Reverse Mortgage Guide

Last year both Fannie Mae and Freddie Mac, the big buyers of local mortgages, decided that falling real estate values required a change in the way they underwrite mortgages: In areas they identified as “declining” markets buyers would need an additional 5 percent down.

For reverse mortgage borrowers the new policy has been troubling. Why? Because “markets” were defined in very broad terms to cover entire metro areas — including, maybe, neighborhoods that are doing fairly well. Rather than pinpointing troubled markets, the concept inherently labels large areas as “declining” including, perhaps, individual homes and communities where the label is inappropriate if not wrong.

If you are a reverse mortgage borrower you likely want the largest possible loan against your property. You cannot get such financing if area values are depressed. Just in terms of PR and marketing, area values are surely not helped when described as “declining.”

Fannie Mae now says that as of June 1st it’s dropping the “declining” markets label. Instead, you need at least 3 percent down for any loan processed through Fannie Mae’s underwriting system and 5 percent if the loan is otherwise processed. In effect, forget labels and look at properties individually.

You can be sure that the “new” concept — a return to the old idea of looking at individual properties — will now be picked up by other lenders and mortgage buyers.

This is a change for the better, both for borrowers and Fannie Mae.

The complete release from Fannie Mae can be found by pressing here.

Our slowing economy is having an impact on seniors. “One in four affluent 60-year-olds are changing their retirement plans and 40 percent “downsizing” their lifestyles,” according to an April national survey from Bell Investment Advisors.

The survey used a random sample of opinions from 500 adults comprised of 250 men and 250 women who were born in 1948 and have investable assets of $1 million or more. The poll was conducted by Opinion Research Corporation.

The major findings included:

Financial Stress Increases for One in Three Affluent Boomers

Survey findings revealed that almost 30 percent of affluent boomers have more financial stress now than they did six months ago. Affluent female boomers report considerably more stress than men (35% vs. 24%), while affluent boomers on both coasts–in the Northeast (36%) and West (34%)—report more stress than those in the Midwest (27%) and South (25%).

One in Four Affluent Boomers Affected by Job Loss

Over a fourth (28 percent) of affluent boomers have either lost their job in the last 12 months or know someone who is age 60 or over who has. The job losses have been more acutely felt by affluent boomers in the Northeast or Midwest (both 38 percent) and have had the least effect on those in the South (19 percent). More than one third (35%) of the most affluent boomers surveyed—those with more than $3 million earmarked for retirement—were affected by job loss, compared with just 24 percent of those with $1-3 million saved, and 30 percent of those with under a million saved for retirement.

Changes in Retirement Plans and Spending

Of the one in four boomers who are changing their retirement plans due to the economy, more women (31%) than men (19%) say they are making changes. Regionally, those in the Midwest are most likely to make changes to their retirement plans (31% vs. 25%). Male respondents are more likely than women to have decided to push their retirement plans further into the future, with those in the Northeast and West more likely to postpone retirement than affluent boomers in the Midwest and South.

Of the 40 percent of boomers who are reducing spending in response to the economy, the highest proportions are in the Northeast (50%) and the West (46%), compared with 38 percent in the Midwest and 33 percent in the South. Based on the survey, 47 percent of affluent boomer women are making lifestyle changes, compared with just one-third of men. Only four percent of the affluent boomers surveyed report having downsized housing in response to changes in the economy.

Affluent Boomers’ Seeking Higher Returns

Based on the survey, more than half (54 percent) of affluent boomers cited higher returns on investments as a primary goal for the next five years. “This finding underscores the fundamental lack of understanding many investors have about risk and return. Boomers will not achieve higher returns if they shift to more conservative investments as the survey findings suggest,” said Bell. He recommends that boomers retain a healthy portion of their assets in growth-oriented equities, so that their nest egg continues to grow.

For some time there has been considerable concern regarding the origination costs associated with HUD-insured reverse mortgages, fees which are “limited” to 2 percent of the property’s maximum claim amount.

“Generally,” says HUD, “the property value and the maximum claim amount will be the same because the maximum claim amount is the lesser of the appraised value or the maximum mortgage amount under Section 203(b) of the National Housing Act.”

Now the House, under H.R. 3221, is moving to substantially lower origination costs.

The legislation as passed by the House last week limits the origination fee to 2 percent of the first $200,000 of the claim amount plus 1 percent of any remaining claim amount above $200,000. There’s a $6,000 cap, a cap which may be adjusted for inflation.

Is this good? You bet.

A borrower seeking a $300,000 home equity conversion mortgage (HECM) would save $1,000 under the new system. A borrower who took out a $550,400 reverse mortgage — the likely new reverse mortgage limit if the bill is passed — would see origination costs fall from $11,008 under today’s rules to $6,000 under the new system — a savings of roughly $5,000.

This is a case where reverse mortgage lenders have largely lined up in favor of legislation which would result in smaller fees per loan. The idea is that while the origination fee per loan would be reduced, more loans would be originated under the system because the product will be more attractive to consumers. This is an example of enlightened thinking by everyone involved.

