Squeezed Older Homeowners Wait for Congress

To my readers:

Several issues are addressed in this story from the Sacramento Bee in California. One is when is it advantageous for the older homeowner to take out a reverse mortgage. If a reverse mortgage would save you and your home now, should you try to hold on until Congress acts and raises the lending limit?

Are housing prices in your area falling quickly? If so, do you need to act now and not wait for Congress?

Many brokers, reacting to a slow real estate market are entering the Reverse Mortgage specialized market and some are sending out misleading advertisements to entice borrowers...so make sure you check out your lender and get the real facts.

And, finally, when is Congress going to act. The changes to Reverse Mortgages were basically approved by both Houses in Decemeber, 2007; then went to Joint Committee and differences were ironed out.

But, in the ways of Washington, the Reverse Mortgage changes in the FHA Modernization Bill were enfolded into the big overall FHA Rescue Bill. The FHA Rescue Bill is huge, complicated and has stirred up everyone from FHA to the Congress and to the White House. Meanwhile we all wait.

Gloria


Squeezed older homeowners
seek reverse mortgages
to pay loans
By Jim Wasserman - jwasserman@sacbee.com
Published 12:00 am PDT Wednesday,
June 4, 2008 From Sacbee / Business.


Pressured by a faltering economy and often burdened by loans they took out during the housing boom, more Sacramento-area homeowners are looking to reverse mortgages for an escape route. But many are finding the road blocked by the falling values of their homes.

"A lot of them aren't qualifying now. With the falling values they don't have as much equity," said Sylvia Williams, a Elk Grove loan specialist with San Rafael-based Sequoia Reverse Mortgage.

Reverse mortgages – in which the mortgage company makes monthly payments to the owner, rather than the other way around – have rapidly gained popularity in recent years as a tool for older homeowners to fund their living expenses. Meanwhile, mortgage lenders are also stepping up marketing efforts to older homeowners as the credit crunch has dried up a great deal of their traditional lending business.

Federal law requires nearly all users of reverse mortgages to be at least 62 years old.
But loan officials say that reverse mortgages, which were developed and marketed 20 years ago as a tool to fund vacations or expensive leisure activities, are increasingly serving something more simple – basic living expenses.

"We see more and more need lately," said Rich Young, executive vice president at Sacramento-based California Reverse Mortgage Co.

Young said many older homeowners refinanced during the boom years, but often chose risky loans with lower payment plans that increased dramatically over time. Faced now with higher monthly payments, he said, many older homeowners are seeking a way to pay off their old loan.
Greg Hayes, vice president for marketing with Sacramento-based Liberty Reverse Mortgage, one of the nation's biggest reverse mortgage lenders, said those borrowers now dominate.

"The No. 1 thing people are doing with reverses is paying off existing mortgage debt," he said.
The number of homeowners taking out reverse mortgages has been rising nationally over the past 18 years. But since 2006 the number of California residents using the loans has declined. To a large extent, experts say, that's because their home values have fallen sharply, meaning homeowners have less equity against which to borrow.

The Sacramento metropolitan area, for example, has seen median home sale prices fall by a third or more since late 2005, according to DataQuick Information Systems.

Northern California counties from Stockton to the Oregon border expect a 15 percent drop in reverse mortgages this year, according to U.S. Department of Housing and Urban Development. The federal housing agency forecasts year-over-year declines up to 14 percent in Southern California and up to 9 percent in the Bay Area.

For the housing market – and for many seeking reverse mortgages – the declines are another example of limited loan options at the moment when many people most need them.
"We just didn't have enough equity in the house," said Leroy Martin, 83, of Stockton, who was turned down for a reverse mortgage earlier this year.

Martin, and his wife, Billie Jean, hoped to escape a risky loan they used to refinance their home. Their monthly payment was within months of doubling.

Though Williams, the Elk Grove loan specialist, couldn't get them a reverse mortgage, she finally helped save the couple from foreclosure by persuading their lender to modify the loan for five years. "We just bought them time," Williams said.

Peter Bell, who heads the National Reverse
Mortgage Lenders Association based in Washington, D.C., said he doesn't believe
California's declining home values are the primary reason for the state's falling loan volume.

He said borrowers are waiting until the federal
government changes the rules and allows borrowers to take out larger loans.

Currently, the maximum amount of a reverse
mortgage is $362,000. Bell said legislation now in Congress could raise that as high as $550,000. "I think there's a bit of 'wait-and-see' right now," he said. "A lot of lenders went out with mailings in the last couple of months saying the
government is going to change this."

The mailers have triggered more calls to the California Senior Legal Hotline in Sacramento, said supervising attorney David Mandel. He called some of the sales pitches "outrageous" and "misleading." Mandel described reverse mortgages as a "fantastic solution for some people in some situations who don't have any other alternative. But for others, it's a terrible idea," he said.