Making Sense of Reverse Mortgages Information you need to make a good decision!

February 24, 2010

Annuities

Filed under: Annuity,Reverse Mortgage — Tags: , , , — Scott Larson @ 4:41 pm

Annuities are in the news again after President Obama has suggested that an annuity might be an appropriate choice for some people.  As with any financial investment when they are appropriate they work well. As I was working with a Fidelity account today they had an article that showed how an annuity can be a way to accomplish some more complex financial goals such as replacing savings that you would like to be able to pass on to your heirs.But as the Fidelity/Wall Street Journal states

Buying an annuity confronts families with a dilemma: Should a parent take smaller monthly payments so that their surviving spouse or children can get some sort of inheritance?

Most people opt for the smaller payment. But in some cases, there are better strategies to help the heirs come out ahead, including pairing an annuity with an insurance policy.

But annuities come with complex features and fees that you won’t often find in investments like mutual funds. You can purchase riders to guarantee payments for your heirs, for example, or to adjust your monthly payment for inflation. It takes careful analysis to figure out if an annuity makes sense for you and, if so, which features to purchase.

Many states, including California, have laws which provide a “financial  fire wall” between reverse mortgage lenders and annuity providers.  These are designed to keep an aggressive salesperson from overwhelming a senior and making large commissions from selling inappropriate products. 

To read the whole article click here

February 18, 2010

Always new situations!

Filed under: Uncategorized — Scott Larson @ 3:00 pm

Today’s highlight is a situation that we see fairly regularly.  One of the “side effects” of  aging is often dementia or Alzheimer’s disease.  These are progressive cognitive disorders that impair a seniors ability to function.  When we encounter these situations in a reverse mortgage transaction it can be addressed in several ways.

Ideally, the senior has done some estate planning and there is a durable power of attorney present, dated prior to the onset of the disease.  This presents the easiest solution to the problem, as we only need to add doctor’s letters to proceed. 

If there is no power of attorney, the only other way to proceed is by going to the court and securing a conservatorship.  This keeps the reverse mortgage lender from being in the position of determining if the borrower is competent, and if the person that is coming to get the reverse mortgage for the senior has the right to do so.

Some may look at this as an imposition, but if you look at it from the perspective of protecting the senior, it makes sense to put some barriers up to make sure that someone in the seniors life is not able to strip  equity from the home. 

Unfortunately a living trust, while adequate for most day to day transactions, is not sufficient to allow a trustee to apply for a reverse mortgage, even if the power to do so is granted in the trust.  HUD requires a higher standard of care

February 16, 2010

THROW THE BOOK AT HIM!

Filed under: Reverse Mortgage,Uncategorized — Tags: , , , — Scott Larson @ 3:58 pm

This is a story that will probably be reported as a problem with reverse mortgages, but the only connection is that some of the money was generated from a reverse mortgage.  From SFGate.com

A 25-year-old former customer service representative with a San Francisco branch of Bank of America has been charged with swindling $61,000 from a 96-year-old woman who entrusted him with her finances…

Saul Cornejo of Daly City was being held on $50,000 bail after pleading not guilty Thursday to charges of felony elder abuse and grand theft.

This is actually a banking problem, but it highlights some of the dangers that seniors and their relatives face from people that are in a trusted position.  Thank goodness for her niece!

The niece did some checking and discovered that her name had been removed from some of the accounts and that statements had stopped coming to her aunt, prosecutors said.

She then went to Bank of America officials and San Francisco police, who found a total of $61,000 missing from her aunt’s accounts and from the proceeds of a reverse mortgage

Elder abuse can take many forms and should be watched for carefully.  People that abuse our seniors, regardless of the form it takes, should be prosecuted to the fullest extent of the law!  Hardly a controversial position, but it absolutely needs to be stated over and over again. 

This also points out that going to the “big  bank” is not a guarantee of safety.  Please make sure that you check out the people you are working with and that they are open and honest in their dealings with you.  That is part of what this site is about, to give clear, unbiased information to help you see if your originator passes the “smell test.”

February 8, 2010

Reverse Mortgage Alternative!

Filed under: Reverse Mortgage — Tags: , , — Scott Larson @ 7:07 pm

In the Wall Street Journal this weekend in the Family Values section, Kelly Greene writes a good article on private reverse mortgages. 

Families where at least one adult child has amassed a nest egg have another option—buying the house outright, or using some of that money to set up a private reverse mortgage. Either way, the family avoids paying lending fees and may even get a few tax breaks

When Wayne Tew, a credit-union president in Las Vegas, realized that his parents needed money, he bought their house and leased it back to them, freeing up their cash for a new car and travel.

The kicker of course is having a son, daughter, or wealthy relative that has the ability to do this. 

To read more, click here

Ahhh, the joys of technology!