Will HR 3212 become law as written? That’s unclear given that the bill must pass through the Senate, emerge from the compromise committee and then be signed by the President — a President who has threatened to veto the legislation.

Stick around, this could get interesting.

The language from HR 3212 is below:

(d) Limitation on Origination Fees- Section 255 of the National Housing Act (12 U.S.C. 1715z-20), as amended by the preceding provisions of this section, is further amended –

`(1) be equal to 2.0 percent of the maximum claim amount of the mortgage up to a maximum claim amount of $200,000 plus 1 percent of any portion of the maximum claim amount that is greater than $200,000, unless adjusted thereafter on the basis of an analysis of (A) costs to mortgagors, and (B) the impact on the reverse mortgage market;

`(2) be subject to a minimum allowable amount;

`(3) provide that the origination fee may be fully financed with the mortgage;

`(4) include any fees paid to correspondent mortgagees approved by the Secretary or to mortgage brokers;

`(5) apply upon the date that the maximum dollar amount limitation on the benefits of insurance under this section is first increased pursuant to the amendments made by section 219(a)(3) of the Expanding American Homeownership Act of 2008; and

`(6) be subject to a maximum origination fee of $6,000, except that such maximum limit shall be adjusted in accordance with the annual percentage increase in the Consumer Price Index of the Bureau of Labor Statistics of the Department of Labor in increments of $500 only when the percentage increase in such index, when applied to the maximum origination fee, produce dollar increases that exceed $500.’.

For seniors in need there are alternatives to reverse mortgages, reports syndicated columnist Lew Sichelman, writing in the Chicago Tribune.

Sichelman says that seniors might want to look into “deferred-payment loans” from state and local governments to make home repairs, accessibility modifications and improvements to reduce energy usage.

Generally, says Sichelman, with DPLs “there are no origination fees; insurance premiums and closing costs, if any, are very low.

“The interest rate on DPLs is fixed, if it’s charged at all. And many programs charge simple rather than compound interest, so interest isn’t charged on interest. Some even forgive part or all of the loan if you remain in the house for a specified period of time.”

Sichelman also points out that some jurisdictions offer property-tax-deferral loans. Essentially the idea is that the local community pays your property taxes as long as you live in your home — and then re-coups the money when the property is sold.

This is interesting stuff and Sichelman does a good job explaining the programs in general.

For the full story, see: Look before slamming it into reverse

HUD has come out with new reverse mortgage regulations. The Department now says that “based on feedback from reverse mortgage counseling providers and cost data collected by HUD, HUD has determined that a HECM counseling fee of $125 per counseling session constitutes a reasonable and customary fee, and does not exceed a level so as to be generally commensurate with the education and counseling services that are typically provided.”

It is entirely understandable that counseling agencies want to be paid and should be paid. Like us all, counselors also need to eat and pay their bills. While one can argue whether the right number is $125 or something different, $125 seems well within the realm of reason — a bargain, actually, considering the huge economic stakes involved for borrowers and what is likely to be their largest asset.

What is troubling, however, is HUD’s continued view that it’s just dandy for lenders to pay such fees.

“Lenders,” says HUD, “may pay HUD-approved counseling agencies for counseling services, through a lump sum or on a case-by-case basis. The Lender payment may be made directly to the counseling agency or disbursed at closing by the settlement agent, as provided in paragraph (3) below. The Lender payment may be made directly to the counseling agency or disbursed at closing by the settlement agent. As required in §214.303(g), counseling agencies must disclose to their clients any funding or relationships with lenders. Lenders that pay agencies for counseling services may seek reimbursement from clients who proceed with the HECM and become HECM borrowers.”

Is this really a good idea? Is not the purpose of counseling to get information from an independent source — and also a source that like Caesar’s wife appears independent?

“Mortgagees are reminded,” says HUD, “that, as explained in Mortgagee Letter 2004-25, the lender may not steer, direct, recommend, or otherwise encourage a client to seek the services of any one particular counseling agency.”

Right. Is it okay if several local counselors compete for lender fees?

Could the potential for conflict be any more obvious? Will not some savvy lawyer start a class-action suit against a lender the moment a borrower is steered into an undesirable loan? Do you think a jury will believe the lender or an elderly citizen who happens to have been a local — and now impoverished — town minister for forty years?

And, really, paying counselors on a case-by-case basis? Is this a pay-for-performance deal — or does it just seem that way?

How many borrowers will understand the paperwork, disclaimers and disclosures?

HUD’s rules plainly provide that counseling fees can be paid at closing from reverse loan proceeds, but this is also an approach which requires some caution because the equation it produces is this: no loan = no fee.

HUD has produced a counseling system with suspect funding and thus suspect results. One solution to the problem is counselors who are fairly paid from public funds, by consumer groups unconnected with any lender and by the borrowers themselves. But a better solution is this: HUD is collecting huge reverse mortgage insurance fees — and to date has paid out few claims. Perhaps some of the insurance money could be used to fund an independent counseling system based on services provided and not the appearance of loans originated.

