clear either," said Michael Moskowitz, the president of the New York mortgage company Equity Now. "I think it's a bit of wishful thinking."

He added: "Without retirement planning, without a 401(k) or IRA savings account, people aren't going to be able to enjoy the same standard of living they had before retirement."

Plus baby boomers can't expect the same appreciation as in the last decade:

Chicaferro also cautioned that baby boomers shouldn't count on their homes appreciating as fast in the future as they have in the past decade.

"There's no guarantee that equity in the home is going to double or triple in value, so it's not a prudent thing to sit there and think it will happen," he said.

The key is to start saving for retirement and not rely on the equity in your home. If it is there, then it can add to your retirement lifestyle, but don't expect it to completely support your retirement.

Information brought to you by the Reverse Mortgage Guide and the Reverse Annuity Mortgage Blog.

IPO Possible for IndyMacs Reverse Mortgage Unit

2006-05-07T15:59:00.000-07:00

IndyMac Bancorp Inc. is considering an initial public offering for its Financial Freedom Senior Funding Corp. as net income at the reverse mortgage unit doubled in the first quarter. The IPO would help attract and retain talent, raise cash and enhance shareholder value for Financial Freedom.

The Financial Freedom unit nearly doubled its net income from $4.2 million to $8 million in the first quarter of 2006. It funding $1.1 billion in reverse mortgages, compared to $507 million in the year-ago period.

Wachovia analyst Jim Shanahan assigned an estimated a value of $250 million to $400 million for Freedom Financial, based on a price-to-earnings multiple of 8-12, he said in a note to clients.

IndyMac paid about $80 million for a 94% stake in the firm back in 2004, Shanahan said.

Source: http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BCFAD7068-6F93-4D50-B3F5-DA967D6BE278%7D

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Reverse Mortgage Ebook Available

2006-05-04T09:06:00.000-07:00

www.reverse-mortgage-information.org has just release a free 16-page e-book titled “Is a Reverse Mortgage Right for Me” has been released.

This book was published to provide specific guidance to anyone considering a reverse mortgage. It will help them assess whether this type of loan is a good fit for their individual needs.

The ebook lays out seven specific questions that should be answered by anyone considering a reverse mortgage:

1. Am I the right age for a reverse mortgage?
2. How long do I expect to stay in my home?
3. How long do I expect to live?
4. How much additional income do I need?
5. How much equity do I have and how much can I borrow?
6. Have I considered other options?7
7. How important is it to me to leave an estate?

The book provides specific tips, resources, worksheets and other guidance for reaching answers to each question.

The free e-book, Is a Reverse Mortgage Right for Me? can be downloaded at http://www.reverse-mortgage-information.org/is-a-reverse-mortgage-right-for-me/

Shanghai to Promote Reverse Mortgage for Seniors

2006-04-24T08:32:00.000-07:00

China is now starting to jump on the reverse mortgage bandwagon. The shanghai government is now going to actually promote reverse mortgages.

The Shanghai municipal government has just announced that it will promote reverse mortgages this year, after years of controversy on the topic.

Du Peng, deputy director of the Population and Development Studies with Beijing's Renmin University of China, welcomes the move. But he says the wide promotion will take time and considerable effort.

The population of china is aging as in other parts of the world and they are looking for ways to support this aging population. In Shanghai for instance, 20% of the population is over the age of 60 years old. Even with promotion, it will take 10 years for it to become widely accepted.

"It provides another choice for seniors to support themselves. But it will take over ten years for it to become popular, because the oldest groups of people who now own apartments are mostly the middle aged. Reverse mortgage will only be more applicable when these people retire."

Reverse Mortgages Need Closer Look

2006-04-17T08:17:00.000-07:00

This article from 'The AGE' in australia discusses the need to be cautious when borrowing a reverse mortgage. One problem is that people don't actually read the full mortgage contracts.

LET'S be honest. Most people, when borrowing money to buy their home, don't bother to read the full mortgage contract. They check the essential terms like the amount being borrowed and the interest rate and sign on the dotted line.

One of the things that the Australian Consumers Association is concerned about the traps that are hidden in reverse mortgage documentation.

But the Australian Consumers Association is concerned that the same may not be true for the fast-growing number of reverse mortgages. The ACA recently reviewed 19 reverse mortgages and found a number of traps in the documents. It found many contracts were confusing and hard to interpret and contained wide-ranging default clauses that could result in higher interest rates being charged, a borrower's rights under the contract being limited, or even the enforced sale of the house.

They stress the need to take a close look at any documentation before signing for a reverse mortgage.

Sequal supports action on misleading reverse mortgage ads

2006-04-07T11:49:00.000-07:00

Article states that the senior australians equity release association of lenders (sequal) is trying to distance itself from the Transcomm "misleading" advertising actions.

The Senior Australians Equity Release Association of Lenders (Sequal) has made an attempt to highlight the differenct between reverse mortgages products offered by its members and the fixed-term loan offered by Transcomm Credit Co-operative.

