Posted by HisHughness on 10/15/12 11:07am
Msg #438604

Aaaarg!

I am a proponent of reverse mortgages, and not just because I am a former reverse mortgage officer. In appropriate circumstances, they are a wonderful option for seniors -- there is no income or credit qualification required, for example. Apparently, some shady operators have been misrepresenting the terms of RMs, and as a result the NY Times story below identifies them in the headline as "risky." Every issue the story raises with reverse mortgages also applies to any mortgage, yet it is the reverse mortgage that is "risky."

I'm disappointed in the Times, which normally does a more objective job. If one of your family or friends is considering a reverse mortgage, they should understand all the ramifications before proceeding. The most important question to ask is: How will the situation differ if the spouse dies with a typical mortgage or a reverse mortgage?

http://www.nytimes.com/2012/10/15/business/reverse-mortgages-costing-some-seniors-their-homes.html?pagewanted=1&_r=0&nl=todaysheadlines&emc=edit_th_20121015

Reply by Shoshana/AZ on 10/15/12 11:35am
Msg #438610

I hear your frustration.

I find it hard to believe that the HUD counselor did not discuss the ramifications with the elderly borrower regarding what would happen if her husband died. A long time ago when i first heard these stories I thought that the HUD counseling was just satisfaction of a requirement prior to granting the loan. I now know from personal experience that the counseling was very good. This is particularly true because we recently had the counseling. The counselors have a checklist of items to discuss and the borrower(s) have to sign off on it. My husband is a little older than I am. We have a plan in place should he pass before I am 62 (next year). Everything is so strictly regulated that I am surprised to hear that a loan officer could get more money if only the oldest of the two was the borrower.

Reply by HisHughness on 10/15/12 11:44am
Msg #438614

Re: I hear your frustration.

The thing is, a reverse mortgage under such circumstances is no different than any other mortgage in which only one spouse is on title. With a regular mortgage, she would have to refinance under her name or divest the property and pay off the mortgage. How does that make a reverse mortgage more risky?

Reply by Bob_Chicago on 10/15/12 12:17pm
Msg #438621

How does that make a reverse mortgage more risky?

Because with a conventional mortgage , if surviving spouuse continues payments, lender would likely not know, nor care that other spouse is dead.
In a reverse, usually no payments are due, and lender would move for an immediate sale of propertyy.
i think that the problem was , small reverse brokers were misleading or otherwise not imforming people of the risks.

Reply by Lee/AR on 10/15/12 12:19pm
Msg #438622

Well, now that you asked...

For openers, the amount that the surviving spouse would have to finance to keep the house is going to be considerably higher than the amount they received.

If they've taken the 80% max. allowed in one chunk (& I've never seen anything else--due, most likely to the higher/variable rate), it's quite possible that the surviving spouse would not qualify...or the house won't (given the economy). The surviving spouse only has a limited amount of time to sell, pay off the RM and move out. Into what? Most of the proceeds of sale will go to pay off the RM...and s/he probably doesn't have a lot of cash or they wouldn't/shouldn't have done this in the first place. So, yeah, it's more risky.

I do think there is a time/place/reason for a Reverse Mortgage. It's just that I've not seen it. I don't really know why. Is it the counseling? Or selective hearing?

Oh, wait...I have seen it. One gentleman had his long ago bought/paid for home for sale for a long time...took out an RM for considerably more than he had in the place. Got the money, bought another place and moved out. Now the bank can find a buyer.

Reply by jba/fl on 10/15/12 12:33pm
Msg #438624

Re: Well, now that you asked...

Agree, Lee. To get rid of the house, will probably have to do as your gentleman referenced did as there is nothing left, esp. in today's climate. Have also heard that these folks homes get looked at from time to time, and whether the roof is in need of replacing or not, it is ordered to be done. If not done, foreclosure commences. There have been other instances (repairs to be made) I've heard, but don't know first hand of them to comment further. This is fine is may instances, but there are those who fall between the cracks and the blanket statement "you can stay in your home forever" is not true.

Reply by Shoshana/AZ on 10/15/12 2:06pm
Msg #438636

Actually Lee.....

Some people do it to create an income and thus preserve the principal in a secure, conservative investment. The fixed rate RM comes with a lump sum distribution. The variable rate RM comes with the line of credit or monthly distribution.

Reply by HisHughness on 10/16/12 3:09pm
Msg #438776

Re: Well, now that you have answered...

For closers, when you add closing costs to ANY loan it is going to be higher than the amount being paid off. What else is new? Reverse mortgages are loaded heavily on the front end. Any loan officer worth his salt will tell the prospect if he plans to sell in the next five years he should not take out a reverse mortgage. After that first five years, the costs are comparable to a conventional mortgage.

The most advantageous reverse mortgage is one in which the borrower elects to receive the proceeds incrementally, by the month, quarter or year. When the borrower does that, the lender is obligated to continue payments till the borrower dies, even if the total payments by the lender far exceed the value of the home. Since you say you've never seen such a reverse mortgage, I gather your experience with them is quite limited.

As noted in the original posting, upon the death of the borrowing spouse, a reverse mortgage is no different than any other mortgage. And, of course, if both spouses are borrowers, the surviving spouse can continue to occupy the home.

My observation is that most of the objections to reverse mortgages are grounded in ignorance, not valid contentions about what a reverse mortgage is and is not.

Reply by SharonMN on 10/15/12 5:08pm
Msg #438661

Re: I hear your frustration.

Read comment by Valerie in Colorado on the original NYT article. According to her, father took out a reverse while a vegetable after suffering stroke? If that is true, I wonder who that notary was?

Reply by Stoli on 10/15/12 1:58pm
Msg #438633

Question for Hugh

Well, Hugh, there doesn’t seem to be an end to your talent and knowledge base, so as usual, I’ll take advantage of you, if you’ll let me.
Will you explain why mortgage insurance is charged on a reverse mortgage? The borrower(s) isn’t/aren’t going to pay back the loan any way…?

Reply by Patricia/VT on 10/15/12 3:50pm
Msg #438645

Re: Question for Hugh

They are paying for HUD insurance. In the event the lender fails to perform, the obligations & responsibilities fall on HUD. That's why there are 2 notes & 2 mortgages, one to the lender & one to the Secretary of HUD.

Reply by Stoli on 10/15/12 3:56pm
Msg #438647

Thank you, Patricia. n/m

Reply by MW/VA on 10/15/12 8:47pm
Msg #438706

I'm with Hugh. IMO RM's are not a bad product, and I've

seen this kind of bad press before. Getting old is "risky", no matter how you look at it.
People often find themselves in difficult situations due to circumstances they couldn't or wouldn't plan for. I think one of the best features of a RM is that it does protect the surviving spouse. IMO, some of these articles stem from someone looking for a legal loophole.
I've signed many RM's, and have seen how people will benefit from them. I think the financial world in general doesn't understand the concept, frankly.