For the full HUD letter, press here.

For too long, too many lenders have been enlisting advertising campaigns that have overstepped the boundaries of reasonableness and fairness. NRMLA — the National Reverse Mortgage Lenders Association — has now set the bar with its first ethics ruling regarding advertising standards for reverse mortgage lenders.

At its eastern regional meeting in Philadelphia, NRMLA issued guidelines that every reverse mortgage lender should use — and every prospective borrower should know about. Some of the highlights include:

1. It is unethical and a violation of the NRMLA code of ethics to suggest that a loan is made by the government or FHA.

2. It is unethical and a violation of the code to suggest that a reverse mortgage is either funded by the government or is a benefit from the government. (The FHA insures most reverse mortgages, it provides no funding to borrowers or lenders.)

3. It is unethical to say that you must call a particular number first, before you can be entitled to benefits. (There is no reverse mortgage “benefit” anymore than there is a 30-year mortgage “benefit” for those who borrow a forward loan that’s FHA insured.)

4. It is unethical to suggest that a product or service must also be purchased as a condition to obtaining the reverse mortgage.

5. It is unethical to say that such a reverse mortgage is “endorsed” or “approved” by the government, HUD, AARP, FHA or NRMLA.

Since the conference, NRMLA has issued a second ethics advisory. Here are some of the highlights:

6. It is unethical to require an applicant to purchase any other product as a condition to receiving a reverse mortgage. (Think of insurance, home repairs, annuities, etc.)

7. It is unethical to refer, recommend, or offer other products that do not provide a bona fide advantage to the senior borrower. Anyone offering other products must be appropriately licensed and follow all related rules, regulations and laws. (Think of the sale of annuities when considering this item.)

8. It is unethical to sell deferred, fixed-rate annuities or deferred variable rate annuities with surrender charges, and any financial product that contains a penalty for early withdrawal or cancellation if they do not provide a bona fide advantage to the senior. (Note that BestReverseMortgage.com has consistently argued that lenders should not be allowed to sell annuities funded by reverse mortgages. Also, a number of reverse mortgage lenders refuse to sell annuities.)

9. It is appropriate and ethical to provide borrowers with written notices explaining that reverse mortgage products are complex, that caution needs to be used when considering such financial products and that it’s wise to consult with an independent professional before selecting any reverse mortgage option.

10. It is unethical to receive unreasonably high compensation as a result of cross selling. (Think of home repairs, annuities, etc.)

11. It is unethical not to provide timely, clear and concise information regarding cross selling compensation.

In the future, there will be many more such standards handed down. The challenge, I think, will be in the enforcement of same, when NRMLA members violate the letter and spirit of these opinions. It is far better that the industry police itself, rather than a governmental agency.

————————————

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.

Reverse mortgage activity continues at a record pace.

HUD reports that as of mid-April it had received 73,840 home equity conversion mortgage (HECMs) applications so far in fiscal 2008, the accounting period that began October 1st. This compares with 59,913 reverse mortgages in the same period during FY 2007.

HUD to date has insured 59,413 HECMs, compared with 57,022 reverse loans it insured during the same period in FY 2007.

It seems odd that while applications are up 23.2 percent, actual HECM loan endorsements have risen only 04.2 percent. This is also curious when you see that overall FHA endorsements are 75.5 percent higher than a year ago.

Part of the answer may be that some seniors are waiting for reverse mortgages with higher FHA loan limits.

Another reason for modest HECM growth may seem a little odd: Reverse mortgages insured by HUD have been around for a number of years — seniors have not come to HUD because the private marketplace has closed down, FHA-backed reverse mortgages have long had a dominant position in the marketplace. Alternatively, many forward borrowers have been looking for an alternative to toxic mortgages and subprime loans. The result is that reverse mortgage originations are humming along at record levels for HUD — but the demand for forward FHA loans has increased far more.

One could see a substantial increase in HECM demand if loan limits were raised — and if HUD insurance premiums declined. Stay tuned.

Even the rich are getting stung by declining economic conditions, according to a new study by Bell Investment Advisors in Oakland.

Bell’s third annual Affluent Boomer Survey of 500, high-net-worth individuals who turn 60 this year found that:

___Almost 30 percent of affluent boomers say they feel more financial stress now than just six months ago.

___More than 25 percent either lost jobs in the last 12 months — or know someone 60, or over, who has.

__ Some 22 percent of affluent boomers who have made lifestyle changes due to the economy are contributing less to charity.

___21 percent canceled, shortened or postponed a vacation.

___18 reduced retirement savings.

___11 percent report that they will postpone retirement altogether.

The Affluent Boomer Survey was conducted by Opinion Research Corporation from April 1-6, 2008, among a random sample of 500 adults comprised of 250 men and 250 women who were born in 1948 and have investable assets of $1 million or more.

Reading this survey several thoughts emerged:

First, a lot of people don’t have investable assets of $1 million or more. You can guess with some logic that those with lessassets are being impacted to an even greater degree by the current economic slowdown than those at the upper crust.

