Reverse Mortgage Guide

Because those who get reverse mortgages do not have to repay such financing as long as they remain in their property, it may seem as though getting one interest rate or another may not make a great deal of difference.

However, Joffrey Long, President of Southwestern Mortgage, a provider of reverse mortgages throughout California and in parts of Nevada, points out that “during the past three years, there’s been a huge increase in the choices and benefits that reverse mortgages provide to borrowers.

“Many previously undecided homeowners,” says Long, “are making the move and enjoying the benefits of a reverse mortgage. The big change that’s helping them get started — the FRRM (Fixed Rate Reverse Mortgage)”

Long, President of the California Mortgage Association, says that “although homeowners don’t make payments on a reverse mortgage as long as they live in the home, the adjustable rate can still affect the amount they owe on the property over a longer period of time. A fixed rate enables them to know in advance how much their loan balance will be in the future.

“Pros and Cons? Borrowers might receive less money from a fixed rate reverse mortgage, depending on their age. This is because the amount of money a borrower receives from a reverse mortgage is based partly on the interest rate at closing — the lower the rate, the more they receive. Adjustable rate reverse mortgages have a slightly lower rate, meaning that the borrower could receive more money than with a fixed rate. As part of the decision making process, homeowners should look at the difference in the amounts available on both the fixed and adjustable rate reverse mortgages.”

A poll by Bankrate.com finds “that 68% of Americans are unable to reach their monthly retirement savings goal. The survey, conducted by GfK Roper, found that Americans appear to be skirting the issue of retirement savings. More than half of the respondents (54%) find themselves at least sometimes avoiding news or information about how much they need for retirement. Three in ten (28%) said they always or often avoid news on the subject.”

I can easily understand that people are not saving for retirement given that they don’t seem to save for anything else. That said, it’s just foolish to ignore the financial necessities of life.

It doesn’t matter whether people plan for retirement or not, the bills will still be there. The question is what kind of life you want to lead in the future. It’s not enough to just have social security.

Nobody likes to discuss hard subjects, and as we get older some issues become easier while others surely become more difficult. It makes sense to think about retirement as soon as possible because even small rates of return over long periods can produce substantial appreciation and revenue. With dollars in your pocket you have more options to do the things you want — or maybe not do anything.

In the first two weeks of September, HUD reports that 3,536 FHA reverse mortgages were issued.

So far in fiscal 2007 the FHA has originated 103,431 HECMs, a number far above the 76,000 originally projected for the full year. This is more than 20% of all the FHA loans issued during the year.

What accounts for great popularity of FHA reverse mortgages? Most probably several factors are involved:

First, the FHA reverse mortgage program is insured by the federal government. That gives it its status which is simply unavailable to private-sector programs.

Second, HECMs are a known product without surprises or “gotcha clauses.”

Third, more lenders are going into the reverse mortgage marketplace. This makes sense when you consider what’s happening with other sectors of the mortgage arena.

Fourth, it is likely that some number of the FHA reverse mortgage origination’s came about because borrowers had toxic loans that they wanted to replace. If you think about it, what could be better than replacing an awful loan with financing that requires no income qualifications and no need to repay on a monthly basis.

Anybody notice anybody notice that the value of the dollar against many other currencies has begun to fall. For instance, on Monday the euro hit $1.482 while the US and Canadian dollars now have about the same value — a big change when you consider that the US dollar used to be far more valuable. This means if you go overseas you’ll be spending a lot more for a night on the town or entry into a top museum.

There is an oddity to this however. As big US companies become multinational companies more and more of their revenue comes from overseas. This means US firms are collecting money in foreign currencies, foreign currencies which are often far more valuable than dollars. This means companies can report big profits from foreign operations in large part because of currency conversions.

What does this have to do with reverse mortgages? While no one knows what the future will bring, the declining value of the dollar suggests that foreign investors will want better returns when they invest in the US. This means we are likely to see higher interest rates in the future, a good reason to consider fixed-rate reverse financing if one is considering a reverse mortgage at all.

Before getting a reverse mortgage borrowers are supposed to speak with an independent counselor to assure that they understand their loan options, including the option to not get a reverse mortgage.

However, starting October 29th, housing counselors under new HUD regulations may be funded by lenders.

The new regulations, published in the Federal Register on September 28th, say that “funding for housing counseling is a major concern among participating agencies. In a change in this final rule, HUD is clarifying that it will allow for participating agencies to accept funding from lenders, as long as the relationship does not create a conflict of interest and that the relationship is disclosed to the client.”

Is this a good idea for reverse mortgage borrowers?

“HUD believes that counseling agencies should not have to choose between serving client interests and serving lender interests. Whether the agency is counseling potential HECM borrowers or a homeowner facing foreclosure, the counseling agency must be careful to follow the program regulations, and, in particular, the conflicts-of-interest requirements. These requirements are designed to preserve and protect the relationship between the client and the agency.”

How, exactly, will a borrower be able to determine when there has been a conflict of interest? How will a borrower know that the recommendation to use Lender A was not influenced — no matter how subtly — by a contribution?

It’s easy to understand that housing counselors could use more money and that they deserve it, but surely there must be a better approach than lender funding.