Filed under: Uncategorized — Scott Larson @ 6:58 pm

Just needed to rebuild the blog – more posts will be re-posted shortly!

Don’t Wait!

Filed under: Uncategorized — Scott Larson @ 2:45 pm

According to Reverse Fortunes one of the proposals being considered by HUD is to increase the up from mortgage insurance premium (MIP) from 2% to 2.25%, and the monthly mortgage insurance premium from .50 to 1.25% a 150% increase!

I never want to rush a senior into a reverse mortgage, but if you are serious about a reverse, now is NOT the time to wait.  Potential lowering of loan amounts, soft real estate markets in most areas of the country, and increasing fees are not working in a seniors favor!

Potentially higher fees and lower available amounts

Filed under: Uncategorized — Scott Larson @ 2:25 pm

Reverse Fortunes is reporting that one of the proposals being considered that affects reverse mortgages is 2010 is a proposal to take the initial MIP from 2% of the loan amount or area limit to 2.25% and the monthly MIP from .50 to 1.25.  That is a 150% increase.  I never want to rush a senior to make a decision, but the increasing costs as well as the potential decrease in loan amounts means that most seniors should move sooner rather than later…

“Mortgage Professor”

Filed under: Uncategorized — Tags: , , — Scott Larson @ 12:31 pm

Jack Guttentag – the “Mortgage Professor” has weighed in on the claim that reverse mortgage are the next subprime.  He doesn’t believe it and neither do I. 

For reasons not clear to me, reverse mortgages are being bad-mouthed by an unlikely source: consumer groups that are supposed to represent the interest of consumers in general, and seniors in particular.

I have to say that most of the “negative information” I have come across has been from people that do not know about the product and/or are comparing today’s reverse mortgage to the original round of reverse mortgages put together in the infancy of the business.  Today’s reverse mortgages are highly regulated and very safe.

In a 2006 survey of borrowers by AARP, 93 percent said their reverse mortgage had had a mostly positive effect on their lives, compared with 3 percent who said the effect was mostly negative. Some 93 percent of borrowers reported that they were satisfied with their experiences with lenders, and 95 percent reported that they were satisfied with their counselors. (All HECM borrowers must undergo counseling prior to the deal.) 

What we have seen is bad information, presented by otherwise reputable sources.  Mr. Gutentag provides an example

What is not useful is needlessly and gratuitously fanning the flames of senior anxiety about losing their homes. In its September issue of Consumer Reports magazine, Consumers Union warned: “The Next Financial Fiasco? It Could Be Reverse Mortgages.” The centerpiece of its story is a homeowner who is “likely to be evicted” because of an HECM balance he can’t pay off. How is that possible?

It was his wife’s HECM, not his, and when she died, ownership of the house reverted to the lender because the husband was not an owner. At the outset of the HECM transaction, he was too young to qualify, so he had his name removed from the deed so his wife could qualify on her own. She could have lived in the house forever, but as a roomer in her house, he had no right to remain.

We’ll take on this article point by point in a future post, but while it does have some good points (don’t buy the rosy scenarios painted by ads or flyers – find out what you are doing!) overall it feels like an article where the reporter had their minds made up before they started.  You can read the consumer report article here

Back to the Washington Post

This was painted as a reverse-mortgage horror story, but it was nothing of the sort. HECMs are for owner-occupants, not roomers, which was what the husband had made himself into. The correct moral is that the program should not be misused.

Even less useful are spurious claims that growth of the reverse-mortgage market has major similarities to the growth of the subprime market, and could lead to the same kind of “financial fiasco.” The major source of this nonsense is an October monograph by Tara Twomey of the National Consumer Law Center titled “Subprime Revisited: How Reverse Mortgage Lenders Put Older Homeowners’ Equity at Risk.”

In fact, the two programs could hardly be more different, and there is no chance of a similar fiasco.

He goes on to point out major difference, including the fact that there are no payments, and therefore no foreclosure due to defulting on payments – a rather big difference wouldn’t you think? 

To read the Washington Post article – click here

Counseling locator launched

Filed under: Uncategorized — Scott Larson @ 12:28 pm

Alliance Credit Counseling of Atlanta is making available their counseling locator tool.  I would love your feedback abour your experiences with this engine.

image Alliance Credit Counseling released Reverse Mortgage Counseling Locator to assist both lenders and borrowers in finding approved counseling agencies.

When borrowers enter their zip codes, the website automatically populates a list of ten HUD-approved HECM counselors (five local, five national) along with directions to the locations and shows what type of counseling is available: in person, by phone, or by webinar

You can access their site here

NCOA updates “Use Your Home to Stay at Home” booklet

Filed under: Uncategorized — Scott Larson @ 12:18 pm

NCOA’s classic booklet has been updated.  It is 38 pages that is well worth reading.  You can find a PDF copy here.  This book should be read prior to your counseling session.

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