Second, the value of a home is not usually seen as an ”investment asset.” However that money can be accessed — if that’s what a property owner wants — by selling the property and downsizing, getting a home equity mortgage (and facing repayment costs) or getting a reverse mortgage.

Third, the economic and policy decisions made in Washington have not been cost-free. As you look at the results of the Bell study you can see that some costs have begun to come home — literally and visibly.

When I got into this business six years ago, there was one proprietary (private brand) reverse mortgage program and three standard programs. These included the government-insured HECM, which came in two varieties: The monthly adjustable (with a margin of 150 basis points — 1.5 percent) and the annual adjustable (with a margin of 210 basis points — 2.1 percent). And there was Fannie Mae’s Home Keeper program. That was it.

But then came 2006, a seminal year. The HECM 100 (with a margin of 100 basis points) and the fixed-rate HECM were introduced. Reverse mortgages were poised to jump into the mainstream. Additional programs with even lower margins were introduced. The industry proudly boasted that there were 22 different reverse mortgages programs from which consumers could choose.

In addition, the Department of Housing & Urban Renewal (HUD) approved the LIBOR (London Interbank Offered Rate) index, an alternative to indexes based on Treasury securities. The LIBOR index is the language of Wall Street and the worldwide investing community. Ginnie Mae was set to securitize these loans as well. Foreign investors love to purchase Ginnie Mae certificates.

And then came the Alt-A and subprime debacles. Wall Street lost its appetite for any type of mortgage-backed securities. Programs were withdrawn from the drawing board and from the market place. Programs with margins lower than the HECM 100 were scrapped. Proprietary programs started to vanish. Many such programs reduced their benefit amounts as community after community were deemed to be in a “declining” housing market.

The available reverse mortgage programs, with a few exceptions, now resemble the mix of programs that existed at the end of 2005.

In spite of the paucity of programs, the number of seniors obtaining reverse mortgages has climbed steadily. Of all the reverse mortgages that have closed since 1990, 92% have closed since 2000. Astonishingly, 60% have closed in the past 28 months.

————————–

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.

The Santa Rose (CA) Press Democrat has a great story regarding how a reverse mortgage was used to save a home from foreclosure.

“Facing foreclosure on her Sebastopol home and Petaluma rentals,” Anna n-ha(cq) Millee used a reverse mortgage to pull cash out of the properties and pay off her lenders,” according to One borrower’s return from edge of foreclosure. The paper says the borrower was “able to tap $276,000 in equity based on her age and the value of the Sebastopol home. Now, she doesn’t have to pay the $1,500 mortgage on the Sebastopol home, leaving more money for daily needs.”

Notice that she not only saved her home from foreclosure, she also saved a rental unit with the reverse mortgage funding she was able to get.

The story continues:

“There also was enough money left to improve the income property. She plans to eventually put tenants back into the units and restore lost income that led to her financial dilemma.

“I was in total panic. Right now, this meets my needs completely,” she said.

“Reverse mortgages have gained popularity as retirees find turning equity into cash can meet different goals in their lives.

“Paying off home loans, pulling out cash for living and health care expenses, making home repairs top the list. For the 69-year-old n-ha Millee, it’s all of the above.”

You don’t like to see anyone forced to borrow for any reason. That said, at a time when lenders are lopping off withdrawals from home equity lines of credit (HELOCs) and closing the door to new financing, at least Ms. Millee had somewhere to turn and — no less important — she didn’t lose her home.

“She was able,” says the paper, “to tap $276,000 in equity based on her age and the value of the Sebastopol home. Now, she doesn’t have to pay the $1,500 mortgage on the Sebastopol home, leaving more money for daily needs.”

Reverse mortgages were never intended to save homes from foreclosure. That said, saving a home from foreclosure seems to be a small-but-growing use for reverse mortgages. For those who may face the loss of their homes, the idea of a reverse mortgage lifeline has great value — especially as alternative financial options disappear.

For the complete story, see: One borrower’s return from edge of foreclosure, May 4, 2008

The Federal Reserve has now proposed new standards for credit cards, steps that should have been taken years ago.

As you check out the astonishingly-abusive practices which the Fed wants to end take a look at your credit cards. If there is any debt that ought to be paid off in full, it’s credit card debt. Credit cards cost big money, the interest on credit cards is not generally deductible, and credit card debts reduce credit standing.

The actual reform proposal runs 162 pages, however a look at the major points — as outlined by the Federal Reserve – can be very educating….

Regulation AA (Unfair Acts or Practices)

The proposal would amend Regulation AA to prohibit unfair or deceptive acts or practices by banks in connection with credit card accounts and overdraft services for deposit accounts.

Credit Cards

___Time to Make Payments. The proposal would prohibit banks from treating a payment as late unless the consumer has been provided a reasonable amount of time to make that payment. There would be a safe harbor for banks that send periodic statements at least 21 days prior to the payment due date.

