Generate Income With a Reverse Mortgage

10/28/2008

posted by N. Sioris

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Many retirees are experiencing the unexpected as a result of the current stock market volatility and overall financial meltdown. As the economy continues to tumble, many senior citizens are finding that the supplemental investment income they depend on is shrinking, and in many cases, so is the principal in those investment accounts.

Conventional wisdom says it would be inadvisable to liquidate asset accounts during such a period of turbulence. But if you are unable to make ends meet you may be considering such a move.

However, for retirees that have substantial equity in their homes, a reverse mortgage could be an option worth considering. A reverse mortgage can provide monthly supplemental tax-free income. Or a reverse mortgage loan can be paid out to the homeowner in a cash lump sum, a line of credit that earns interest on the unused amount, or a combination of these options.

There are no credit or income qualifications for a reverse mortgage loan and the loan does not have to be repaid until the last homeowner permanently leaves the home. The only requirements are that the homeowner continue to maintain the property, pay the real estate taxes and the homeowners insurance.


Higher Loan Limits Mean More Money For Many

Recently the loan limit for FHA insured reverse mortgages has been increased to a national limit of $417,000. With this change, many senior homeowners will be eligible to receive a much larger amount of money from their home equity through the use of a reverse mortgage. This increase has come at a perfect time for many older Americans that are suffering from stock market and investment loses during this current crisis.

So, if you are in your retirement years and the stock market plunge has taken a toll on your bank account and monthly income, a reverse mortgage might help ease your financial stress.

Try our reverse mortgage calculator tool here, and find out how much money you might be eligible for.

After you see the results, please feel free to request your personal reverse mortgage benefit summary that shows the various ways you can receive your money and the interest growth rate, if you choose the line of credit option. Click here for your reverse mortgage quote.

AARP To Monitor "Free Lunch" Seminars

10/21/2008

posted by N. Sioris

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If you have been reading our newsletters and blog postings during the past year, you will not be surprised to hear about a new effort being waged by AARP to ward off scammers that are out to take advantage of seniors that attend so called, "free-lunch" seminars.

Back in January of this year we posted an article on our Reverse Mortgage News Blog entitled: "There Is No Such Thing As A Free Lunch." In that article we warned that if you are being offered a free lunch or dinner in exchange for attending a financial seminar, you must keep in mind that there are going to be strings attached to that "free meal." If you missed the article in January, you can read it by clicking here.



AARP Takes An Active Role

The latest effort announced by AARP's Free Lunch Seminar Monitor program, is collaborating with state securities regulators to monitor "free-lunch" seminars given by financial product providers. According to AARP spokeswoman, Alejandra Owens, this program is the "first big nationally organized push that allows the organization to keep tabs on what's being sold, and how, at financial seminars for older investors."

AARP is asking its' members that attend a free-meal seminar to complete a checklist about the seminar. The checklist asks what particular products were mentioned specifically at the seminar. For example: annuities, insurance, living trusts, reverse mortgages and long term care insurance.

Members return this information to AARP, which in turn forwards the checklists to state regulators. According to Ms. Owens, this is a way for members to protect themselves.

In a news release, Jean Setzfand, the director of financial-security outreach for AARP stated that "AARP also hopes the monitoring program will deter scammers."


The Recent Housing Bill Called For a "Firewall"

Again, if you are a regular subscriber to our newsletter or blog, you may also recall that we have written quite a few articles announcing the new amendments to the housing bill passed in July that affect FHA insured HECM reverse mortgages. As part of the bill, HUD mandated that a "firewall" be established between providers of reverse mortgage loans, and providers of insurance or other financial products.

A person that originates a reverse mortgage loan is not allowed to also sell you any other financial or investment product from the proceeds that you have obtained from your reverse mortgage loan.

As we have stated previously, we congratulate lawmakers that have wisely chosen to make this mandate part of the HECM reverse mortgage loan amendments. All efforts to protect seniors and safeguard this loan product so that it remains a viable financial planning tool, is welcome for those of us that wish to serve the senior community and their families over the long term.

We also give kudos to AARP for its' latest effort to protect seniors and their families from slick sales pitches at "free-meal" seminars.

Bank Take-Overs Spook Seniors

10/16/2008

posted by N. Sioris

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The recent bank turmoil, the stock market plunge and escalating home foreclosures have brought about a feeling of deja vu for many Americans that lived through the Great Depression. Some seniors are even pulling money out of banks, shopping for discounts and warning younger relatives about darker days that may lie ahead.

Although, there are no hard figures available, banking officials say more senior citizens are asking to withdraw their savings. Sales of safes are up as much as 50 percent in just the past three weeks at SentrySafe, the nation's top safe manufacturer.

At the beginning of the Depression the federal government was not guarantying bank deposits, so many people in their 80's and 90's recall withdrawing money - or arriving too late only to find out that their savings had evaporated.