The problem with the Transcomm Fixed-term product was that borrowers might have to pay the loan back in their lifetime.

ASIC deputy chairman Jeremy Cooper said unlike most reverse mortgage products, the Transcomm product was a fixed-term loan that meant consumers were likely to have to repay the loan in their lifetime.

He said the product had a number of features that could result in borrowers being disadvantaged.

“The Annuity Plus Reverse Mortgage allows Transcomm to reduce the amounts advanced to borrowers and, in some circumstances, even require early repayment.”

This again highlights the need to fully understand any reverse mortgage product that you care considering.

Avoiding Reverse Mortgage Scams

2006-02-26T06:37:00.000-08:00

As reverse mortgages become more popular, more and more cases of reverse mortgage fraud are popping up. Since reverse mortgages typically involve your largest asset (your home), you will want to make sure that you do not fall victim to one of these scams.

Reverse Mortgage Scams

Getting charged for free information: Some companies have been charging thousands of dollars for information provided free from HUD. Typically these companies charge for this information as part of estate planning services. Seniors signing up with these contracts are unaware of that these firms are charging a fee of 6 to 10 percent of the total amount borrowed. These fees can run into the tens of thousands. HUD has issued a directive to lenders that issued reverse mortgages insured by the Federal Housing Administration (FHA) to stop doing business with these companies.

Pushing reverse mortgages as a way to pay for large purchases: Some companies will try to suggest using a reverse mortgage to purchase the items they are selling, like annuities or insurance.

Unethical reverse mortgage terms: Some reverse mortgage lenders will slip excessive fees and terms into their contracts. These can have a devestating effect a Seniors equity. In some cases lenders have used shared equity or shared appreciation terms. These fees cost homeowners equity without providing any benefit to the senior homeowner.

Protecting Yourself

What can you do to protect yourself from reverse mortgage scams?

The best way to protect yourself is to use a HUD approved reverse mortgage counselor to evaluate your situation and potential reverse mortgage contracts. The will alert you to any potential problems.

If you suspect that a compay is violating the law, let your reverse mortgage counselor know and then file a complaint with your state Attorney General's office or banking regulatory agency and the Federal Trade Commission (FTC) at www.ftc.gov.

Resource: Brought to you by Reverse Mortgage and the Reverse Mortgage Blog.

General: Marriage to Younger Spouse Limits Reverse Mortgage

2006-02-20T11:55:00.000-08:00

Reverse mortgage elibibility is based on the age of the youngest individual who holds title. So if you have married a much younger spouse, this could significantly affect the amount of money you will recieve from the reverse mortgage.

The following question and answer from Robert J. Bruss at www.bobbruss.com illustrates this issue:

Q: I am 78. My wife is 64. We own our home with a value of $550,000. No mortgage and no debts. We recently inquired about a senior citizen reverse mortgage and were told the most we can receive is $680 per month. The up-front fees would be about $13,000. The mortgage manager suggests we obtain a home equity loan instead. We have income of only about $60,000 per year. But we are cash poor and want to do some traveling. I know you recommend reverse mortgages. This doesn't seem like a good deal. Are we missing something?

A: The problem is you married a younger woman. You could qualify for a very generous reverse mortgage based on your age alone and the home's market value. But your young wife has a far longer life expectancy. Reverse mortgage lenders base eligibility on the age of the younger spouse who holds title. That's why the offered monthly lifetime $680 payment seems so low. The simple solution is for your wife to quitclaim her interest in the house to you. Then the reverse mortgage eligibility will be much higher, based on your age rather than hers.

Resource: Brought to you by Reverse Mortgage Guide and the Reverse Mortgage Blog.

General: The Reverse Mortgage: Solution or problem?

2006-02-19T18:59:00.000-08:00

Reverse mortgages are complex and it is sometimes hard to know whether they are the right answer for our financial problems.

Sometimes we experience monetary problems and look for options to help us as shown in the following excerpt from "The Reverse Mortgage: Solution or problem?":

Some of the monetary problems we encounter in life are not easily resolved. Often we must search for creative ways to augment income, reduce spending, and more effectively adhere to a budget. However, a most intractable predicament can involve the concluding passages of life, when financial decisions pass from the individual's control.

Understandably, many seniors are on fixed incomes that will not stretch to meet their needs. One program to address this dilemma, for citizens who own a home with substantial equity, involves a device known as a reverse mortgage. We will examine the pros and cons to see whether it appropriately meets the needs of those able to participate.

The following excerpt from the same article describes some of the dangers of reverse mortgages.

Let's now depart from generalities and get specific, for as it's truly said, the devil is in the details. I cannot deny that a reverse mortgage appears to fill a need. For an elderly homeowner with substantial equity, albeit severely limited income, who nurses a fervent desire to remain in possession of a cherished home, this device can make it possible. After acknowledging this, the question to be answered is: At what cost?

