A Frequently Asked Reverse Mortgage Question

8/27/2008

posted by N. Sioris

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One of the questions that I have been asked time and time again from folks considering a reverse mortgage loan is: "What happens if I have a reverse mortgage and I am hospitalized or have to go to a nursing home before I die?"

This question is usually asked by someone who all ready understands that in order to have a reverse mortgage loan the home must be occupied as a primary residence. Consequently, the question about having to leave the home for health reasons, either temporarily or permanently, is an understandable question that comes up during the information gathering stage for many prospective reverse mortgage borrowers.

The requirements for paying off an FHA insured HECM reverse mortgage loan are that the reverse mortgage must be repaid when the last homeowner leaves the property for 12 consecutive months, the last surviving homeowner dies, or the home is sold.

Therefore, if the last homeowner is hospitalized or goes to a nursing home for less than 12 months, but is able to return to the home as their permanent residence within a years' time, the reverse mortgage loan does NOT have to be paid off.

Click here to find out more about a reverse mortgage.

Or request a free reverse mortgage loan quote.

Postponing Retirement - A Harsh Reality For Many

8/26/2008

posted by N. Sioris

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According to a recent AARP survey, one in four respondents 45 and older are planning to work much longer. One third of them, cited falling home values and shrinking investments as the main reasons.

U.S. labor statistics show that 16 percent of Americans over the age of 65 were still working last year, compared to 11 percent two decades ago.

Meanwhile, nest eggs are shrinking. Nationwide, the average American worker's 401(k) balance dropped to $64,000, down 7.5%, according to an August report by Fidelity Investments. Interestingly enough, the same report pointed out that the drop would have been closer to the market's average loss of 22%, except for the fact that many workers increased their average contributions by 7 percent, to $3,500. through the first half of this year.

At the same time, energy costs went up 30 percent, and gasoline prices were up 14.4 percent, according to federal figures. Couple these statistics with a just released U.S. National Home Price Index report showing a 15.4% drop in home values, the steepest national decline ever reported, and you have the recipe for why so many 60 something folks are unable to retire.

Budgets are blown out by the basics of everyday living; utilities, gasoline, and groceries not to mention, rising health care costs. Consequently, many retirement age Americans are postponing retirement indefinitely.

Five Ways To Inflation Proof Your Retirement Portfolio

8/20/2008

posted by N. Sioris

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Stock market turbulence, the mortgage meltdown, rising inflation, falling home prices, and record high gasoline prices are pressing hard on retirees and retirement portfolios. Everyone is looking for answers about how to protect themselves, how to remain safe and how to stop inflation from eroding away their nest eggs.

There isn't just one right answer and certainly not a "one size fits all" solution to this predicament. However, Kerry Hannon, with U.S. News & World Report wrote an excellent article suggesting 5 ways to "inflation proof your retirement portfolio."

The 5 strategies include:

1. Dividend-Paying Stocks
2. Treasury Inflation-Protected Securities
3. Commodities
4. Real Estate
5. Expenses and Taxes

Read all the details here.

Declining Home Values: Bad News For Reverse Mortgage Borrowers

8/19/2008

posted by N. Sioris

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It's ironic that the recently passed housing rescue bill included the long overdue provision to increase the maximum loan amount for FHA insured HECM Reverse Mortgages. The reason I say "ironic" is that it happens to coincide with unprecedented declines in home values across the country.

Zillow, the popular online real estate valuation website, just released results of a housing report where they looked at 165 metropolitan areas and found that 29% of the homes purchased in 2003 have negative equity. And even worse, 45% of homes purchased in 2006 at the peak of the market, have negative equity even if they put 10% down on the purchase.

At first blush, if you're a senior homeowner and have owned your home for a long time, negative equity is not your problem. However, if you are a candidate for a reverse mortgage now or in the near future, your home value plays a significant role in determining how much money you will be eligible to receive from a reverse mortgage. The greater your equity position, the greater your loan benefit amount can be.

To illustrate the point, let's look at a 70 year old Broward County, Florida resident with a free and clear home:

In 2006 the home in Florida appraised for $325,000. This borrower would be eligible for approximately $223,900. from the equity in the home through a HECM monthly adjustable reverse mortgage.

However, like many areas of the country, Florida real estate has declined substantially since 2006. For our illustration purposes, let's say that this home has declined 25% in value since 2006. Today the home appraises for $243,750. Again just for this illustration, we are assuming the same 70 year old person living in Broward County, Florida. The maximum loan amount from a HECM monthly adjustable reverse mortgage today is approximately, $167,900.

