Reverse Mortgage

[Terrel L. Shields]

Can anyone explain to me how that a reverse mortgage is EVER a good idea.

They were showing a case a while back where a man took the deed in his name, because the wife wasn't yet 62 years old. They spent a lot of the money to repair the house that they intended to live in for the rest of their life. He died weeks later.

She lost the house and could not redeem it in any form or fashion.

Never mind the fees are outrageous.

 

[Meandering]

Nope.

They are predatory. Plain, simple and no two ways to say they are anything different.

AARP Sues HUD Over Shift in Reverse Mortgage Policies
http://www.aarp.org/money/credit-loans-debt/news-03-2011/aarp_sues_HUD_over_reverse_mortgages.html


Update: HUD Prevails in AARP Lawsuit—But Issues Remain
http://www.allrmc.com/blog/aarp-HUD-reverse-mortgage-lawsuit-the-underage-spouse-time-bomb

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[JSmith43]

She lost the house and could not redeem it in any form or fashion.

If the estate rep could sell the home for enough $$ to pay off the current RM loan amount, that would work to salvage the equity.

As far as being forced to live somewhere else, that was the problem. A spouse is taken off title generally because they are not yet 62 or the other spouse is substantially older, would allow for more $$ to be extracted via the RM. It is done for that purpose.

One way to off-set the risk for the spouse not on title is to have a life insurance policy sufficient to pay off the RM balance. That might be too pricy to be practical. Also, it doesn't offset all the risk.

When does a RM make sense? Many people have been saved from losing their home via RM proceeds. Trouble is, it isn't always enough to stop the financial bleeding that got them in trouble in the first place. Sometimes it is.

A RM to an older, healthy individual, likely to stay in the home well beyond average life expectancy, may benefit from a RM. Applicants that got a RM at the top of the bubble have a chance of doing much better than they otherwise would have. They could easily be upside down right now, equity wise, yet get to quietly enjoy the place for years to come.

If they got a RM and opted for a line of credit for emergencies that they didn't have to touch, that LOC would have grown by the note rate plus 1/2 percent, irregardless of what direction the home value took. Nice sure thing return, hah? The second the RM borrower had negative equity in that home, he/she could fully draw that LOC, stick it in oil stocks, etc & guess what?

Instant estate not to be touched by the lender, since the RM loan is non recourse. The estate will not be encumbered, just the realty.

 

[Meandering]

January 4th, 2013
AARP Reverse Mortgage Lawsuit Brought Back by Appeals Court

http://reversemortgagedaily.com/201...se-mortgage-lawsuit-on-non-borrowing-spouses/

 

[Meandering]

If the estate rep could sell the home for enough $$ to pay off the current RM loan amount, that would work to salvage the equity.

As far as being forced to live somewhere else, that was the problem. A spouse is taken off title generally because they are not yet 62 or the other spouse is substantially older, would allow for more $$ to be extracted via the RM. It is done for that purpose.

One way to off-set the risk for the spouse not on title is to have a life insurance policy sufficient to pay off the RM balance. That might be too pricy to be practical. Also, it doesn't offset all the risk.

When does a RM make sense? Many people have been saved from losing their home via RM proceeds. Trouble is, it isn't always enough to stop the financial bleeding that got them in trouble in the first place. Sometimes it is.

A RM to an older, healthy individual, likely to stay in the home well beyond average life expectancy, may benefit from a RM. Applicants that got a RM at the top of the bubble have a chance of doing much better than they otherwise would have. They could easily be upside down right now, equity wise, yet get to quietly enjoy the place for years to come.

If they got a RM and opted for a line of credit for emergencies that they didn't have to touch, that LOC would have grown by the note rate plus 1/2 percent, irregardless of what direction the home value took. Nice sure thing return, hah? The second the RM borrower had negative equity in that home, he/she could fully draw that LOC, stick it in oil stocks, etc & guess what?

Instant estate not to be touched by the lender, since the RM loan is non recourse. The estate will not be encumbered, just the realty.

Mentor,

In your estimation, about what percentage of these loans had the line of credit option that you can remeber, and do you know if they still are offering this as an option?

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[Calvin the Airedale]

JSmith probably has a good grasp RM given his explanation. I'd rather explain the benefits of wrap around mortgages than have to explain the ins & outs of a RM.

What I do know is that the if you're a celebrity pitch man for any of the various RM companies, it means your career is on the skids and you can't find work anywhere else: the Fonze; that jackass former Senator from Tennessee; and Robert Wagner come to mind.

 

[JSmith43]

Mentor,

In your estimation, about what percentage of these loans had the line of credit option that you can remeber, and do you know if they still are offering this as an option?

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There are so many scenarios to consider. When the RM proceeds is enough to clear the existing loan, the "leftover" can be taken in the form of a line of credit. This comes in handy, where the owner may be receiving government assistance contingent on a certain level of assets in the bank, for example.
The LOC can be drawn a little at a time. A lump sum would disqualify the person in many cases, from receiving benefits with a liquid asset test. Generally, the LOC isn't considered a liquid asset, but I bet there are exceptions.

Sometimes the RM borrower takes a portion of the "extra" proceeds as a lump sum & bets it on Red at the casino, while taking the remainder as a LOC.

I'm pretty sure the LOC is still an option, however, I stopped studying mortgagee letters involving RM, just skimmed them at best for almost 4 years now. I get a Reverse Mtg Daily newsletter every day & usually skim that, so I probably would have seen if LOC were no longer available.

 

[JSmith43]

The RM program is a good deal for some people in certain situations, so much so that FHA has been losing $$ big time on the program and has had to incrementally adjust pricing to reflect risk.

The program can be abused easily. It also can be easily misused or misunderstood. It is no easy task, getting someone up to speed on all the variables & uncertainties that one's senior years bring.

No one gets out of here alive, but RM recipients-some play their cards better than others & some have better near term medical check ups.

A RM option is kind of a wild card with an evil side. It is almost like magic in that it is a loan with no credit or income qualifying. And, a commissioned LO can easily sell his soul by forgetting to emphasize some option or overlook signs of contractual incompetence, etc.

I'd say, by and large, the people that offer these loans try and do a good job & self police. They will rat out a crooked LO quite willingly. It is a business that deals in "lesser of evils" choices much of the time. It is very easy to spin a story to make innocent attempts by a LO to help someone, to look like they were up to evil.

 

[EDWARD BERRY]

Done A Bunch 10 Years Ago.
Those That Had Equity-fine.
Go Into The House, See 10-20 Medicine Bottles On Kit Table-they Needed Money.
Like Anything Else, Do What You Have To Survive.

 

[Kevin Mc]

Can anyone explain to me how that a reverse mortgage is EVER a good idea.

They were showing a case a while back where a man took the deed in his name, because the wife wasn't yet 62 years old.

HUD is doing away with the under 62 spousal thing. Both must be over 62 nowadays. They are expensive but are ok for folks who own their home outright and want to stay put(in my market anyway)