Reverse Mortgage Guide

Many reverse mortgage “experts” will tell you that the number of people obtaining reverse mortgages will continue to grow at an extraordinary pace. Conflating the industry’s claim of 100 per cent growth in prior years, with the fact that the oldest baby boomers will reach their 62nd birthday at a rate of 10,000 per day, provides all the proof needed to suggest that this industry will continue to enjoy exponential future growth. Those of us that love this industry must continue to fight this complacency to think this way.

It is time to wake up somnambulant reverse mortgage companies that believe incredible growth will continue as a matter of right. The sophomoric reasons proffered ignore the misconception barrier that needs to be overcome. Those of us that love this industry must continue to support and get involved with the colossal efforts of the NRMLA (National Reverse Mortgage Lenders Association - the industry trade group).

It has been 19 years since the first FHA/HECM reverse mortgage closed. Yet there still remains an aggregation of misconceptions that continue to be repeated as if they were concrete facts. I have heard these statements from clients, prospective clients, family members and professionals. The power of the Internet provides the Petri dish for spreading & cultivating these falsehoods.

As a student of this loan program, I confess that I am dismayed by this constant stream of misconceptions that, like the proverbial stop sign, halts seniors dead in their tracks. Sadly it is often this program that provides the solution (too often ignored) that solves the seniors’ problems.

All of us in this industry must work together to give our elders the best information available. This means telling the client who has better options, to pursue those options. It means telling the client that you do not know the answer, instead of making one up. It means abiding by the industry’s code of conduct. It means caring a lot about honesty and integrity. And it means challenging yourself each and every day to be a little bit smarter and better than you were the day before. This partly means being an ambassador for the industry. If you haven’t published an article-start writing. If you do not have public speaking experience, do it. A Chinese proverb says, “The best time to plant a tree was 20 years ago. The second best time is TODAY”.

Attorney Dennis Haber is the author of the just-published, ground-breaking book, Piggy Bank Your Home: Tap Into The Power Of A Reverse Mortgage.

(Editor’s Note: On Sunday, the New York Times ran a front-page story regarding reverse mortgages. Entitled Tapping Into Homes Can Be Pitfall for the Elderly, the story described a homeowner who took out a $200,000 reverse mortgage. She also purchased $100,000 in deferred annuities at the same time, annuities which the paper says “are likely to pay her less than it is costing to borrow the money.”Commentator Dennis Haber looks at the issues raised by the story.

Reverse Mortgages are Good. Some Companies Are Bad. The New York Times Confuses The Two

The modern day reverse mortgage has been around since the late eighties. The first one closed in 1989. Until recently there have been few if any stories of senior reverse mortgage borrowers being coerced into purchasing other financial products as well.

The reason for this is quite simple. In the nascent years of the program, the only people who were “selling” (it is not really a product that is sold) this program were people that cared about and had a deep affinity for our elders. Like most new programs, it has evolved.

In the early years, it should be pointed out, the program often contained an equity-sharing feature, a feature which has long since been abandoned with most reverse mortgages. In the early years equity-sharing was a consumer concern. Today, the concern is with those firms that see the reverse mortgage program as a means to sell other products and with those firms that feel they have to coerce seniors into signing on the dotted lines.

In 2000, HUD created an “advisor” type program for those that were not licensed with FHA. This was seen as a way to get this loan out to more seniors. However, it did not take long for this idea to be transfigured into something sinister.

Alliances were made with those in the financial planning industry. Soon, it became common practice to maximize profits by selling annuities along with reverse mortgages. Some in the industry voiced disapproval over these practices.

Can reverse mortgages become another mortgage debacle? The answer to this is absolutely NO. The current mortgage trauma this country now faces is the result of poorly-designed mortgage programs. This is not the case with reverse mortgages. The issues are different.

Since the Alt-A and Subprime markets have dried up, some of the folks who sold those products have invaded the reverse mortgage industry. While some may pounce on the notion that keeping certain people out of an industry smacks of restraint on trade, I would suggest that safeguards are needed to protect our seniors from those who do not have their best interests in mind.

To put it more bluntly: Seniors must be protected from those miscreants who feel it is their job to take advantage of our elders. Shame on them. Shame on the industry for letting it happen. What the industry cannot do, Congress and the state legislators will do. And that’s not an appealing thought because misconceptions about the program also flourish within the halls of our state capitals and congress.

Attorney Dennis Haber is the author of the just-published, ground-breaking book, Piggy Bank Your Home: Tap Into The Power Of A Reverse Mortgage.

Let’s answer this question once and for all because it is a common one. I know that it seems contrary to what you have always known about obtaining a mortgage but here
goes:

There are no income requirements for a reverse mortgage. This happens because there are no payment requirements for the reverse borrowers, income is not an issue. This works both ways, folks – there are some seniors who simply could not qualify for a regular or “forward” mortgage due to a fixed income or credit issues (we’ll discuss credit in another segment).

Conversely, there are some seniors who receive benefits from certain social programs and can be disqualified from those programs by having too much money in their bank account each month. So too little or too much could be an area of concern for other types of financing or programs. But rest assured, friends, with a reverse mortgage, the fact that you have income (or perhaps, don’t) is not a factor in qualification. To take this one step further, I have written reverse mortgages for seniors whose goal was to never have to work again. Why shouldn’t they enjoy their retirement? Why worry about getting to work during times of inclement weather?

So go ahead, look into a reverse mortgage to see if it’s a good option for you. Financial planners, tax professionals and attorneys who specialize in elder law are good sources of information in addition to reverse mortgage lenders.

Contributor Sue Haviland — based in Baltimore, MD — has been a reverse mortgage specialist for more than five years.

HUD is reporting that for the month of February it endorsed 10,913 reverse mortgages, bringing the total for the fiscal year to 45,556. (The “fiscal year” is the government accounting period that starts each October 1st.)

These are strong numbers, certainly numbers which suggest that HUD is likely to top the record 108,287 reverse mortgages – or HECMs as HUD calls them fiscal 2007.

Given that much of the mortgage marketplace is stalled or declining, the latest HUD figures show there is strong and growing demand for reverse mortgage products.

Our view, however, is that demand could be stronger if HUD’s insurance premium was reduced and origination fees were limited to more realistic levels. As well, we continue to believe that the use of reverse mortgages as a device to fund low-return, high-cost annuities should be prohibited.