___Allocation of Payments. When different annual percentage rates (APRs) apply to different balances on a credit card account (for example, purchases and cash advances), banks would have to allocate payments exceeding the minimum payment using one of three methods or a method equally beneficial to consumers. They could not allocate the entire amount to the balance with the lowest rate. A bank could, for example, split the amount equally between two balances. In addition, to enable consumers to receive the full benefit of discounted promotional rates (for example, on balance transfers), during the promotional period payments in excess of the minimum would have to be allocated first to balances on which the rate is not discounted.

___Applying Rate Increases to Existing Balances. The proposal would prohibit banks from increasing the interest rate on outstanding balances unless the increase is due to: (i) the operation of an index (in other words, the rate is a variable rate); (ii) the expiration or loss of a promotional rate (provided the rate is not increased to a penalty rate); or (iii) the minimum payment not being received within 30 days of the due date.

___Two-Cycle Billing. The proposal would prohibit banks from imposing finance charges based on balances on days in billing cycles preceding the most recent billing cycle, a practice that is sometimes referred to as two-cycle billing.

___Financing of Security Deposits and Fees. The proposal would address concerns regarding subprime credit cards by prohibiting banks from financing security deposits and fees for credit availability (such as account-opening fees or membership fees) if charges assessed during the first twelve months would exceed 50 percent of the initial credit limit. The proposal would also require financed security deposits and fees exceeding 25 percent of the initial credit limit to be spread over the first year.

___Credit Card Holds. The proposal would prohibit banks from imposing a fee when the credit limit is exceeded solely because a hold was placed on available credit. This can occur where the final dollar amount of a transaction was not known in advance (for example, when a consumer checks into a hotel, a hold is placed for the expected cost of the stay).

___Firm Offers of Credit. The proposal would require banks making firm offers of credit advertising multiple APRs or credit limits to disclose the factors that determine whether a consumer will qualify for the lowest APR and highest credit limit advertised (for example, the consumer’s credit history, income, and debts). A safe harbor disclosure is provided.

Overdraft Services

___Right to Opt Out. The proposal would prohibit banks from imposing a fee for paying an overdraft unless the bank has provided the consumer with an opportunity to opt out of the payment of overdrafts and the consumer has not done so. The opt-out right would apply to all transaction types. Banks also would be required to provide consumers a partial opt-out for overdrafts resulting from ATM and point-of-sale transactions.

___Debit Holds. The proposal would prohibit banks from imposing a fee when the account is overdrawn solely because a hold was placed on funds in the consumer’s deposit account.This can occur where the final dollar amount of the transaction was not known in advance (for example, when a consumer purchases fuel at the pump, a hold is placed for the estimated amount of fuel that will be purchased).

Regulation Z (Truth in Lending)

The proposal would also amend Regulation Z to complement the proposed amendments to Regulation AA, including the following:

___Due Dates for Mailed Payments. The proposal would provide that mailed credit card payments received by 5 p.m. on the due date must be considered timely. In addition, if a creditor does not receive or accept mailed payments on the due date (for example, when the due date falls on a Sunday or holiday), a payment received by mail on the next business day would be considered timely.

Regulation DD (Truth in Savings)

The proposal would also amend Regulation DD to complement the proposed amendments to Regulation AA, including the following:

___Disclosure of Aggregate Overdraft Fees. The proposal would extend to all banks and savings associations the requirement to disclose on periodic statements the aggregate dollar amounts charged for overdraft fees and for returned item fees (for the month and the year-to-date). Currently, only institutions that promote or advertise the payment of overdrafts must disclose aggregate amounts.

___Disclosure of Balance Information. The proposal would require banks and savings associations that provide account balance information through an automated system to disclose the amount of the consumer’s funds available for immediate use or withdrawal, without including additional funds the institution may provide to cover overdrafts.

A new study has found that roughly a quarter of those who are actively planning for retirement actually pull funds from retirement accounts.

The study by the Wall Street Journal and the Harris Interactive Personal Finance Poll found that the “most common reasons for premature withdrawals from retirement investment products include a family member losing a job and the cost of a down payment on a home. Financial pressures that motivate premature withdrawals seem to begin at age 35, when nearly one-third of respondents report doing so. Respondents under the age of 35 are more likely to withdraw funds for mortgage payments and to pay for an event than older respondents.”

“Wealthier respondents,” according to the study, those “with income of at least $50K are less likely to have prematurely withdrawn funds from their retirement investment products (70% of those who are actively planning for retirement have not done so). Those in the lowest income tier, under $35K, are more likely to be affected by a death in the family and require premature withdrawals — however only 35% of this segment is actually planning for retirement. Adults employed full time feel the least pressure to withdraw funds prematurely from their retirement investment products, with nearly 70 percent of those actively planning for retirement never having done so.”

Importantly, the study found that once withdrawn it’s tough to return pension funds.

“Nearly one-third of adults who have prematurely withdrawn funds from their retirement products cannot pay them back, and 45 percent either cannot pay back the funds or have not begun to do so. Those ages 45-54 are more likely to be unable to pay back their premature withdrawals. The youngest adults, 18-34, seem to be more financial responsible or less financially burdened, and are more likely to be currently making payments. Among the oldest respondents who have prematurely withdrawn funds, one-quarter of respondents are still actively contributing to their retirement investment products.

