Monday, December 22, 2008

Looking at Reverse Mortgages

One of our favorite topics outside of HELOCs is fast becoming Reverse Mortgages. A still vital sector of the mortgage industry that sometimes seems almost to good to be true. Just like those Option ARMs were a few years ago. Of course the government is telling people these are safe vehicles to use your equity - but if we recall they also told us that we were not in a recession and the lending industry was strong. We all are seeing how that turned out.

So today we see two new warning on Reverse Mortgages in the papers. The first article we will look at is from the Orlando Sentinel titled Beware of bogus debt relief. Lets take a look -

Also on the state's watch list is the reverse-mortgage business -- a fast-growing part of the troubled mortgage industry.

Available only to homeowners at least 62 years old, reverse mortgages have been embraced by many seniors as well as the Federal Housing Administration. They enable seniors to borrow from their home equity and receive a steady monthly income until they leave the home or pass away. Then the homeowner's heirs sell the home to repay the loan balance.

Though it has generated few complaints to date, regulators are concerned about abuse in the sale of the complicated financial products. Two companies already have been investigated for using potentially misleading marketing promotions that made it sound as if they were acting as agents of the government.

Overall, seniors need to know what they're getting into before they buy a reverse mortgage, regulators said. They need to shop around and make sure they understand the exact terms, benefits and costs, said Meg Burns, director of single-family mortgage products for the Department of Housing and Urban Development.

"The reverse-mortgage business is a safe, very well-regulated business, and it offers seniors some incredibly flexible cash-flow options," she said. "But what we're concerned about is when someone selling a reverse mortgage starts trying to take control and tell seniors what to do with their money."

Still, some seniors aren't happy about their reverse-mortgage deals. Lois Radley, 67, an Orlando resident who took out a reverse mortgage in early 2008, said that she had to pay $12,000 upfront, including fees, taxes and closing costs. And her monthly payout is half of what she expected.

"I was never told they'd be taking that much out of my monthly income," Radley said. "Now I'm stuck with it, and I still don't have enough money to pay my bills. . . . I just want other seniors to know that this is what could happen if they aren't careful."

That seems to be the number one complaint - exorbitant closing fees. The mortgage lenders put it a strong push, and as with the industry as a whole they get the big payout up front. Although many people think of leaving their homes to their heirs - reverse mortgages also makes this an unrealistic dream. Unfortunately Lois Radley story will be echoed by others across the nation in the next few years.

Our next warning comes from SB Wire and is titled The Truth About Reverse Mortgage Refinancing Revealed By Florida Reverse Mortgage Expert. While some parts are flat out falsehoods, the article does have a few bits of useful information. 9Warning - lots of snark below. Lets take a look -

Robbins offers these tips when considering a Reverse Mortgage:

* You should get a significantly lower rate for a Reverse Mortgage to make sense. Don't rush to refinance unless it's truly worth your while. If you're working with a mortgage broker rather than going it alone, you can be assured that they're bringing you the best offers out there. If you're going it alone, you'll have to do the legwork for yourself.

Of course mortgage brokers always look out for the best interest of the client. They never have and never would steer people into loans that give them the biggest commission. And Florida only has honest mortgage brokers (see here, here and here) so seniors have nothing to worry about.

* Consolidating unsecured debt with a refinance loan can be a dangerous idea. You may not be in financial trouble now, but if in a few years things change, instead of simply missing a credit card payment or two, you'll now be in danger of losing your home as well. With a Reverse Mortgage you can totally eliminate your debt for ever!

With a Reverse Mortgage you can totally eliminate your debt for ever! That is some promise. Buy and house and you will be rich beyond your wildest promises The author seems to make contradictory statements. First do not consolidate your unsecured debt but if you do you will be debt free forever!!!

* Your credit score does not count in a Reverse Mortgage, nor does your income. If you've had credit problems in the past like a bankruptcy, it might make sense to not wait to make application and secure your home for life. Most lenders make it hard for people with less than perfect credit to get the best deals. But, again, if you choose to let an expert like a Reverse mortgage broker get involved in the process, they can help you find the best Reverse Mortgage, that most seniors homeowners over the age of 62 didn’t even know existed - which can save you thousands over the long haul.

See you can pay off your debt with your mortgage. Even though directly above it is recommended not to use your property to pay off unsecured debt - if you follow that advice the mortgage broker will not get his commission. So forget that bad credit and get your reverse mortgage today! Be debt free forever by getting a reverse mortgage today. (/snark)

Seriously, Reverse Mortgages are still very new and will probably bring as many new problems to people. While they may be a short term solution we will have to wait and see how they hold up over the long term. We are also concerned about the long-term viability of people who use up all their equity and need to reside somewhere else as they age. The equity that may have provided them the funds to go into a nicer facility or living arrangement will no longer be there. The other options we have seen are much less desirable. All for a payout, like Lois Radley's that still does not cover present expenses...