Most certainly, one thing to be said about this concept is that it's not cheap borrowing. As with any endeavor where sophisticated professionals negotiate with unknowledgeable clients, the playing field is far from level. Just as representatives of the life insurance industry regularly foist whole life and endowment policies onto an unsuspecting public, marketers of reverse mortgages aggressively promote this product to naïve and vulnerable seniors. The National Reverse Mortgage Lenders Association (NRMLA), an organization formed in 1997 by the industry, enthusiastically touts the benefits while ignoring any detriments.

A visit to their website, http://www.reversemortgage.org/, reveals a bevy of enticing declarations such as: "The funds from a reverse mortgage can be used for anything; there are no income or medical requirements to qualify; no monthly payments are due on a reverse mortgage" and other reassuring palliatives. Although a section of their site prominently itemizes many of the costs to be incurred, nowhere will you find a hint of the many complex and possibly disadvantageous clauses that may be buried in a contract. p> As one example, some reverse mortgages incorporate a provision by which the lender is entitled to a share of the property's equity appreciation. Under such circumstances, there is no way to predict what costs a borrower may actually incur. Just such an unhappy misfortune befell 83-year-old Berta Grey of San Mateo, California, whose reverse mortgage with Transamerica Corporation soared as a result of a "shared appreciation fee."

Some of the things the industry is trying to do to make it look like they are alleviating the issues:

As a way to imply that borrowers are fully informed as to the complexities of these agreements, the industry has instituted the concept of mandatory counseling. The NRMLA website proudly declares: "Before applying for a reverse mortgage, you must first meet with a counselor. The counselor's job is to educate you about reverse mortgages and offer alternative options depending on your situation." Despite this assertion, the fact is that the majority of approved counselors are not neutral parties, but rather are affiliated with lenders, much the same as credit counselors are a part of the credit card industry and function primarily as debt collectors. In actuality, the average reverse mortgage borrower is thoroughly unaware of the agreed upon terms. This is not by accident; it is designed that way.

esources: Brought to you by Reverse Annuity Mortgage Blog and Reverse Annuity Mortgage Guide.

General: Different Reverse Mortgage Options

2006-02-18T18:56:00.000-08:00

There are many different reverse mortgage options: single purpose reverse mortgages, federally insured reverse mortgages, and proprietary (private sector) reverse mortgages. Each option has different pros and cons that need to be considered when looking into taken out a reverse mortgage.

Single-Purpose Reverse Mortgages

A single purpose reverse mortgage is the lowest-cost type of reverse mortgages to obtain, but as the name indicates it can only be used for one specified purpose. They are typically offered by state or local government agencies. These loans a great for individuals who need cash for a specific purpose like paying property taxes or fixing up there homes. Here are descriptions for several different types of single purpose reverse mortgages:

Property tax deferral (PTD) mortgages are reverse mortgages that provide loan advances for paying property taxes.
Deferred payment loans (DPLs) are reverse mortgages providing lump sum disbursements for repairing or improving homes.

Federally Insured Reverse Mortgages

A federally insured reverse mortgage is the only reverse mortgage insured by the Federal Housing Administration (FHA). These reverse mortgage are one of the lowest-cost multipurpose reverse mortgages currently available. Overall they typically provide the largest total cash benefits of all the reverse mortgage options. The proceeds from a federally insured reverse mortgage can be used for any purpose. These loans are also known as Home Equity Conversion Mortgages (HECMs).

Proprietary Reverse Mortgages

A proprietary reverse mortgage is a mortgage product owned by a private company. These type of loans are more expensive then the other reverse mortgage types and should be approached with caution. Anyone looking into these type loans should get a comparison with a similiar HECM. One benefit of proprietary reverse mortgages are the higher home value limits. So, if you live in a home that is worth a lot more than the average home value in your county, a proprietary loan may give you greater loan advances than a Home Equity Conversion Mortgage (HECM).

As with any financial decision, you should get professional help to help you decide which option is best for your situation. Reverse mortgage counselors can help you evaluate each of your options and help you make an informed decision.

Resource box: For more information visit reverse annuity mortages or the reverse annuity mortgage blog.

Case Study: Reverse Mortgage Case Study - Long Term Care

2006-02-14T15:06:00.000-08:00

Here is another good case study showing how reverse mortgages can be used for more than just supplimental retirement income. This case study illustrates how a reverse mortgage can help with long term care expenses.

Long Term Care Reverse Mortgage Case Study

A 65 year old couple is concerned that they have not saved enough money to cover long term care expenses and excessive medical costs. Their investment properties and pension provide a comfortable level of income today, but they are worried it may fall short in the future.

Their assets include a highly appreciated $2.2 million waterfront property with a detached rental cottage. If they sell the property outright they will lose $275,000 to capital gains taxes.
One solution is for them to take out a reverse mortgage against their property. They would recieve $800,000 line of credit from the reverse mortgage. They could then use part of the line of credit to purchase a SPIA (Single premium immediate annuity) and use the annuity payments to pay the monthly premiums on a long term care policy. The remaining portion of the reverse mortgage line of credit can be used to cover future medical expenses.