That is unlikely to happen today because FDIC insurance covers most individual bank accounts up to $250,000. But for many older seniors that assurance can be a hard sell. Robert Binstock, a Case Western Reserve University professor of aging, health and society, says "If you have lived through the Great Depression, you believe it can happen again. This all evokes the era of bank failures in the Depression, and they think burying money in a glass jar is a safer bet. "

The collapse of some banks and the forced sale of others has contributed to today's financial crisis, even though it is a far cry from the thousands of bank closures during the Depression.

During the three months that ended June 30, 2008, the latest period for which data are available, domestic bank deposits fell by nearly $40 Billion, according to the Federal Reserve. They now stand at about $7 Trillion.

Some people are so shaken by the negative economic news that nothing but cash will do. A 64 year old Connecticut resident withdrew thousands of dollars in cash from his bank a couple of weeks ago. He said his late great uncle used to tell him stories from the Great Depression and warned him to watch out for a crash.

He said, "I think it's a smart thing to do. I'm afraid there's going to be either a bank shut-down or a bank holiday. If it doesn't get that bad, then fine, I go put the money back in the bank. If it does, at least I'm somewhat prepared."


Some People See Things Differently

Not everyone agrees with stashing cash. Michael Spivey, a professor of finance at Clemson University, said that having lots of cash on hand makes seniors more vulnerable to theft, and the FDIC does not insure cash that is lost, stolen or damaged in someone's home.

Other senior citizens are taking the current financial crisis in stride. As one 86 year old Florida resident said, "Taking your deposits out in cash is the worst thing you can do because that will make the banks fail by causing a run on the bank. You just have to trust the system. It's not something that I lay awake at night and worry about."

More Seniors Turn To Reverse Mortgages Due To Lost Dividend Income and Investment Assets

10/12/2008

posted by N. Sioris

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The unprecedented plunge of the U.S. stock market during the past week has unnerved every American regardless of age, or economic status. Anxiety is running high. No one seems to know what shoe will drop next. Each attempt by the Federal Reserve, the Secretary of the Treasury, the Congress, the coordinated interest rate cuts from the United States and other nations have not inspired the confidence needed to restore the paralyzed credit markets and get the cash flowing back into the banks and the economy.

Most of the talking heads on the financial news channels and most print reporters have been afraid to use the terms, "depression," "crash," or even admit that we are all ready in a recession. Some news organizations and investors have hesitated to use these words to describe Wall Street's terrifying sell off because they are afraid of causing panic.

However, by the end of the market close on Friday, October 10th, some notable statements were surfacing among analysts that were brave enough to speak frankly.


Is It A Crash?

A crash is commonly defined as a 20 percent decline in a single day or several days. The drop over the seven days ending Thursday, October 9, 2008 lopped 20.9 percent off the Dow Jones industrial average. On Friday, October 10th, after wildly whipsawing over 1000 points, finally settled down 128 points, or 1.5 percent for the day. For the eight day period the cumulative loss was 22 percent.

Howard Silverblatt, senior index analyst at Standard & Poor's, said "This quick, this amount, in these few days, obviously is a crash. The crash deals with the speed as well as the intensity of it."

CNBC host Dylan Ratigan was among those uttering the word "crash" on Thursday, calling the decline, "a cascading crash." The Wall Street Journal, the most influential publication in the financial world, hedged somewhat on Friday's front page, saying the scary drop over the past several days "amounts to a slow-motion crash."

Bob Doll, chief investment officer of BlackRock, Inc., the largest publicly traded U.S. money manager, being interviewed by CNBC anchor, Maria Bartiromo responded to her question about whether he thought this is a crash, replied: "Yeah, I guess we have to call it that, Maria. That's a lot of percents in a short period of time. We're down a bunch, and it's been relentless."

Johnathan Wald, senior vice president for business news at CNBC, said on Friday, "Anytime you do the math, when the Dow is down that much over a period of days, it's a crash. It's a word we don't like to use very often because nobody likes to see it, but when it happens, you can't avoid it."


How This Affects Seniors In Particular

If you are a senior currently in retirement or someone on the verge of retiring and have money in the stock market, pension funds and or 401K plans, you have been slamed by sharp losses in those portfolios. The total loss in the Dow over the last 12 months has been about 40 percent. Depending on your own personal diversification, your losses may be more or less than 40 percent. A top congressional budget analyst said that pension plans have lost as much as 2 Trillion dollars over the last 15 months.

Dividends which many retirees rely heavily upon for income, will be sharply lower starting right now and in the near term future. The latest quarterly statements have shocked many seniors who thought they had planned well and put in place a solid retirement strategy that would last them their lifetime. For some, the shock of seeing their lives suddenly altered regardless of careful planning is devastating.


Home Equity: A Partial Solution

Tapping home equity through the use of a reverse mortgage might become an option exercised for many who never thought they would consider using this type of financial instrument before. One of the payment options offered through a reverse mortgage allows for steady tax-free monthly supplemental income that can help offset stock market losses and keep a senior's household budget steady and manageable.

If you think a reverse mortgage might be right for your situation, you should consider looking into it sooner rather than later. A perfect storm has been brewing for quite some time now, and could get worse. What I mean by that is that home values across the entire country have been in a steady downward spiral, while market pressure has been affecting interest rates in an upward direction.

