Reverse Mortgage Guide

Once again seniors are blazing new financial trails — this time with reverse mortgages. Before I tackle the subject of reverse mortgages, join me on a brief journey back in time. You will discover that many of today’s seniors and/or their parents also pioneered the concept of the thirty-year loan.

In the early 1900’s it was quite difficult for individuals to obtain mortgages. A down payment of 50 percent was usually required, and the mortgage was typically a five-year, interest-only balloon mortgage, what is known as a “term” mortgage.

During the Great Depression, many home owners could not repay their debt nor refinance their existing loans. Banks then lost the ability to lend when their depositors withdrew their funds. This great financial cataclysm marked the end of unregulated mortgage banking in this country.

Roosevelt’s New Deal helped to restore the public’s confidence in the mortgage banking industry. Soon the thirty-year amortized loan became available, along with standard interest rates and standard underwriting guidelines. Loans were securitized. This added liquidity to the mortgage financial markets.

Strenuous objections were being raised. Borrowers were doing things no one had done before. They were signing newly-created documents that were unfamiliar to most borrowers and loan professionals. Today, these same objections made back then are being made about the reverse mortgage. Back then, borrowers were taking on thirty years of monthly payments. At that time, this was unheard of. Today, the lender is paying the borrower instead of the borrower paying the lender. Again, a vastly different concept has been created.

Back then, the United States government insured these thirty-year loans. Today the government is insuring most reverse mortgages. Years ago, people were warned that they would lose their homes, that they would go broke if they signed these hard-to-understand mortgage documents. Today, some borrowers harbor the same fear about the reverse mortgage documents.

While reverse mortgages have been around since the early 1960’s, they were unregulated and took on many forms and were called by different names. Relatively few were done. It wasn’t until 1987 that Congress authorized the first government-insured standardize reverse mortgage. In some instances, seniors are again being told that if they get a reverse mortgage they will lose their home. Does this sound familiar?

The bottom line is this. A once new type of financing (thirty-year loan) permitted borrowers to raise their family in the home of their choosing. Together with many years of home value appreciation, another new type of financing (the reverse mortgage) is permitting borrowers (seniors) to stay in their home AND live the life they were heretofore only dreaming about living.

Years from now, when we look back on the evolution of this product, people who remember will say, “What was the fuss all about.” It changes for the better the lives of our senior citizens. Homes are often saved from mortgage and tax liens and from foreclosures. It enables seniors to better afford home care. It enables seniors to pay their bills. Because people are living longer, a reverse mortgage may insure that they will not outlive their money. And best of all, these pioneers twice made have shown us that financial innovation can have a profound effect upon American society.

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.

This entry was posted on Tuesday, February 19th, 2008 at 4:47 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.