That's a whopping $56,000. less that this borrower has available to supplement retirement needs from the equity in the home.

Obviously, it's good that the new lending limits have finally been increased for government insured reverse mortgages. It's just unfortunate that it didn't happen a few years ago when Congress first started their terminal debate over the issue. If it weren't for the chaos with Fannie Mae and Freddie Mac in conjunction with bank failures, hedge fund collapses and the overall mortgage meltdown, that caused the emergency housing bill to speed through Congress, the reverse mortgage provisions would probably still be sitting on the desks of Washington lawmakers.

It could be quite a while before the higher loan limits actually help the majority of senior homeowners.

Use our online Reverse Mortgage Calculator to see how much money you might be eligible for today.

Reverse Mortgages: The Latest Buzz

8/13/2008

posted by N. Sioris

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Since the passage of the Housing and Economic Recovery Act of 2008 (H.R.3221) on July 30th, the National news media has been covering the story almost daily. Some authors are dissecting the bill in detail and offering nuggets of information about who the bill affects, who will benefit the most and what is still to be interpreted by HUD.

A couple of excellent news articles that emphasize the amendments that pertain to the FHA insured HECM reverse mortgages are highlighted below.


The first one was published by Kiplinger.com and written by Rachel L. Sheedy.
Ms. Sheedy says:

"Seniors Get a Gift From the New Housing Law"

When trying to figure out who benefits from the new housing law, don't forget to count seniors who are in the market for a reverse mortgage. These mortgages let seniors convert some of their home equity into a stream of income, a line of credit or a lump sum. The money does not have to be paid back until the last borrower sells or dies. For retirees who are house-rich but cash-poor, the new law offers some significant changes.
Continue Reading The Full Article Here


Another article recently in the news was written by Carol Lloyd with SF Gate.
Ms. Lloyd says:

"Reverse Mortgages: Bad Rap or Bad Idea?"

Not so long ago I was at my father's house, and I heard him on the phone, arranging a visit with someone. When he hung up, I inquired about who he was making plans with. "A very nice guy who called me," he told me. "He's coming to assess my house for a reverse mortgage." "A reverse mortgage telemarketer?" I blurted. "You invited him into your home?"

Of course, I know there is nothing inherently evil about accessing equity from your home — but there's also a notoriety about these financial tools that made the notion of my father being sweet-talked by a reverse mortgage salesman quite worrisome.

Continue Reading The Full Article Here.

With all the changes about to take place with FHA insured reverse mortgages, there will be lots to talk about during the next weeks and months. We will keep you posted on all the developments as they occur.

Some Reverse Mortgage Changes To Take Place October 1st, 2008

8/10/2008

posted by N. Sioris

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According to a Washington Post article published today, some of the amendments included in the recently passed Housing and Economic Recovery Act of 2008, that pertain to reverse mortgages will take place in October.

Under the new law, the loan limit nationally will be increased to $417,000. However, that limit may be increased to $625,000. in high housing cost areas of the country. The new uniform loan limit is welcome news. Prior to the passage of this bill each county throughout the country had different loan limits. They ranged from $200,160. to $362,790.

The new housing bill includes a provision to prohibit lenders from requiring borrowers to purchase insurance, annuities or other similar products as a condition for a reverse mortgage. The new law also restricts lenders who are originating reverse mortgages from working with, employing or providing incentives to other professionals that attempt to sell seniors other financial products as part of the reverse mortgage application process. This provision has been included in the new law because of concerns that seniors have been inappropriately, and sometimes even fraudulently, sold additional financial products with the money received from obtaining a reverse mortgage loan.

The Financial Industry Regulatory Authority (FINRA,) has issued several warnings in the past about reverse mortgages. They have cautioned seniors about doing business with financial professionals that want them to obtain a reverse mortgage in order to purchase an investment product, such as an annuity or long term care insurance.

A reduction in loan origination fees is another part of the Housing and Recovery Act that will take place in October. The origination fee will be limited to 2% of the first $200,000. and 1% of any amount over $200,000. not to exceed a total maximum origination fee of $6,000.