Reverse mortgage benefits are largely based upon the current market value of your home and the current interest rates. Consequently, you will receive less money from the equity in your home if housing values continue to decline and interest rates climb.

Seniors that closed a reverse mortgage a couple of years ago at the top of the housing market bubble, are sitting very pretty right now. Their monthly benefits or line of credit were locked in based upon the market value of their homes at the time they closed and the interest rates that were in effect at that time as well.

Sitting on the fence and doing nothing based upon fear and uncertainty is probably not the best decision if you are a person that feels that a reverse mortgage might benefit you.

Another thing to keep in mind is that if you get a reverse mortgage and your home increases in value in the future, you can always choose to refinance your reverse mortgage in order to access more funds at a later time. In the meanwhile, locking in a value and interest rate today, could be a lifesaver during this unprecedented economic meltdown.

Find out how much money you are eligible for by requesting a personalized reverse mortgage quote here.

AARP Reveals Impact of Mortgage Crisis On Senior Homeowners

10/07/2008

posted by N. Sioris

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AARP purchased a random sample of 2.5 million people from the credit reporting agency, Experian. Of that sample, approximately 1 million are age 50 or older. The objective for AARP was to determine the impact of the mortgage crisis on older homeowners.


The sample data covered a six month period from July through December 31, 2007. The data did not include historical data and does not shed light on what has happened since December, 2007.


Americans age 50 and over hold about 41 percent of all first mortgages. The data showed that more than 684,000 homeowners aged 50 and over were either delinquent in mortgage payments or actually in foreclosure at the end of 2007. This number represented 28 percent of the total delinquencies nationwide for that period.


The foreclosure rate among first mortgage holders age 50 and older in this sample is 0.24 percent. This compares to a rate of 0.50 percent among Americans under the age of 50, and to a nationwide average of 0.39 percent.


Foreclosure rates are higher for African-American and Hispanic homeowners than for Caucasian homeowners, in all age brackets. Among mortgage holders age 50 and over, African American and Hispanic borrowers both have foreclosure rates of 0.51 percent, compared to a rate of 0.19 percent for Caucasians. So while the elderly generally have lower foreclosure rates than younger households, rates among elderly minorities are quite high.

Subprime Loans

Having a subprime loan is associated with higher rates of delinquencies and foreclosures for all age groups, however, the negative impact of subprime lending appears to fall disproportionately on borrowers over the age of 50. Older borrowers of subprime first mortgages are 17 times more likely to be in foreclosure than older borrowers of prime loans.

High loan to value loans were prevelant among subprime loan offers. Consequently, as home values have fallen dramatically in many housing markets, the incentive to default has increased. When the owner's equity position is either at zero percent or negative, borrower's options for selling or refinancing out of a toxic subprime loan becomes nearly impossible. For Americans over the age of 50, a loan-to-value ratio that exceeds 100% is associated with a foreclosure rate that is roughly double that of the national average for all other borrowers.

The Foreclosure Impact

The impact of a foreclosure is often more significant for older households because the owners have less time and ability to recover from the financial losses associated with a foreclosure. This problem is likely to grow over time, because homeowners increasingly are carrying mortgage debt into their retirement years. By 2007, 53 percent of all owners with a head of household age 50 or older had a mortgage, up from 34 percent two decades ago.

*The above data was published in a recent report by AARP Public Policy Institute and written by Alison Shelton.

FHA/HECM Reverse Mortgage Loan Limit Increased To $417,000.

10/02/2008

posted by N. Sioris

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The long awaited announcement from HUD regarding what the national loan limit will be for federally insured HECM reverse mortgages, was finally announced this morning. The new loan limit will be $417,000. and will be the same throughout the country. Previously, every county was subject to different lending limits.

This is welcome news for not only the industry as a whole but for seniors that may have been a little bit short of equity to qualify previously. The national HECM loan limit simplifies the program for lenders as well as borrowers. The new limit of $417,000. is expected to become effective on November 1, 2008. Since it usually takes about 30 days to process and close a reverse mortgage, it is not too early to begin your application if you are interested and will now benefit from the revised lending limit.


An example of how a senior borrower may benefit from the loan limit increase is illustrated by this profile of a homeowner that previously did not qualify but now does.

Estimated Home Value: $290,000.
First Mortgage Balance: $139,000.
Borrower's Age: 69
Location: South Carolina

Previously this borrower did not have enough equity to qualify for a reverse mortgage. With the old lending limit in South Carolina of $220,160. this borrower would have had an equity shortfall of over $20,000.

Today this borrower is eligible to pay off the entire first mortgage balance of $139,000. plus have access to an additional $36,870., which can be taken as a lump sum, a line of credit, monthly supplemental income or a combination of these options.

*The above illustration is based upon the borrower obtaining the monthly adjustable HECM reverse mortgage loan at today's initial interest rate.

Not all of the online calculators have been updated yet, so if you would like to find out if the new lending limit will help you to qualify or offer you a higher benefit amount, please feel free to request a free reverse mortgage quote here.