As the property appreciates in value of time, it's possible for the appreciation to far exceed the withdraws that are used to cover their future medical expenses. After 25 years (age 90 for the retirees) the balance on their reverse mortgage will be between $2 and 3$ million depending on the fequency and timing of their line of credit withdraws. If their home continues to appreciated at 6% over the same 25 years, it will grow in value to over $8.8 million.

This would provide their heirs with a significant estate at the same time providing the security and liquidity that the couple feels they need to pay for future health care and other expenses.

Resource box: For more information visit reverse annuity mortages or the reverse annuity mortgage blog.

Case Study: Reverse Mortgage for Estate Planning

2006-02-03T13:42:00.000-08:00

Reverse mortgages can be used for more than just supplimental retirement income. The following is an example reverse mortgage scenerio that shows how reverse mortgages can be a powerful estate planning tool.

Sample Reverse Mortgage Case Study

A 75 year old widow with significant assets looking for a way to pay for an insurance policy that will transfer more of her weath to the next generation, without affecting here current income.

Her assets include a $750,000 home (her primary residence), $1,000,000 municipal bond portfolio (herprimary income source), and a $500,000 IRA (from her deceased husband) . She draws $75,000 a year from the municipal bond protfolio, minimum distributions from the IRA, and her social security.

One solution is for her to take out a reverse mortgage. She would recieve $224,657 from the reverse mortgage and use the loan proceeds to purchase a single premium immediate annuity, with the annual net after tax payment equal to approximately $20,000. This $20,000 will be gifted to a Trust. A life insurance policy in the amount of $600,000 is purchased inside the Trust using these gifts.

The reverse mortgage's financial impact to the estate is significant. The reverse mortgage itself will reduce the taxable portion of the estate, while the purchased Life Insurance will increase the non-taxable portion of her estate. This usage of a reverse mortgage will greatly increase the amount of wealth she will be able to pass on to the next generation.

Resource box: For more information visit reverse annuity mortages or the reverse annuity mortgage blog.

General: Reverse Mortgages May be a Helpful Financial Tool

2006-01-30T08:02:00.000-08:00

Here is an article from Market Watch that discusses reverse mortgage and discusses that it is not the right financial tool in all situations.

Reverse mortgages may be a helpful financial tool for Americans 62 and older, although some readers will dispute that.

WASHINGTON (MarketWatch) -- Reverse mortgages may be a helpful financial tool for Americans 62 and older, although some readers will dispute that. But they aren't a way to keep you out of foreclosure. For that, you'll need different help.

Q. A couple of years ago, I lost my job of 14 years. Now I've used all my savings and retirement funds making my mortgage payments and find myself close to losing my house. It has been brought to my attention that you recently wrote about a reverse mortgage and I thought I should find out all I can about it as a way to save our home.

Reverse mortgages can be a great tool for providing extra retirement funds, but it is not a tool that someone can use to get out of foreclosure.

Answer: I'm not sure a reverse mortgage is a tool someone can use to stave off foreclosure. For starters, you or your spouse must be 62 years of age. And you must have substantial equity in the place, meaning your mortgage must be fairly close to being paid off or the value of your property far exceeds the balance on your mortgage.

If you meet these two criteria, then get on the phone right now and find a lender in your area that writes reverse mortgages.

But a better way to save your home might be to call your lender's workout department. Your lender may or may not have workout specialists on staff. But if the company does, these are the folks to speak to, not the collection-department nasties who have been calling you demanding payment.

Many lenders these days are bending over backwards to keep borrowers in their homes. If you are eligible -- that is, if there is any possibility that you can get back on track within a reasonable amount of time -- they have several tools at their disposal to help people who have lost their jobs, suffered from a major medical problem, dissolved their marriages and so on.

Here are some of the options lenders can make available to delinquent borrowers: Forbearance. An agreement that temporarily allows borrowers to pay less than a full payment, or no payment at all, for a set period. Forbearance is an option when you can show that funds from a bonus, tax refund or other source will let you bring the mortgage current at a specific time in the future. Reinstatement. Sometimes combined with forbearance, this allows the borrower to pay the total amount they are behind in one lump sum by a specific date. Repayment plan. An agreement that gives you a fixed amount of time, say six months, to repay what you owe by combining a portion of what is past due with your regular monthly payment. At the end of the repayment plan, you will have gradually paid back the amount that was delinquent. Loan modification. An agreement that permanently changes one or more terms of your original mortgage so your payment is more affordable. You and the lender may agree to add the missed payments to your loan balance, for example. You might turn an adjustable-rate loan into a fixed-rate mortgage. Or you could extend the number of years you have to repay. What I'm talking about here is a relatively new cosmos in the lending arena called loss mitigation. Investors -- and the companies that service the loans for investors -- won't do anything to help deadbeats who can pay but won't. But if you have a legitimate reason for not being able to meet your obligation, they want to help.

