Posted by jba/fl on 2/4/11 7:55am
Msg #371541

Seniors find dark side to reverse mortgages

Growing reverse-mortgage defaults put homeowners at risk of foreclosure

http://tinyurl.com/4g874xy

Reply by MW/VA on 2/4/11 8:07am
Msg #371542

IMO this article blames the RM's, when in reality it is

about their not paying taxes & insurance. Every RM I've ever done had that clearly spelled out--the homeowners responsibilities for keeping up on taxes & insurance. It's sad though, because those things have risen dramatically in recent years.

Reply by PAW on 2/4/11 8:48am
Msg #371547

Re: IMO this article blames the RM's, when in reality it is

I agree. The problem, as expressed in the article, isn't the RM, it's the economy and inability of folks to pay their required OOP (Out Of Pocket) expenses; i.e. taxes and insurance.

Unfortunately, RM's hit the senior community since that is their only audience.

"Some people are trying to say this is a problem with the reverse mortgage," said Peter Bell, president of the Reverse Mortgage Lenders Association. "But that is just not the case."

Many of those now in default, according to Bell, would have been facing foreclosure even earlier had reverse-mortgage companies not loaned them the money needed to pay required insurance and tax bills.

"The reverse mortgage has actually provided more protection for them than under usual circumstances," he said. "Whenever a homeowner can't pay their taxes, they run the risk of losing their property through foreclosure. In this case, mortgage servicers have provided advances on their behalf to avoid that."

As stated earlier in the article, "The people who have defaulted in this case could have ended up in the same position even if they didn't have a reverse mortgage."

Mr. Bell certainly seems to have a handle on the issue.

Reply by Bob_Chicago on 2/4/11 8:50am
Msg #371549

They could lose house for failure to pay taxes even if

they had NO mortgage.

Reply by Linda_H/FL on 2/4/11 8:51am
Msg #371550

Correct me if I'm wrong...but in most the RM's I've

signed, there's a provision that if they're unable to pay the taxes or insurance all they have to do is contact the lender and lender will work with them to help them pay these items - I guess this assumes they haven't drained the equity 100% - but I'd guess that people maybe didn't know about this provision?

Reply by BrendaTx on 2/4/11 8:53am
Msg #371551

That's what I recall in

most of them, Linda, but if they took all of their equity, nothing left to pay out.

As others have stated, this would have happened even if they had no mortgage and did not pay their taxes.

Reply by Linda_H/FL on 2/4/11 8:57am
Msg #371552

I'm finding lately people are sadly misinformed

Did an app the other day and the lady had been the app route before - counseled and everything - was surprised at the costs (which were actually lower than I've seen before) and she was POSITIVE that if she died, no payback was required - the bank took the house. Added that to the list of things to ask the LO..

Reply by PAW on 2/4/11 9:01am
Msg #371553

With an RM, it is next to impossible to completely ...

... drain all the equity is a home. Every RM that I have done in the past, always left at least 25% equity in the property at the anticipated conclusion of the contract. Granted, a lot of that 25% gotten eaten away due to housing values decline, but there still should be enough equity to assist the homeowner with taxes and insurance at least once.

I do think that those institutions that provide RM's should also set up escrow accounts for taxes and insurance. I suggested this to a couple of lenders and was basically brushed off since it is a "government" issue. Granted, the RM itself may have the government intervention all through it, but the lender still would have the ability to establish a "TI" escrow account for the 'borrower' if they so desired.

Reply by Linda_H/FL on 2/4/11 9:04am
Msg #371556

I agree about the escrows Paul...it would also help

preserve the lender's lien

Reply by BrendaTx on 2/4/11 9:05am
Msg #371557

Great remarks, Paul.

I have missed you lately.

Reply by MW/VA on 2/4/11 3:00pm
Msg #371604

Ditto. I miss the sage words of wisdom. :) n/m

Reply by MichiganAl on 2/4/11 1:12pm
Msg #371588

Terribly misleading article

These so called critics clearly have an axe to grind. This has nothing to do with the reverse mortgage. You don't pay your taxes, you could lose your house. Well, duh. I've done plenty of reverse mortgages where the borrower was already behind on taxes, close to losing their home, and the reverse mortgage saved their bacon. They got their taxes caught up out of the closing, paid off their current mortgage if they had one, and got a cash out for future bills (the loan officer I most commonly work with also guides low income borrowers with getting a property tax exemption).

Also, every borrower goes through r.m. counseling prior to the closing. And they clearly cover both issues. You are responsible for your own taxes and insurance, and you are not to use your cash out to get an annuity. Of course, there are also documents in the package that the borrower signs that say this as well. I'll give them the benefit of the doubt on that because these reverse mortgage packages are a monstrosity, especially for elderly people. But still, anyone who says they didn't know they had to pay their taxes is just deflecting responsibility; something we see way too often when it comes to mortgages (just like those who complain that they had no idea they were in an ARM).

