Reverse Mortgages: a Surprise Source of Retirement Income

When today’s seniors were planning their retirement, few of them gave a thought to reverse mortgages. Most of them were confident that their pensions, or retirement savings plans, or even Social Security would carry them through their golden years. In the current economic climate, many retirees are finding it difficult to make ends meet, much less enjoy the leisurely lifestyle they had envisioned.

There is an increasing number of Silver Panthers working as greeters at Walmart. Many seniors who have not yet retired are postponing their departure from the workforce unless forced into retirement by increasing job layoffs. While the country teeters on the brink of the next Great Depression, the financial challenges of our senior citizens are obscured by the sheer number of other financial crises.

In 1961, a single act of kindness set a paradigm for an unlikely source of income for senior citizens. Nelson Haynes of Deering Savings & Loan (Portland, ME) made the first reverse mortgage loan to the widow of his high school football coach, and history was made.

What is a reverse mortgage? It is a loan available to seniors 62 and over. It basically taps into the equity in the house which is paid to the borrower in one lump sum, a line of credit or monthly payments. Repayment of the loan is deferred until the owner dies, the home is sold or the owner is forced to leave to be cared for in a nursing facility.

How does it work? The equity in the property is used as a basis to arrange cash payment to the owner. As with any loan, there are interest rates involved. These rates are usually based on the 1 year T-Bill and the rates adjust monthly, semi-annually or yearly. Changing rates do not affect the payment you receive, but do affect the amount you owe. Your heirs will only receive your home if the value is more than the amount you owe.

Contrary to popular belief, not all reverse mortgages are adjustable rate. The fixed rate reverse mortgages, though, require that payout is made in a single payment. There are pros and cons to both fixed and adjustable rate reverse mortgages. You need to consult with your banking professional to find out which loan is right for you.

Independence Housing Group, LLC

Construction Bridge Loans in Maryland

721 Main Street, Suite 100,
Stevensvillem, MD, 21666

443-249-3664
Toll-Free (877) 90-NewHome
(877) 906-3946
443-249-3666 FAX

Email us: Info@independencehousing.com

There is No Reason to Lose Your Home If You Are 62 Years Old and Have Sufficient Equity

Article by John Bodecker, Reverse Mortgages Montgomery County Md

Every week I see seniors who are falling behind the eight ball for various heart breaking reasons. Many of these seniors should not be losing their homes or near losing their homes. I met a 68 year old man a few weeks ago who lost his beloved wife to cancer. She had been suffering for over seven years and passed away in February. The man told me that the cancer cost him over $30,000 per year out of pocket because the insurance didn't cover all the costs - he had paid over $200,000 dollars in medical bills by refinancing his home while she was sick over the years and his house is currently only worth around $220,000.

His local bank referred him to me for a reverse refinance. My heart went out to him because he did the honorable thing to try pay bills while caregiving for his wife. To add to the pain, he lost her social security of $1,200 dollars per month after she died and now has a mortgage payment and expenses he cannot afford.

I wish I had met him a few years ago before he refinanced the house and incurred a mortgage payment he cannot make. A few years ago, when the house was free and clear, he could have refinanced with a reverse mortgage and could have received a line of credit to pay bills - and now would have no mortgage payment. He did not know about the loan then; and now, I can't help him because he lacks the equity. All he can do is to try for a loan modification and rent out a room in his home and hope the market comes back in a few years to acquire more equity.

This wonderful man and I talked about other options going into his future. He told me that government jobs were coming to his area and government workers would be buying homes. I told him once his home appreciates and he could pull out $60,000, he could sell his home and purchase a new home with the new Home Equity Conversion Mortgage Reverse for Purchase loan. This is a loan that Congress passed in February 2009 to help seniors afford homes with no monthly payments - Income and credit are not important.

The way the loan works is, if he puts down $60,000 as a down payment, the lender/FHA would lend him a matching loan/contribution of approximately $75,000. (Depending on his age, down payment and the purchase price). Then, he would be able to purchase a condo that he is looking at out of state for $135,000 and have no monthly payment until he dies, sells, or moves. He would have title to the property and could not be forced to move even if he stripped the equity and his home went backwards in value. The FHA Reverse for Purchase has many safe guidelines in place for seniors.

I believe this genuine man will pull out of his predicament because he is a survivor. But, I become upset when I realize how his life could have been a little easier if he had been advised sooner about loans for seniors. More education is needed so elderly people can make decisions that alleviate their financial burdens. It's enough grief and hardship to lose a loved one - but the added financial burden can leave the vulnerable widow or widower to the mercy of the banks. I know this because I also lost a spouse to cancer and was left with debt.

Independence Housing Group, LLC

Construction Bridge Loans in Maryland

721 Main Street, Suite 100,
Stevensvillem, MD, 21666

443-249-3664
Toll-Free (877) 90-NewHome
(877) 906-3946
443-249-3666 FAX

Email us: Info@independencehousing.com

State of Maryland Reverse Mortgage Guidance Advisory

January 12, 2010
REVERSE MORTGAGE GUIDANCE ADVISORY
Background
On December 16, 2009, the Federal Financial Institutions Examination Council ("FFIEC") published in the Federal Register the proposed guidance Reverse Mortgage Products: Guidance for Managing Compliance and Reputation Risk (the "Guidance").

Reverse mortgages are complex loans secured by the borrower's home and are offered to borrowers who typically have limited income. A reverse mortgage may provide the only funds available to a consumer to pay for health care needs and other living expenses. Accordingly, lenders offering reverse mortgages must institute controls to protect consumers and minimize compliance and reputation risks to the institutions themselves.

The Guidance is intended to be used by financial institutions offering reverse mortgages to ensure that their risk management and consumer protection practices adequately address the compliance and reputation risks raised by reverse mortgage lending. It addresses policies, procedures, internal controls and third party risk management practices associated with offering both HECM and proprietary reverse mortgage products.

Although the Guidance is not yet final, the Commissioner strongly encourages Maryland lenders offering, or considering offering, reverse mortgage products to review the Guidance to help ensure that they have appropriate risk management and consumer protection policies and practices in place. View the Guidance.

Summary

Highlights of the Guidance include that:

Consumers receive clear and balanced information about the relative benefits and risks of reverse mortgage products, at a time that will help consumers' decision making processes.
Institutions offering proprietary reverse mortgage products follow or adopt relevant Home Equity Conversion ("HECM") requirements for mandatory counseling, disclosures, restrictions on cross-selling of ancillary products and reliable appraisals.

Institutions offering either HECMs or proprietary reverse mortgages develop clear and balanced product descriptions and make them available to consumers shopping for a mortgage.

Institutions making, purchasing or servicing reverse mortgages through a third party conduct due diligence and establish third party relationships and compensation.

Institutions offering reverse mortgage products ensure that they do so in a manner that complies with all applicable laws including, but not limited to, Truth in Lending Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act and Fair Housing Act. Institutions should also be aware that state laws, especially those that prohibit unfair and deceptive practices may also apply to reverse mortgage transactions.

The above highlights are not intended to cover all aspects of the Guidance and, as noted above, we recommend that you review the Guidance in its entirety.

Independence Housing Group, LLC

Construction Bridge Loans in Maryland

721 Main Street, Suite 100,
Stevensvillem, MD, 21666

443-249-3664
Toll-Free (877) 90-NewHome
(877) 906-3946
443-249-3666 FAX

Email us: Info@independencehousing.com