"Where it is economically feasible, we do whatever we can to get 'nonperforming' loans re-performing," says Bill Merrill, director of nonperforming loans at Freddie Mac, a secondary-market company which helps keep the mortgage money flowing from Wall Street to Main Street.

Like most investors in mortgages -- or conduits for investors -- Freddie Mac works hard to keep borrowers in their homes. In fact, it demands it of the companies which collect monthly payments on its behalf, all in the name of what Merrill calls "homeownership preservation."

"We require, we measure and we incent," says Merrill. And as a result, most companies which administer mortgages have what are variously known as workout departments or portfolio-retention sections.

The size of these departments depend on the size of the servicer. Some have "entire office buildings" devoted to the task; others just a few people. But no matter how big or small, the goal is the same: to keep those who want to remain in their homes in their homes.

Your lender might even be able to help, even if you do not or cannot keep your home. Indeed, there are several different ways to avoid foreclosure and reduce the negative impact on your credit standing, depending on your particular financial circumstances.

For one thing, a qualified buyer could be allowed to take over your debt, even if the loan is considered nonassumable. For another, if you can sell but only for less than what you owe, the lender might agree to a "short payoff" in which the company writes off the portion of your mortgage that exceeds the net proceeds from the sale.

A third choice is to allow you to voluntarily transfer title of your home to the lender in exchange for canceling your entire debt.

Help doesn't come automatically, however. You have to get in touch with your servicer. Unfortunately, studies show most people don't. Some 56% of all delinquent borrowers allow their homes to "go all the way to foreclosure" without ever talking to their lender, according to Merrill.

When borrowers do call, though, the statistics are just as eye-popping. Four out of five go on to be happy homeowners. But you have to call. And you need to call early. "Early intervention is key because you are not in arrears as much," Merrill advises.

Feedback

Several readers suggested that I should have mentioned in a recent item about reverse mortgages that any senior age 62 or older who has substantially paid down or even paid off his mortgage can get an equity line of credit of up to 80% of the home's value without incurring many of the upfront fees required by a reverse mortgage lender. See previous Realty Q&A.

"That's a much better deal, especially if your home is has a market value of $600,000 or more," wrote Mike.

Maybe so. But an equity line requires current monthly payments, so a borrower with a fixed retirement income might not qualify under the debt-to-income ratio. Also, it's possible the borrower could end up needing to use the proceeds from the loan just to make the monthly payments. That's not a very good use of money.

Reverse mortgage counseling will help you examine all alternatives before you undertake a reverse mortgage.

Still, all alternatives should be examined before anyone undertakes any financial transaction, including a reverse mortgage. That's why counseling is required.

Source: Market Watch

General: Reverse Mortgage Advantages

2006-01-27T13:04:00.000-08:00

Here is my latest article on reverse mortgage. In it I discuss some of the features and benefits that make reverse mortgages very attractive for cash-strapped retirees.

The Advantages of Reverse Mortgages
By Charles Kirkendall

In recent years property values have soared, while investment returns have been modest. This has created a situation where a lot of seniors are finding themselves in the position of being house rich and cash poor. These cash strapped seniors are looking for ways to increase their retirement income while continuing to live in their homes. These retirees find that their options are limited, and in most cases require them to risk their home. Enter the reverse mortgage, which can provide many advantages over these other less desirable options.

No Payments With Reverse Mortgages

The biggest advantage of a reverse mortgages is not having to make payments as long as you continue living in your home. In fact, this is the number one reason that seniors choose to borrow reverse mortgages. Almost 80% of reverse mortgage borrowers use a reverse mortgage to pay off their current loans in order to eliminate their house payments. Let's say you owe $50,000 on your first mortgage and borrow $80,000 with a reverse mortgage. This would pay off and eliminate the payment on the first mortgage and provide you with $30,000 to use as you please.

Live in Your Home as Long as You Like

The second advantage of reverse mortgages is the ability to live in your house as long as you like. The great thing about this is the amount you owe on the reverse mortgage can never be more than the house is worth. Let's say you live to 115 and have selected to recieve a $300 a month payments for life from the reverse mortgage. The amount received from the reverse mortgage payments could be substantially higher than the value of your home, yet the amount owed will still only be the value of the home. In this situation, FHA insurance will cover the difference.

Reverse Mortgage Withdrawal Options

Another advantage of reverse mortgages is the different withdrawal options that a you are able to choose. These options include lump sum distributions, line of credit, monthly payments, or any combination of these three. So if you were eligible to borrow $100,000 on a reverse mortgage you could select to receive $30,000 up front to cover current expenses, and hold the rest as a line of credit that you can use whenever you need it. This flexibility of reverse mortgages can significantly improve you financial independence during retirement.