Reply by jba/fl on 2/4/11 2:07pm
Msg #371594

I totally agree. This was a headline designed to get a

knee-jerk reaction from the public. It was, perhaps, further compounded by me for not posting my comments to that effect. I was too rushed to get involved with something else.

Reply by Mary Ellen Elmore on 2/4/11 2:11pm
Msg #371596

Re: Terribly misleading article

I agree that every RM I have ever done has a separate sheet explaining that the BO is responsible for regular upkeep of the home, property taxes and insurance and that if there is a problem meeting these financial obligations, to please contact the lender BEFORE it gets bad.

People forget or get embarrassed and do not make that phone call.

As for the RM counselling, in my experience it is not always what it is cracked up to be.

Hubby and I have POA over his sister--she has been in late stage Alzheimer's for 4 years now. She knows her name and her siblings names but that is about it.

Hubby and I can act jointly or severally.

We started to do an RM on her home and keep her in her own home. We explained her medical/mental condition to the counselor. Our concern was that could we do an RM. The counselor said yes and that she had to counsel Ms. Robbie. This was done via speaker phone. Ms. Robbie sat there, looking at the wall and when the counselor would ask a question, Robbie had no idea. The counselor would ask the question, get no response and then say, Ms. Robbie? Ms. Robbie?" Robbie would say, What? you taking to me? Where are you?"

The counselor approved her and sent the paperwork stating for HER to sign that she participated in an understood FACE TO FACE counselling. We were instructed that neither of us was to sign for as POA but my hubby was to sign as the second person participating in FACE TO FACE counselling.

At this point we sought legal counsel and was advised the better option for us was to move her into our house if the doctor thought it would not be detrimental to her.

That is what we did.

I can only speak to OUR experience with RM Counselling and have no idea if that is a common practice.

Reply by Lavergne Manuel on 2/4/11 10:03pm
Msg #371638

Re: Terribly misleading article

I did an RM in 2003 and there were hardly any if any at all being done in my area and I had done my homework pretty good before my wife and I met with the counselor but the counselor knew zip about what she was talking about. After a few minutes she said, it looks like you know everything you need to know and we ended the session.

Reply by HisHughness on 2/4/11 11:19pm
Msg #371642

Sorry to come late to this thread

I have been a loan officer, specializing exclusively in reverse mortgages, for three companies. My reaction to the article and comments by others:

1. I have never, as a signing agent or as an RM loan officer, seen a borrower who was pitched an annunity -- or any other financial product -- during the RM process. In fact, there is a specific document pertaining to annuities in every RM package, because the feds don't like them and they discourage them for seniors; the chance of exploitation is too great.

2. There is also a specific document covering those six instances in which a loan can be called. I don't know the practice of other loan officers, but mine, whether selling the loan or closing the loan as an SA, was to go over each of those instances. One of the instances is failure to pay taxes, insurance and upkeep. My experience has uniformly been that counselors do cover that document.

3. Counselors have gotten better. My experience with borrowers is that they come into the closing better informed than when I first started.

4. Impound accounts would not be acceptable to most borrowers. The great majority nowadays take their loan proceeds in a lump sum. An escrow account would come out of that lump sum, substantially reducing the size of it. Impounds would work better with a monthly payout. I have never seen a borrower choose that option, though, whether they took their proceeds in a lump sum or payout.

I did not think the article faulted reverse mortgages so much as it did companies that took advantage of seniors by selling other products to RM borrowers. That, I think, is almost a non-existent problem.

Reply by Michael Gilman on 2/5/11 3:08pm
Msg #371687

Re: Sorry to come late to this thread

I was the Director of Operations for a Reverse Broker for 6 years. It is sad the media always puts this product in a bad light. It is a savings grace to many borrowers. The problems come in when some one did not manage their money correctly in the first place. (That counseling mentioned earlier was a very poor example of most of the counseling that is completed today). Before the government started messing with the workings of a RM it fit pretty close to 90 % of the people applying. Today I would say (IMO) it fits closer to 70% as they have reduced the amount someone can pull out. The other issue is that most people take out all of the available funds immediately. The problem here is that is they did not manage their money correctly prior to the loan then the chances are they will not now either. Once the funds are used up they are gone. Also if they take it all out and put it elsewhere they may have issues with the government means testing for health programs. Best if they can, leave as much as possible in the line of credit, it is protected there. Also while in the line the amount available is not affected by a drop in property value! The line was based on their age and the value of the home at the time of closing. The RM is one of the best products out there (if used correctly).
Final disclosure --- In my honest opinion!