A Timely Turnaround With A Reverse Mortgage

To All:

Below, the article in the Washington Post is over a year old; however, I thought the situation of Mrs. Tolsen was close to many problems other senior homeowners may suffer, and wanted you to see how the Reverse Mortgage can be a highly beneficial tool...not just a way to get money out of your house to be spent without thought.

Of course, the new 2008 American Foreclosure and Housing Rescue Bill has now been signed into law, and in the next 30-60 days we'll see the rules and regulations from HUD/FHA which will guide how the new laws on Reverse Mortgages will be applied.

Some of those changes include

1. Higher lending limits - ranging from $417,000 to $625,000

2. The ability of seniors to use a reverse mortgage to purchase their principal homes.

3. The lowering of lender fees,

4. The ability to use Reverse Mortgages on Co-Op properties.

5. The specifically written laws forbidding a lender from providing a senior with a reverse mortgage and also trying to sell seniors other financial products with the funds they receive from a reverse mortgage

Now the bill is in the hands of HUD/FHA to devise the rules and regulations that will govern the application of these new laws. Some of the mortgagee letters they issue to change the rules will be out within 30-60 days, and will probably first address the new loan amounts, the ability to purchase a principal residence and to finance Co-ops.

Seniors who are considering getting a reverse mortgage for any of these reasons, or because of financial difficulties, such as Mrs. Tolsen in the story below, should probably be talking to a reverse mortgage specialist now, to get guidance on how and when they should start the loan process for their particular need.

As people realize how huge and important these changes are to the reverse mortgage program, there may be a large number of seniors applying for first time reverse mortgages, or wanting to refinance their old reverse mortgage, because they can use more of the equity in their home.

As, I have said in previous posts, BE SURE YOU ARE DEALING WITH A LEGITIMATE AND PROFESSIONAL Reverse Mortgage company and Reverse Mortgage Specialist before you sign any papers or checks; and try to have a sound friend and advisor, or family member with you when you discuss the loan with the specialist, or when you are ready to sign the application.

And, as usual, if I can answer any questions, please don't hesitate to call me - even if you don't live in the Northern Virginia-DC Metro area. I'm always happy to help. If you have any questions, please leave me a note at the comments section of the article.

Enjoy your day.
Gloria
703-244-8151

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A Timely Turnaround With a Reverse Mortgage

By Martha M. Hamilton, Sunday, March 18, 2007, Washington Post


Before getting a reverse mortgage, Frances Tolson's financial life was a struggle.

Tolson, 64, receives Social Security and works two nights a week as a rehabilitation counselor for the mentally ill, but her income wasn't enough to keep up with her medical and other expenses. "I've worked hard for a number of years," she said. "Unfortunately, like a lot of people, instead of saving for these days, I used it on my children and grandchildren and great-grandchildren."

She filed for bankruptcy because of her inability to pay creditors.

"I was feeling depressed and snowed under," she said.

Now her monthly house payments are up to date and her creditors are paid, thanks to a reverse mortgage obtained last year that allowed her to borrow against equity in her house in Towson, Md. "When I receive my mail these days, I'm happy to receive it," Tolson said. "I can afford to pay those bills. I'm no longer being choked."

Tolson is part of a trend. Last year [2006] more than 75,000 reverse mortgages were issued, up from about 45,000 a year before [2005]. Reverse mortgages are becoming more common as homeowners and lenders think about ways to cash in on the $2.5 trillion in home equity in the hands of older Americans.

Reverse mortgages work the way they sound. The lender gives the homeowner a loan based on the value of the property and the age of the borrower, minus processing costs. The homeowner may take the money all at once or in monthly payments, or draw it down as needed [by putting it into a growing line of credit]. It's not taxable income and it does not change eligibility for Social Security or Medicare.

The loan, which is only due if the borrower leaves the house for 12 [contiguous gb] months or more, uses the homeowner's equity as collateral. It requires no repayment as long as the borrower remains in the house. At the end of the loan, the homeowner or heirs must pay back cash received plus loan costs and interest charged over the life of the loan, usually by selling the house. [The heirs may also refinance, and keep the home even if they have to put cash into the deal. gb]

For some consumers, reverse mortgages may provide relief - financial pressure or the wherewithal to pursue lifelong dreams. But they're not for everyone.

One concern about reverse mortgages is that the upfront costs can be high, although proponents say that the fees are warranted by the work involved. The homeowner pays an origination fee and a mortgage insurance premium (most reverse mortgages are insured by the federal government) as well as a monthly mortgage servicing fee. [Usually $30 gb]

"The typical borrower is a 75-year-old widowed woman with a $250,000 house," said Bronwyn Belling, of the AARP Foundation's Reverse Mortgage Education Project. "It isn't uncommon for costs, when they are added up, to be as much as $25,000." [This figure is excessive to me, and must include accrued interest and MIP monthly fees over a period of time. I, personally, have never seen closing fees over $18,500; however, now with the new FHA Modernization Bill, those fees will be reduced. And seniors who have older Reverse Mortgages and for whom it makes sense to refinance their Reverse Mortgage, will have substantially reduced fees. gg 2008]

Most homeowners -- about 85 percent -- want to stay in their homes as they age, and reverse mortgages can make that possible. Sometimes the proceeds of the loan may be used to make the house safer and more accessible for homeowners with declining mobility. But experts caution that there may be cheaper ways to make those modifications.

Consumers who want to apply for a federally insured reverse mortgage are required by law to receive financial counseling beforehand to help them figure out whether this kind of loan makes sense.

Lenders are required to send prospective borrowers a list of at least five counseling agencies approved by the Department of Housing and Urban Development.

Even with counseling, there is room for abuse, said Renee Shadel, an investigator in the consumer protection division of the Washington Attorney General's office.

She said her office has seen cases where someone discovers how much equity a consumer has, persuades the consumer to take out a reverse mortgage with a lump sum and then persuades the consumer to invest in risky or otherwise inappropriate investments.

The scam artist makes money on commissions on the investments, she said. And a counselor, offering neutral advice about reverse mortgages, may not be persuasive enough to overcome the promises of a scam artist. [This is why it is advisable to have a close friend, advisor or family member present during the signing of the application and closing documents. gb] [Excellent point. gb]

Consumers should talk over any reverse mortgage proposal with family members as well as with their attorneys or financial advisers, if they have them, Shadel said. "The main thing is we want them to be talking to other people and not being isolated by the salesperson and making the decision based on what they tell them to do." Consumers should understand what the ongoing costs are and what happens to the property when they die, she said.

Until recently, relatively few lenders offered reverse mortgages, and Financial Freedom Senior Funding of Irvine, Calif., was virtually the only one making these loans on higher-cost properties. But, recognizing the opportunities, new providers are jumping in.

"There's an enormous untapped market out there," said Meg Burns of the consulting firm Potomac Partners and former director of single-family program development for the Federal Housing Administration, which oversees reverse mortgages.

With many new lenders about to enter the market, Belling says, consumers may want to wait a year or so to take advantage of new products and increased price competition. "If you don't have a pressing need, it's probably better to sit tight," she said...