Tax-Free Nature of Reverse Mortgages

Another advantage of reverse mortgage is the tax-free nature of the loan proceeds. The American Bar Association guide to reverse mortgages advises that generally the IRS does not consider loan advances to be income. This means that all the money from the proceeds of the reverse mortgage end up in your pocket.

With these features, reverse mortgage are definitely an option to consider if you are looking for ways to supplement your current income. As with any financial decision, you should seek the advice of a trained professional, a reverse mortgage counselor, to evaluate and determine if a reverse mortgage is right for your situation.

About the author: Charles Kirkendall writes articles on reverse mortages and other senior financial issues. Visit reverse mortgages for more information and resources.

You are free to reprint this article as long as it is reprinted in its entirety including the resource box with all links active.

General: Reverse mortgages provide flexibility

2006-01-26T17:38:00.000-08:00

This is an article I found that provides a good examples of an actual borrower that has used a reverse mortgage to give themselves more flexibility during her retirement years.

Reverse Mortgages give Flexibility to Homeowners
By Nicholas Yulico - Staff Writer

OAKLAND - MARY WAGNER, 79, relies on a 1985 Toyota Camry to travel around the Bay Area, showing off her paintings. But for some time, the elderly artist feared major expenses if her car broke down. Her teacher’s pension and Social Security payments provide a modest income but don’t leave much room for error.

"What would happen if the Toyota gave up, and I wanted to move pieces to an exhibit? I’d be very upset," Wagner said. So a few weeks ago, Wagner joined the growing ranks of senior citizens signing up for reverse mortgages, which allow people to turn their homes into cash machines by pulling out the equity while still living in the dwellings.

Rather than a traditional mortgage, where you pay a lender each month, a reverse mortgage results in a lender sending you checks

People over 62 are eligible to borrow against the equity in their home to get tax-free income. No loan payments are due until the loan ends — typically when an elder sells the house or dies.

Money can come in lump-sum cash payments, regular monthly payments, a line of credit or a combination of these options. The loan amount is determined by a formula based on the borrower's age, the house's value and whether the person is single or married.

In Wagner's case, it allowed her to cash in on the appreciated value of her Oakland hills home while still living in it. She purchased the property in 1975 for $57,000, she said, and it is now appraised at $700,000.

Wagner was able to obtain a $239,000 reverse mortgage. She took a small lump-sum payment to pay off the remainder of her existing mortgage. She also also opted to receive $250 in monthly income and set up a $156,000 line of credit, which she can draw from when she needs cash.

"This now gives me the feeling that anything serious, I can handle," Wagner said.

Types of reverse mortgages

There are three main types of reverse mortgages, which carry different origination fees, rates and borrowing limits. However, they share several common features:

Your age must be 62 years or older. The older you are, the more cash you can get. The more your home is worth, the more cash you can get.
The interest is compounded.
The loans are asset-based and don't require personal credit ratings or monthly payoffs, like home equity credit lines.
You must pay off your existing home mortgage before getting a reverse mortgage; or you can use a lump-sum payment from the reverse mortgage to pay off the original loan.
The mortgages are non-recourse loans, which means lenders can only look to a home's value for repayment. In other words, you never owe more than your home is worth when your loan is repaid.
The income from the loan is non-taxableand doesn't affect Social Security benefits but could affect other public assistance benefits, such as Medicare, Medicaid/MediCal and Supplemental Security Income.

While some have criticized reverse mortgages for their high upfront fees, the products are increasing in popularity and can be good sources of income for the right candidates.

FHA insured HECMs (Home Equity Conversion Mortgages) account for almost 95% of all reverse mortgages

The Home Equity Conversion Mortgage (HECM), a reverse mortgage that is insured by the federal government, is the most popular product and accounts for about 95 percent of all reverse mortgages. From fiscal 2001 to 2004, HECMs increased 470 percent, said Jeff Taylor, a vice president with Wells Fargo Home Mortgage. The amount of HECMs issued in the Bay Area so far this year is double that of this time last year, he said.

"Business has been picking up fairly dramatically and has for the overall industry for the last two years," said Marty Appel, a loan consultant with Bay Area Reverse Mortgage.

Appel attributes the increase to dwindling stock portfolios of many seniors on fixed incomes.

Taylor, of Wells Fargo, said the No. 1 use of reverse mortgages is paying off an existing home mortgage. This, in turn, "creates new cash flow that is non-taxable," he said. Home remodeling is also often a big use of proceeds.

But while reverse mortgages have clear benefits, the product is not for everyone, experts say.

Reverse mortgages are not something you want to for short terms of three or four years due to the large upfront fees.

"This is not a product that you want to get into for three or four years. You want to make a long-term commitment to this because you're paying these very substantial loan fees upfront," said Dave Carey, reverse mortgage program manager with Fannie Mae.

Fees vary on the different products. For the federally insured HECM, there is an upfront lender fee (generally 2 percent), a settlement charge of about $1,800, and a 2 percent mortgage insurance charge. The mortgage rate on the monthly adjustable HECM is currently 5.5 percent.

