Posted by SueW/Tn on 1/15/08 8:17am
Msg #230635

RM's and what to watch out for...help please

My aunt is 84 and in a different state. She is looking into an RM, owns her house outright with a value of $500,000+ and she's on a fixed income. She's wanting to get a new roof etc. and is interested in an RM. I can't speak on the subject but I do know what I've recently read and I'm worried about her.

I have two very bright cousins who intend on helping her through this and I know that they only have her well being in mind. Could you experienced folks pass on a few high points that I could tell them to watch out for? I've read about the 7% fees based on the market value, do those fees get charged up front or are they are the back end? Any information you've come across from hands on would be like gold for me right now.

TIA

Reply by sue_pa on 1/15/08 8:22am
Msg #230637

I would send her to a local attorney who specializes in elder law so that he goes over everything with her. There are 'dangerous' clauses in these loans - such as occupancy - that she should be made aware of. The fees on these loans look VERY expensive to me - mostly because of the mortgage insurance. I personally would have a relative check with a local lender on other options so she has something to compare and then send them to the attorney to review the different loans.

Reply by PAW on 1/15/08 8:36am
Msg #230638

Check out AARP

Lot's of articles on the subject, including the latest one, published in the January-February 2008 AARP Bulletin which identifies some of the "major" issues associated with an RM.

http://www.aarp.org/bulletin/yourmoney/making_your_house_work.html

Have your aunt talk with an RMC (Reverse Mortgage Consultant) after reading the articles and be sure she asks questions about all the fees. RM's are expensive. No one denies that. But there are times the expense is outweighed by the benefits and needs of the homeowner.

Reply by Margaret_FL on 1/15/08 9:49am
Msg #230663

Re: Check out AARP

Paul is right, I am doing Reverse Mortages as a loan officer. The ones I have done have been last resort. One lady had her homeowners ins cancelled because of the 40 year old roof. I had to get her a temp insurance binder which was very expensive but once the roof is repaired she could get a better rate. One person owed back property taxes and was going to loose his property to the city. He had purchased the lots around him because he did not want close neighbors. But he owed taxes on all the properties. His property was appraised at $95,000 and he did not owe a dime. He also had his homeowners insurance cancelled due to non payment.

Reply by BrendaTx on 1/15/08 11:07am
Msg #230679

lawyers and the RMs

I haven't run across a lawyer yet who is well-versed with RMs OR want to be...but I am sure they exist.

I'd try to locate the HECM counseling office and ask them for a lawyer referral.

Reply by Susan Fischer on 1/15/08 9:00am
Msg #230642

Hi, Sue-Hope you're healing fast. Here's another

from Diane #230493:

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20080114/REG/231372348

Also, perhaps Laura Vestanen has some input - she's done tons of research.

I'm with the others - time to get out that fine toothed comb...

Hugs and Bon-bons,
Susie

Reply by sue_pa on 1/15/08 9:25am
Msg #230656

Re: Hi, Sue-Hope you're healing fast. Here's another

...I'm with the others - time to get out that fine toothed comb.....

Absolutely. It appears this lady has lots of options. Unfortunately, many others don't.

Here's hoping all of us have lots of options as we reach retirement and beyond.

Reply by BrendaTx on 1/15/08 11:04am
Msg #230676

Don't have much time to give input as I am at work, however, if she has other options to get a new roof, those should be explored. Closing costs can be high on an RM loan.

IF she doesn't, Sue, be aware of the origination fee and the MIP premium if she goes with a government backed loan. IMHO, Paul (PAW) is the best person to give you the tips and the nuts/bolts. He is far more educated on this process than I am (who writes about notary related work on the RM/*NOT* about the nuts/bolts of the loan) or Laura (who writes about marketing for the loans).

The article DC provided gives the hype of the bad, IMHO.

If aunt has heirs who want to collect the house outright at her death they'd do well to pony up and pay for her expenses. It will save the estate/her money in the long run imho.

Reply by BrendaTx on 1/15/08 12:07pm
Msg #230686

Meant to add that Paul originates RM Loans and

I have seen is excellent educational presentation on RMs...he's got a clear understanding of them and can simplify the issues.

Reply by Laura Vestanen on 1/15/08 11:52am
Msg #230684

Hi, Sue

I suggest you buy 4 copies of Reverse Mortgages for Dummies. One for your aunt, one for you, and one for each of your cousins. That way you will all have good basic information. I just checked Amazon.com and you can buy used ones for around $6.

There are lots of dishonest LOs getting into the RM business. My hunch is that the subprime LOs are getting into the RM business. To find a loan originator, I suggest you call highly-reputable financial planners and accountants and ask for recommendations for an honest LO doing RMs. If you or your cousins know a CFP or CPA you trust, I would start there. These people can also help you determine if a RM is the best way for your aunt to go. The poster who suggested having an attorney review the paperwork made a good recommendation. I would ask for referrals to an attorney specializing in elder law. The CFPs know the good ones.

I don't know your aunt's situation, but you might consider a RM credit line. That way your aunt is only accessing the amount of available equity she needs at the time and doesn't have to pay for the closing costs on another refi RM should she need more money later. A credit line would make money available for medical or other emergencies.

One thing most LOs won't tell you is that you can get a fixed rate RM. The rate is a touch higher than adjustable RMs, but with RM rates near or below 5% right now, a fixed rate might be the best for your aunt. Again, I would get a CFP or CPA involved to help decide what is best for Auntie. Preferably a CFP.

btw - RM rates aren't tied to prime. The index used is lower.

I hope this helps. Good on you for helping your aunt.
LauraV