Further study into the costs associated with reverse mortgages is to be conducted by HUD during the next several months. It will be interesting to see if they consider a reduction in the MMI (Mutual Mortgage Insurance) premium that HUD charges for each reverse mortgage loan that it insures. Currently the mortgage insurance premium is 2% of the home value or the loan limit whichever is less. This fee, after October 1st will, in many cases, be a larger expense to borrowers than the loan origination fee.

With all the criticism about high fees for reverse mortgages, I would hope that HUD takes a serious look at their own cost impact for what is an invaluable tool for many cash strapped senior citizens. If HUD truly wants to give seniors access to more of their home equity, cutting the insurance premium in tandem with the mandate to lower origination fees would seem like an appropriate tactic.

Reverse Mortgage: An Antidote To Foreclosure

8/08/2008

posted by N. Sioris

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As was pointed out an an earlier post this week, AARP released findings about the alarming increase in the number of older Americans that have been forced into bankruptcy for various reasons. Along the same theme, home foreclosures have soared to record levels across the nation.

Senior homeowners that have substantial equity in their homes, but are finding that they are falling behind on mortgage payments, need to grasp the concept that a reverse mortgage can actually be used to save a home from foreclosure. Many homes on the brink of foreclosure have been saved by homeowners refinancing out of a traditional forward mortgage that was in default, by paying off the original lender through the proceeds from a reverse mortgage loan.

Here a couple of news stories about how folks saved their homes from foreclosure by getting a reverse mortgage just in the nick of time: Mrs. Ruby's Victory
and: One Borrower's Return From Edge of Foreclosure

The terms of a reverse mortgage require that all existing mortgage liens be paid off with the reverse mortgage proceeds. After paying off the existing mortgage that is in default, if there are additional funds left from the reverse mortgage, the borrower then has access to the extra funds through a line of credit, a lump sum, monthly supplemental income, or a combination of these.

Since the reverse mortgage loan does not require any future monthly mortgage payments for as long as the homeowners live in the home, there is never any danger of falling behind on payments again or being forced into foreclosure.

A Reverse Mortgage can actually be considered an antidote to foreclosure.

What If Your Reverse Mortgage Lender Goes Out of Business?

8/07/2008

posted by N. Sioris

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In today's uncertain economic atmosphere, it's not unusual to pick up the business section of the newspaper or turn on the evening news to see or hear an announcement of yet another bank or financial institution going out of business or being taken over by either the FDIC or another stronger company.

These are scary times to be sure. However, what if you are a reverse mortgage borrower and depend on the regular monthly payments you receive from the proceeds of your reverse mortgage loan or line of credit? Are you in danger of that income stopping or your line of credit being wiped out entirely by an insolvent lender?

If your reverse mortgage is an FHA insured HECM (Home Equity Conversion Mortgage) the answer is a resounding - NO! You are not in any danger, because your loan has MMI (Mutual Mortgage Insurance.) Your reverse mortgage loan and all of your future loan proceeds/payments are backed by the full faith and credit of the United States government.

Once again, we point out the huge advantage of getting a HECM Reverse Mortgage versus any of the other types of reverse mortgages available today. Yes, we have all heard the tired old refrain about how high the costs are for reverse mortgages. This is a perfect illustration for the justification of the 2% fee charged for the FHA reverse mortgage insurance premium. This insurance premium is one of the largest cost components in the overall itemization of the closing costs for FHA/HECM loans. However, I would venture to say that there is not one reverse mortgage loan borrower today, that does not want this coverage given the current financial climate. Can you say, "sleep well at night?"

If you are interested in a detailed explanation about reverse mortgage costs, you can request your free copy of reverse mortgage costs explained here.

AARP Finds Bankruptcies Soaring Among The Elderly

8/05/2008

posted by N. Sioris

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According to an AARP study, elderly Americans are filing for bankruptcy in record numbers. Food prices, energy prices and medical costs are rising at such a rapid pace that what should normally be an enjoyable time of life is turning out to be a stressful time for many retirees. The slumping economy is hitting the older population the hardest.

AARP found that of the more than 1 million Americans that filed for bankruptcy last year, almost a quarter of them were 55 or older. And, bankruptcies for those from age 75 to 84 skyrocketed by 433 percent from 1991 to 2007.

AARP Also Found That:

45 percent said that food prices have caused a hardship for their budgets.

39 percent thing at least some food will have to be rationed within a year.

47 percent are shopping for food less frequently.

41 percent are eating less meat.

18 percent have started eliminating some meals.


Click here to read the full AARP Bankruptcy Study.