Besides the extra income they provide, reverse mortgages also can be a great way to minimize certain people's tax burdens, said Charles Sterck, managing director of Sterck Kulik O'Neill, a San Francisco-based CPA firm that specializes in estate planning.

He provided a hypothetical example of a homeowner who bought a house many years ago for $50,000. Say the house has appreciated in value to $1 million. Selling the house would trigger capital gains taxes. If the homeowner is single, he or she gets an exclusion of $250,000 on the appreciated value, and would pay about a 10 percent capital gains tax on the leftover $700,000 increase in value. If married, the couple gets a $500,000 exclusion and pays a 10 percent tax on the remaining $450,000 increase.

But by staying in the home until death with a reverse mortgage, the house would end up being sold and the leftover equity would likely pass on to heirs without any capital gains tax or estate tax being due.

"I like the reverse mortgage because it allows old people to stay in their home, and that gives them the most comfort. ... This is a great tool for the right party," Sterck said.

Source: Augusta Chronicle

Resource: Reverse Mortgage Resources

2006-01-26T13:13:00.000-08:00

Reverse mortgages are fairly complex and confusing beasts and tend not to be understood very well. So with a little digging I was able to find two great resources that will help you research and evaluate whether a reverse mortgage is right for your situation.

First off, wouldn't it be great to know approximately how much you can expect to get from borrowing a reverse mortgage. Wouldn't it also be great if you could get the value for three different options: lump sum payout, line of credit, or estimated monthly payments. Well I found a simple reverse mortgage calculator that will do all of this.

AARP Reverse Mortgage Calculator

Another thing that you can do with this calculator is to figure up what the amount would be if you were to wait say 5 years to get your reverse mortgage. This will give you a quick comparison to decide if you should maybe wait before borrowing a reverse mortgage. Of course, this won't be completely accurate as the interest rate will fluctuate in the next 5 years.

Another good resource will provide you with a reverse mortgage counselor in your area.

HUD Approved Reverse Mortgage Counselors

As stated in my previous posts, I highly recommend you talk with a mortgage counselor before you commit to a reverse mortgage program.

General: Are HUD Reverse Mortages Good for Retirement?

2006-01-23T15:45:00.000-08:00

Here is another article about reverse mortgages. This one talks specifically about FHA insured HUD reverse mortgages and their benefits.

Are HUD Reverse Mortgages Good for Retirement?
By Charles Kirkendall

HUD reverse mortgages can be a great tool for Seniors that are looking for additional sources of retirement funds. Through a HUD reverse mortgage, seniors can tap into the equity from their homes without having to make repayments. These funds can provide extra level of security and flexibility during their retirement.

HUD Reverse Mortgage Guidelines

The HUD reverse mortgage program spells out specific guidelines that are used to determine homeowner eligibility. Homeowners must meet the following criteria in order to be eligible for a HUD reverse mortgage:

Homeowner must be age 62 or older.

The home must be owned free and clear or have a mortgage balances that can be paid from proceeds of the reverse mortgage.

The home must be a principal residence.

The property must be a single-family home, a one-to-four unit dwelling with one unit occupied by the applicant, a manufactured home (mobile home), or a unit in condominiums or Planned Unit Developments.

The property must meet the minimum FHA property standards.

Since reverse mortgages do not require repayments during the life of the mortgage, there are no asset or income limitations on borrowers receiving a HUD reverse mortgage.

The amount that can be borrowed on a HUD reverse mortgages is determined by the following criteria:

The borrower's age - The older the borrower the more that can be borrowed against the value of the home

The loan interest rate - Obviously the lower the interest rate the more that can
be borrowed.

The home's value - There is no hard limit for home value to qualify for a HUD
reverse mortgage, but the amount that may be borrowed is capped by the maximum FHA mortgage limits for an area. This means that owners of a high priced home can't borrow any more than the owners of homes valued at the FHA limit.

Homeowners that qualify can receive payments in a lump sum, on a monthly basis, or on an occasional basis as a line of credit. At a later date the payment options can be restructured if circumstances change. The homeowner can use the proceeds from the HUD reverse mortgage on anything that they choose, such as, home improvements, vacations, healthcare costs or any other daily living expenses.

Unlike ordinary home equity loans, a HUD reverse mortgage does not require repayment as long as the home remains the borrowers primary residence. When the home is sold the Mortgage company recovers their principal, plus interest, and the remaining value of the home goes to the homeowner or to his or her survivors. Should the sales proceeds not cover the amount owed, HUD will pay the mortgage company for any shortfall.

The Federal Housing Administration, which is part of HUD, collects an insurance premium from all borrowers to provide this coverage. Typically the mortgage company pays for this insurance and charges it to the borrower's principal balance. This FHA reverse mortgage insurance can make HUD's reverse mortgage program less expensive to borrowers than private programs without FHA insurance.

