Decisions About Reverse Mortgages

Hope, worries over reverse mortgages
By Christina Rexrode
Posted: Sunday, Jun. 21, 2009

Doris Simmons, 69, of Indian Trail, says she carefully considered the downsides of a reverse mortgage and decided it was her best option when the recession started to hurt her business.
She's heard all the objections, like the critics who say you can usually get more money by selling your house. “Not in today's economy,” she replies, and she doesn't really want to move anyway. Her house has been in the family for 50 years and brings memories of her children.

She's a little bothered that the reverse mortgage will probably prevent her from leaving the house to her heirs, but “it's better than defaulting and losing it.”

‘A last resort'
Comptroller of the Currency John Dugan gave a speech this month about the risks of reverse mortgages and said he'd like to “get out in front of this issue before real problems develop” – which regulators arguably didn't do with subprime.

Others point out that reverse mortgages are expensive loans, since borrowers can tap only a portion of their equity. Usually, borrowers can get more money by selling their houses outright, or get cheaper terms by taking out a home-equity loans. “Generally it's kind of a last resort,” said Tom Pemberton, of Pemberton Financial Planning in Charlotte.

Still, the Federal Housing Administration praises reverse mortgages as a great option for a subset of borrowers, as do Bank of America Corp., Wells Fargo & Co. and the other banks that provide them. The banks get fees and interest. “We have seniors who own their homes free and clear but are struggling to buy food,” added Steve Boland, who runs Bank of America's reverse mortgage division.

Boland said reverse mortgages aren't appropriate for every senior, such as those who plan to move soon or those who are able to qualify for a home-equity loan and are comfortable with making the monthly payments. He and others point out that the government requires seniors to get independent counseling before taking out a reverse mortgage, which cuts down on the possibility of fraud or poor decision making.

Also, a reverse mortgage is probably a better deal than selling off your stock portfolio at the big loss it would currently incur, said Jeff Taylor. He is vice president for the senior products group at Wells Fargo Home Mortgage, and he encouraged his mother to take out a reverse mortgage about 15 years ago.

Meg Burns, director of the FHA's office of single-family program development, said she's heard only positive feedback. “One of the things you hear all the time is how this program made a really big difference in their lifestyle, just in little things, like now they can take their grandchildren to get ice cream,” Burns said.

Solving some problems
Simmons, the Indian Trail woman who took out the reverse mortgage, gets her income from Old Timers, a bar on the outskirts of Matthews. She bought the place in the 1980s so she'd have something to carry her into retirement. “I don't have any kind of retirement stocks, bonds, IRA, whatever,” Simmons said.

That plan worked fine for years, until the recession hit. With construction jobs drying up, the roofers, landscapers and painters who frequent the place have stopped coming around so often, and don't stay as long when they do.

Last year, Simmons fell behind on her house payments, which were about $550 a month. Though she'd bought the house years ago, she still had a payment because she'd taken out a home-equity loan in the late 1990s for business improvements.

She heard about reverse mortgages from a...representative who was helping with the home-equity loan. She'd also heard about them on TV and was skeptical, but met with a housing counselor anyway and eventually decided it was the best option. It's been a double gain: It eliminated her house payment, and gave her extra income to catch up on bills. The reverse mortgage hasn't solved all her problems. She still worries about when traffic will pick up again at Old Timers. “It saved me for the time being,” Simmons said. “Now I've got to worry about saving my business.”