“Even among the highest income earners, over $75K, more than one-quarter of respondents cannot pay back their premature withdrawals. The lowest income earners are more likely to have not begun to pay back their premature withdrawals.”

In general terms, withdrawing money from retirement funds is not a good idea because there may be taxes and penalties, the money withdrawn is no longer available for the future and certain protections against seizure in case of bankruptcy are lost.

Is it better to get a reverse mortgage rather than withdraw money from a retirement account? In some cases the reverse mortgage may actually represent a lower cost because there are no taxes on the money obtained.

For specifics, speak with a financial counselor and compare the costs of all alternatives if you have a need for funds.

For more information regarding this study, go to HarrisInteractive.

Reverse mortgages are truly like diamonds in the rough. At first glance, they may not look like much. However, their special features give rise to surprising benefits. These benefits make it a thing of beauty.

An unprocessed diamond, after all, does not look like the finished product we know it to be. Charcoal, graphite and diamond are allotropes of carbon. To the untrained eye, a diamond specimen found in the earth, would be mistaken as a piece of trumpery. Once cleaned up, it too becomes a thing of beauty.

Similarly, the reverse mortgage is usually not seen in its pristine form because it has been sullied by unyielding Babel promulgated by those who do not understand the program.

Today, it is easy to equate all mortgages with the demotic label “bad”. Well all mortgages are not bad. Many mortgages are quite good. The media conflates the two. Wall street conflates the two. Government conflates the two. It is a drastic mistake to take the position that all mortgages are bad. Certainly the one mortgage program that does not deserve this moniker is the reverse mortgage. Granted, it may not be perfect, but it is by no means “bad”.

A reverse mortgage lets seniors sleep at night. Worry over financial matters is the paramount reason seasons cannot sleep. Worrying about things will not make them better. Wishing that circumstances change would not make things better. Action is what is needed. When our seniors take action they can make things better. When a senior acts he/she becomes A Champion Tomorrow.

A reverse mortgage makes our seniors champions. They become winners because they changed their lives. The reverse mortgage will enable those borrowers to convert equity into cash. A reverse mortgage will allow seniors to access the funds in a variety of ways. A reverse mortgage will allow borrowers to even change how these funds are accessed.

A reverse mortgage is easy to get provided the owner/borrower(s) are 62 and are using the home as their primary residence. A reverse mortgage can overcome the financial tsunami that has opened wounds between parent & adult children.

Although over $2 billion a month is spent by adult children on their parents, many do not have the financial wherewithal to simultaneously care for their immediate family and parents. Thus the intervention of the reverse mortgage allows the parents to reclaim their independence and dignity without the need to go to their children for financial aid.

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.

The figures for the first half of HUD’s fiscal year are now available and they show substantial reverse mortgage activity.

According to HUD’s report, during the first six months of the fiscal year (in the world of government accounting, the fiscal year starts October 1st), the Department had received 762,266 single family program applications (up almost 150 percent from 2007), including 73,709 HECM applications.

On the approval side of the ledger, the FHA endorsed 351,615 forward mortgages as well as 55,218 reverse mortgages.

What these figures show is that the FHA program is enjoying huge demand because many toxic loans are no longer available. Also, investors want the safety of mortgage-backed securities which include loans made with sane underwriting standards.

In addition, of course, it looks as though the reverse mortgage program is going to have another banner year. Last year there were 108,287 reverse mortgages endorsed by HUD, this year we already have 55,218 even though higher loan limits have not been available to reverse mortgage borrowers.

(Source: FHA)

While maximum single-family FHA loan limits have been doubled for 2008, that has not been the case with FHA reverse mortgages. They remain stuck at 2007 levels, not good news for many households in high-cost areas that would like to access more equity than is now possible.

Writing in the St. Paul Pioneer Press, Lori Swanson, Minnesota’s attorney general, said on Sunday that “in 2006 President Bush signed the Deficit Reduction Act. One major change in the law was to limit the equity a Medicaid recipient can have in his or her homestead. At the urging of the financial industry, Section 6014 of the law actually encourages senior citizens to take out reverse mortgages, which in many cases are costly and unnecessary.”

Swanson also said “with an estimated $4.3 trillion in home equity held by Americans age 62 and older, this is an attractive market niche for lenders.

“The products are suitable for some borrowers, but national senior advocacy groups have reported an increase in seniors who are pitched reverse mortgages that are too expensive or not suitable.

“They also report seniors being duped into taking out a reverse mortgage merely to put the proceeds into an investment like a long-term deferred annuity, where the cost of the mortgage outweighs any investment gains on the new investment. The winner in those cases: the agent, the mortgage company and the insurance company. The loser: the senior citizen.”

Swanson says that the FBI has now noticed a “a spike in reverse mortgage fraud, both as to excessive fees and abusive marketing practices.”

