Reverse Mortgage Guide

Reuters has an interesting story about the REX program, an equity-sharing arrangement which is an alternative to a reverse mortgage.

According to Tapping home equity for no-debt cash, the REX approach worked like this for one couple: “It gave them $117,000 in cash to spend however they wanted, and they owe no payments until they sell the house. At that time, they’ll owe Rex & Co. the $117,000 plus half of the appreciation in their home’s worth between the time they signed the agreement and the time they sell the house. If the house goes down in value, Rex & Co. will eat half of that loss as well.”

The suspicion here is that we will see more equity sharing programs such as REX and EquityKey — but only if home values again begin to rise.

To make equity-sharing work the lender must be able to make a profit. With an equity-sharing arrangement where the lender advances money against an interest in future appreciation there must, in fact, be future appreciation.

One could argue that lenders should make equity-sharing deals when home values are down because they could capture additional appreciation as prices rise. The big assumption here is that prices will actually increase.

The problem is that there is risk in the marketplace. Consider that the Nikkei — a measure of 225 leading Japanese stocks — stood at 13,743.85 yesterday. On December 29, 1989 the Nikkei reached 38,915.

For the full Reuters story, see: Tapping home equity for no-debt cash

While much of the mortgage industry mopes along, FHA is having a banner year.
Figures just released by HUD show that in the first quarter of 2008 the FHA received 464,600 mortgage applications for one-to-four-unit properties — that’s up 182 percent over last year.
A total of 237,800 loans were endorsed — an increase of 97 percent.
There […] read more

As mentioned earlier, the Center for Responsible Lending has come out with a report regarding unjustified bank fees for seniors.
“The new report,” says the Center, “shows that overdrafts triggered by debit card use hit people at or approaching retirement age hard even though they use plastic less than younger debt-card holders. The cost -– […] read more

EquityKey is offering a shared equity program for seniors in New York, New Jersey and Connecticut.
The nub of the arrangement is this:
“The EquityKey Real Estate Option gives property owners the opportunity to receive typically 10 to 15 percent of the assessed value of their property as an upfront cash payment in return for selling 50 […] read more

The Housing and Economic Recovery Act of 2008 proposed by Senators Chris Dodd (D-CT) and Richard Shelby (R-AL), respectively the Chairman and Ranking Member of the Senate Committee on Banking, Housing and Urban Affairs, is now being sent to the Senate floor for consideration.
For reverse mortgage borrowers, if passed two big items in the 537-page […] read more

Later today the Center for Responsible Lending will release a new research report which looks at how “unauthorized bank and credit union overdraft fees hurt older Americans, especially those who rely mostly on a monthly Social Security check.”
We usually think of financial issues for seniors in terms of interest rates, product fees and upfront costs. […] read more

When it comes to reverse mortgages there are times when lenders can say “show me the money” — and times when they can’t.
The usual rules prevent lenders from charging any fees related to reverse-mortgage financing before borrowers receive counseling. That means:
___No FHA case number can be assigned (because there is no FHA loan to process […] read more

HUD has come out with new “guidance” for reverse mortgage counselors. The problem, it seems, is that in the flight to financial sanity too many borrowers are taking out fixed-rate reverse mortgages.
HUD says “there are several risk factors that make a fixed rate HECM a poor choice for many seniors.”
Yes, fixed-rates may now be higher […] read more

It is now difficult or impossible to get a reverse mortgage in the state of Washington.
According to a report in The Olympian, “as of today, some Washington brokers will not be able to offer reverse mortgages, in which senior citizens can draw down the equity in their houses in monthly payments.”
The problem, says the Olympic, […] read more

IndyMac Bank, the parent of Financial Freedom, a major reverse mortgage lender, reports that reverse mortgage originations reached $315 million in May. That’s down 10% from April.
A company chart shows that Financial Freedom for the month of May originated loans worth $222.81 million and jumbo reverse mortgages valued at $92.64 million, a total of $315.45 […] read more

A good number of people suggest that reverse mortgages are just too darn expensive. While I would love to see the total costs come down, I do not see that happening in the near future. While, the origination fee will come down if FHA modernization is passed in Washington, someone has to convince FHA/HUD to […] read more

If you’re a senior and have financial difficulties, which is better: A short-sale or a reverse mortgage?
With a short-sale you sell your home at a discount — and the lender accepts less than the full mortgage balance to make the deal work.
The only reason a lender will agree to take a loss with a short […] read more

It was in December 1989 that the Japanese stock market, the Nikkei, reached 38,915. Japan was seen as the economic power of the future, the country to emulate, the country that was buying our companies and best real estate.
Last week the Nikkei was at 14,489.44.
With home prices falling in most areas across the U.S., the […] read more

For decades Ed McMahon has been a popular presence on national television, most notably because of his work with Johnny Carson and Star Search. Now age 85, it has been widely reported that McMahon is behind on his $4.8 million mortgage and owes some $644,000 in back payments.
Foreclosure looms for McMahon.
The McMahon home in California […] read more

For some time there has been an effort to raise the loan limit for FHA-insured reverse mortgages, or home equity conversion mortgages (HECMs).
The logic behind such an increase is plain: Seniors would like to have the option of getting as much equity from their homes as possible. Also, in many high-cost areas the FHA limit […] read more

We usually think of reverse mortgages in terms of the U.S. marketplace, but they also have reverse mortgages overseas.
For those who say that reverse mortgages are too complex to explain, you need to take a look at Sorted.org.nz. The site has exceptional information regarding various financial issues, including costs for New Zealand reverse mortgages.
One of […] read more

Fidelity Reverse Mortgage, a reverse mortgage company headquartered in Denver, Colorado, has announced a foreclosure relief program under which it will waive certain costs for qualified borrowers facing foreclosure.
“Under our relief program,” said David Miner, Chief Executive Officer of Fidelity Reverse, “Fidelity will identify a senior homeowner to be reimbursed for some of the costs […] read more

I overheard a conversation the other day. It went like this:
“The biggest issue with reverse mortgages is that in one shot seniors can get a pile of money, spend it and then be left with nothing. Maybe it would be a smart idea if we limited access to senior equity.”
When I hear such comments I […] read more

The Wall Street Journal reports that “as consumers max out their credit lines and banks clamp down on lending, many older and middle-class Americans are resorting to pricey, often-risky alternatives to stay afloat. Some are depleting their retirement accounts, tapping 401(k)s for both loans and hardship withdrawals. Some new fast-cash options allow homeowners to squeeze […] read more

You can’t help noticing that reverse mortgages are growing like financial weeds while much of the mortgage marketplace is withering.
Speaking in Chicago last month, Kieran P. Quinn, chairman of the Mortgage Bankers Association, said the following:
“We want laws and regulation that give no quarter to fraud and irresponsible practices, and that will also set the […] read more