About the Author: Charles Kirkendall writes about reverse mortgages and other Senior financial issues. Visit reverse mortgage annuity for more information and resources.

Note: This article can be reprinted free of charge as long as it is reprinted in its entirety including the resource block at the bottom with all links enabled.

Fraud: Example of an Unfair Lender

2006-01-23T11:48:00.000-08:00

Here is a case where an unfair lender slid in some pretty nasty fees and conditions into a reverse mortgage. This example demonstrates the need to get quotes from several lenders and then go over the contract with a reverse mortgage counselor in order to understand the terms involved:

"One example involves a lawsuit filed by the San Mateo County Public Guardian which, on behalf of Berta Grey, an 83-year old woman, alleged that Transamerica Corporation unfairly and unconscionably charged her what was in effect a shared appreciation fee. This fee gave Transamerica an automatic 50% interest in the difference between the base value of the home when the loan was signed and the appreciated value of the home when the loan terminated, even though the fee bore no relation to the amount she actually borrowed. Additionally, the cost of Berta Grey's reverse mortgage soared when she was required to purchase an annuity in conjunction with her reverse mortgage. An annuity is an insurance product financed out of the home's equity to provide monthly payments to the borrower immediately or after a certain number of years. The San Mateo County Public Guardian alleged that Transamerica charged Berta Gray the cost of the annuity immediately and that interest began compounding on that fee even though she was not due to receive any payment on the annuity until six years after the loan began, at age 89. Under this arrangement, if Ms. Gray died before the six-year period ended, her estate would see no benefit from the annuity purchase, although she had paid in full for it."

Source: http://www.consumersunion.org/

General: Reverse Mortgage Disadvantages

2006-01-23T10:28:00.000-08:00

Welcome to the reverse mortgage blog.

I will be bringing you fresh information, news, and articles on reverse mortgages issues. I am going to start this blog off with an article about some of the disadvantages/hazards of reverse mortgages and how you can avoid them.

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The Disadvantages of Reverse Mortgages
by Charles Kirkendall

A reverse mortgage can be an attractive option for many home-owning seniors that are having a hard time making ends meet. With a reverse mortgage, a senior homeowner will receive money for their home equity from a lender without having to make repayments for as long as they live in their home. So with the right reverse mortgage a senior homeowner can maintain their standard of living while retaining ownership of their home.

This of course, is the picture that all the reverse mortgage companies try to paint for prospective borrowers. Nonetheless, there are many differences that have to be understood between reverse mortgage's and conventional loans. If these differences are not understood, they can cause financial problems for reverse mortgage borrowers.

Disadvantages of Reverse Mortgages

The first disadvantage is the relative cost of a reverse mortgage. Reverse mortgages tend to be very expensive when compared with a conventional mortgage. This is due to the rising-debt nature of reverse mortgages. For example, a typical reverse mortgage may provide a homeowner with a $300 per month payment with a yearly interest rate of 12 percent compounded monthly. Over the course of ten years, the homeowner will receive $36,000 in payments, but will owe almost $70,000-almost twice as much as received.

The second disadvantage is the complex and confusing contracts of reverse mortgages, that can have a tremendous impact on the overall cost of a reverse mortgage to the borrower. The complexity of the contracts often allow lenders and third parties involved in arranging reverse mortgages to not fully disclose the loan's terms or fees. These numerous other front-end and/or back-end fees can also quickly drive up the cost of a reverse mortgage. These fees can include origination fees, points, mortgage insurance premiums, closing costs, servicing fees, shared equity and shared appreciation fees.

Out of all these fees, the shared equity and shared appreciation fees should be avoided, as they can quickly raise the cost of the mortgage without providing any benefit to the borrowers. As an example, a shared appreciation fee can give a lender an automatic 50% interest in the difference between the current value of the home when the loan is signed and the appreciated value of the home when the loan is terminated. What makes the fees unfair is the fees have no relation to the amount that is borrowed.

The third disadvantage is the reverse mortgage payments can affect eligibility for old age pensions, Medicaid, or supplemental Social Security income. Senior's may not even realize this problem until after they already have their reverse mortgage, and only then do they find out that this can have the opposite affect on a seniors finances then what they were trying to accomplish in the first place by taking out the reverse mortgage.

Another disadvantage is the fact that reverse mortgages reduce the value of a senior's assets and estate. This will affect the amount of inheritance received by the borrower's heirs.

How to avoid these hazards

The best way for a senior to avoid these hazards is to be careful when choosing a lender, by obtaining bids from three separate lenders. They should take these contracts to a reverse mortgage counselor for evaluation. This will allow them to accurately evaluate the three contracts before deciding on best one for their situations.

About the author: Charles Kirkendall writes articles on reverse mortages and other senior financial issues. Visit reverse mortgage annuity for more information and resources.

Note: This article can be reprinted free of charge as long as it is reprinted in its entirety including the resource block at the bottom with all links enabled.