As we say, one solution to the problem of inappropriate or plain wrong reverse mortgages is to get proper counseling. To us this means prospective reverse mortgage borrowers should sit down with an attorney who specializes in elder law before signing any paperwork.

For the full story, please see: Suitable for some, a bad deal for others — borrower, beware, April 27, 2008.

Sen Claire McCaskill(D-MO), the author of S. 2490 — the Reverse Mortgage Proceeds Protection Act — a bill that would end the “marketing or sale of an annuity as a condition of obtaining any home equity conversion mortgage” — has asked Missouri Attorney General Jay Nixon to look into the way reverse mortgages are marketed in her home state, specifically alleged claims that reverse mortgages are a “new government program” and that they are a government “benefit” or “entitlement.”

The release by McCaskill, posted in part below, raises two points:

First, what’s not good for potential mortgage borrowers in Missouri, if that’s the case, is unlikely to be good for reverse mortgage borrowers anywhere.

Second, if allegedly unfair claims are being sent through the mails than perhaps postal inspectors are the right folks to examine the matter.

McCaskill Asks Nixon to Investigate Inappropriate Marketing of Reverse Mortgages to Missouri Seniors

WASHINGTON, D.C. – When your parents or grandparents were just starting out they proudly worked hard, saved-up and bought a home. But today, they are older, money sometimes is tight and they have become a prime targets for aggressive and misleading marketing tactics, including recent mailers to Missouri seniors promoting reverse mortgages, a so-called “new government program.”

According to the mailer, this “program” will allow them to get cash from their home’s equity to pay bills, make repairs on their home, and enhance their lifestyle. What the advertisement doesn’t tell seniors is that reverse mortgages are extremely expensive loans and reverse mortgage salespeople have been known to take advantage of trusting seniors. Today, U.S. Senator Claire McCaskill asked Missouri Attorney General Jay Nixon to investigate abusive marketing tactics that are being used to mislead seniors into signing over the equity on the only valuable asset they own – their home.

McCaskill first heard directly from those negatively affected by reverse mortgages in a Senate Special Committee on Aging hearing she chaired in December. Since that time, McCaskill has introduced a bill and successfully passed an amendment through the Senate to address the issue. However, she believes that the state can play a role in protecting seniors as well, which led her to request that Nixon look into a recent mail advertisement sent to elderly residents in Missouri that contains misleading information.

“Reverse mortgages may be a good choice for some, but I don’t want to hear another story about a senior who was pressured or misled into signing up for one, only to see their financial situation worsen as a result,” McCaskill said. “We’re working toward changing the law permanently, but changing laws takes time and we need to act now to prevent more seniors from being taken advantage of. We’ve got to attack this issue not just at the federal level, but also at the state level as well.”

Specifically, McCaskill contends that the mailer inaccurately depicts the sale of reverse mortgages as a government benefit. While the Department of Housing and Urban Development does insure reverse mortgages through the Home Equity Conversion Mortgage (HECM) program, reverse mortgages are not a government entitlement like Social Security or Medicare. In reality, the reverse mortgage industry faces little government scrutiny in the way it markets loans to senior citizens, leaving seniors unprotected from those using predatory tactics.

In Congress, McCaskill continues to push for a legislative fix to help protect seniors. With legislation advancing through the Senate, Congresswoman Barbara Lee (D-CA) has introduced a similar bill in the House of Representatives.

Do you know your pension benefits?

Not what you’re “supposed” to get, but what you will actually get — especially if your employer has not fully funded the plan?

The Pension Rights Center says that the Labor Department is considering a better form to explain pension benefits — or the declining availability thereof.

You can see the form by going to:

http://www.pensionrights.org/policy/regulations/model-notice.pdf

Is this form clear to you? Does it make sense?

Companies can use eight language options to explain the looming impoverished their workers are about to experience.

If you find that proposed form is unclear regarding cutbacks and reductions, voice your opinion. There’s a clever online form you can use at this address:

http://capwiz.com/pensionrights/issues/alert/?alertid=11266671&type=CU

Why is this important? People depend on promised pension benefits as part of their retirement funding, along with Social Security, investments and — in some cases — reverse mortgage dollars. If you get less than expected your lifestyle will decline, and regardless of the polite language in a government form that’s a lousy situation.

The Office of Federal Housing Enterprise Oversight reports that “U.S. home prices rose approximately 0.6 percent on a seasonally-adjusted basis between January and February, according to OFHEO’s new monthly House Price Index. For the 12 months ending in February, U.S. prices fell 2.4 percent. Since its peak in April 2007, the index is down 3.1 percent.”

However, a careful look at the numbers from OFHEO — the government agency that overs Fannie Mae and Freddie Mac — shows there are significant differences in regional housing markets.

Between January and February, for example:

Home prices were up in the Pacific region (.3%), West North Central (1.3 percent), West South Center (.7 percent), East North Center (1.2%), New England (2.2%) and the Middle Atlantic (.1 percent). Prices fell in the Mountain region (-.6 percent) and the South Atlantic area (-.2 percent).

This is very good news, not because the numbers show huge price increase but because prices at least held in most areas. For those looking for a sign, any sign, of good news this is about as good as it has been in recent months.

Alternatively, if we compare the numbers from February 2007 through February 2008, the picture is different. There were price gains only in the West Central South area (2.3%) and the East South Central region (.6 percent) while the Middle Atlantic showed no change. On the down size we have the Pacific region (-9.2 percent), Mountain (-2.4 percent), West North Central (-1.5 percent), East North Central (-2.3 percent), New England (-1.3 percent) and South Atlantic (-3.7 percent)

These numbers are important to reverse mortgage borrowers because higher prices mean more equity and thus an ability obtain larger loan packages.

As always, for specifics speak with a reverse mortgage lender in your community.

Clearly reverse mortgages are changing the lives of seniors all across this country. The numbers tell a rather compelling story. Of all the reverse mortgages that have closed since 1990 (the year these loans started to close), Ninety -two percent have closed since 2000. Sixty percent of all these loans have closed in the last 28 months. These are astounding numbers. There have been about 394,000 reverse loans that have closed.

While Wall Street has its proverbial head buried in the sand, other institutions, with strong balanced sheets, are moving into this nascent industry.

___Genworth has purchased Liberty Reverse Mortgage;

___Metlife Bank is in the process of purchasing Everbank (which purchased Bank of New York’s reverse mortgage platform);

___Generation Mortgage, funded by the Guggenheim family, purchased two regional originators;

___Bank of America purchased Seattle Mortgage; and,

___KFC Bank, a Belgian Bank purchased World Alliance.

While the FHA Modernization Bill languishes in conference committee, the needs of our seniors are being ignored. This bill, among other things, will lower closing costs by capping the origination fee. AARP in their seminal study of the reverse mortgage industry, concluded that the number one impediment to the growth of the industry is the high costs to obtain same.

An amendment may be added to the bill that would increase the maximum claim amount to $550,000. This could mean that our elders who live in high costs areas, would be able to tap into more of their equity. The origination fee would be capped at $6000. (If there was no cap, the origination fee would be $11,0000

Enough of the rhetoric. Our seniors need action. And they need our protection. Call your Senator and Congressperson to demand that they vote on this bill today. A list of congressional email addresses and phone numbers can be found at: USA.gov.

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.

Why do people get a reverse mortgage? According to the Consumer Credit Counseling Service of Greater Atlanta, the #1 reason is because the homeowner’s budget is too tight.

It may be that the results of a survey of 213 reverse mortgage borrowers taken by the group apply to Atlanta area but not elsewhere. That said, the results are interesting:

When asked the question, “What prompted you to obtain a reverse mortgage loan?” the responses were:

___Budget too tight — 19%

___Need more liquid assets on hand –- 16%

___Need equity to pay for ordinary expenses –- 15%

___Home repairs and maintenance –- 15%

___Provide care for dependents, pay medical bills –- 8%

___Pay property taxes and homeowner’s insurance –- 7.23%

___Falling behind on monthly payments –- 6.25%

The survey was conducted in January by Consumer Credit Counseling Service of Greater Atlanta, Inc., a credit counseling agency that provides reverse mortgage counseling. The homeowners average 74 years old and have lived in their homes an average of 18.5 years. The average purchase price of their homes was $95,554 and the respondents said that the current value of their homes was approximately $221,997.

“We expect the demand for reverse mortgages to grow significantly as baby boomers reach retirement and need funds to meet daily expenses,” said Sue Hunt, manager of reverse mortgage counseling for CCCS. “It is important for homeowners to educate themselves about reverse mortgages. Credit counseling can help them understand how these loans work.”

While 79.4 percent of the respondents are retired, 10.5 percent work part-time jobs, nearly 5 percent work full-time and another 5 percent said they were looking for a job.

Most reverse mortgage lenders require homeowners to obtain counseling prior to receiving the loan. To qualify for a reverse mortgage, a person should have a significant amount of equity in their home and the home must be in reasonably good condition.

Although income and credit history are not considered in securing a reverse mortgage, CCCS believes it is critical for homeowners to review their entire financial situation during counseling. Reverse mortgage clients need to develop effective budgeting skills to meet periodic expenses, such as property taxes and homeowners insurance.

CCCS of Greater Atlanta serves clients in all 50 states and has 18 offices in four states. It is the headquarters for the CredAbility Network, a family of agencies serving consumers in north Georgia, south Florida, middle Mississippi and east Tennessee as well as nationally via telephone and Internet.

CCCS is accredited by the Council on Accreditation and is a member of the Better Business Bureau and the National Foundation for Credit Counseling (NFCC). Governed by a community–based board of directors, CCCS is funded by creditors, clients, contributors and grants from foundations, businesses and government agencies. Service is available at offices throughout metro–Atlanta and north Georgia in English, Spanish and American Sign Language. CCCS offers around the–clock help by phone at 1–800–251–CCCS or at its Web sites, www.cccsinc.org and cccsenespanol.org.