REVERSE MORTGAGE INFORMATION: Tools, News and Resources to Help Seniors Decide

Reverse mortgages are the new financial miracle cure-all; they can replace the kitchen sink, they buy the cruise tickets, they put new tires on the car, they pay for mistakes you’ve made in your retirement planning, heck, they can put a big screen on your bedroom wall. While you’re at it, have it balance your checkbook, do your estate planning, find a local caregiver, make your mortgage payment dissappear. They cost too much, they don’t cost anything, they help, they hurt, you keep your home, you lose your home. We’re employing a bit of cynicism her but it’s all really overwhelming if you read more than one resource about them, everyone, including this site, has an opinion on them. They will do quite a bit for the over 62 year old homeowner if applied properly but they should be considered carefully before proceeding as with any financial vehicle.

We track reverse mortgage opinion because we care about the product and believe there’s more misinformation than there is good information and we’ve often said that reverse mortgages are not for everyone. Whether you qualify for them or not, not everyone over 62 is in a situation that can find them benefitting from a reverse mortgage. Some folks have more than sufficient monthly cash flow with no bills or their heirs are dependent upon significant portions of home equity that would be put at risk with a reverse mortgage. Some folks don’t plan on staying in their current homes long enough to warrant losing the costs for conversion and some may be too young and too far behind to let a reverse mortgage provide them with enough cash to make it to their expected end of life.

, a published Certified Financial Planner and author of says the following:

“Too many of us keep the bar low by playing “to not lose” instead of playing to win because we assume that life has guarantees when in reality it doesn’t. Because of that one assumption, we’ve become complacent and dependent on guarantees. That dependency builds expectations that create comfort zones that are below our full potential and prevent us from making our greatest impact.

Our previous article spoke about end of life and how young, (some seniors) think they are and the complaceny Mr. Losey alludes to above. Its really amazing that in a glass-half-empty world there are quite a few glass-half-full Seniors out there that are beating the odds. They are 75 living in 60 year old bodies, taking every punch thrown at them and experiencing as much in the last quarter of their lives than they did in the previous 3. They have planned according to professional advice, have saved what they believed to be enough. They bought long term care in their 50′s and have a strong life insurance plan. They’re set financially so they hope to also be set physically.

That particular portion of the population makes up between 20 and 50% of the country. How about the other 50 to 80%? What they don’t know can hurt them- a very well written piece by Donald Jay Korn in shares some details that are quite amazing when it comes to planning and maybe waiting too late to do so to protect the physical nature of things. According to the article, the average age of those purchasing long term care is now 58, down from 67 in 2000 and what is shocking about those statistics is that at 65, 30% of long term care participants are rejected and by 75, 50% were rejected. You want to get in early if you want to make sure you are both eligible and covered. The average need for long term care lasts between 24 to 36 months, and of the estimated 8 million long term care clients registered in 2008, 180,000 received long term care benefits- just over 2% of those eligible.

Reverse mortgages don’t really have much to do with those stats other than bringing to light being able to afford life, caring for oneself and protecting one’s investments in property and self. Since the age to increase your chances of qualifying for long term care are younger than the minimum age for a reverse mortgage, its clear the reverse mortgage should not be used to purchase the long term care but as the article goes on to say below, a reverse mortgage could possibly allow for continued coverage once the client sees the need for both cash flow and the added health coverage:

“Indeed, clients probably should avoid canceling an older LTCI policy whenever possible. “Although there may be a need to reduce expenses as a result of the current economic downturn, maintaining these policies is important,” Ludden says. “The cost of this coverage is age- and health-based; therefore, it may be very difficult to find an affordable policy in the future if a previously purchased policy has lapsed.”

A reverse mortgage will not cure all that ails you but considering it as part of your financial and retirement planning will give you more options than you had been previously aware of.

Thank you for reading www.reverse-mortgage-information.org, please email us with you comments or questions.

Pay close attention to the 10 year CMT or Treasury yield if you’ve been considering a reverse mortgage recently. The Federal Reserve is getting ready to provide up to $540 Billion in loans to help relieve pressure on money market mutual funds that are up against redemptions.

What does that mean for those interested in a reverse mortgage but are waiting it out to see what happens with the November 4th election or any other policy change? It means that there are folks in the financial services sector interested in the Fed backing these types of loans and they may start moving money from Treasuries back into commercial paper.

“,” David Glocke, head of taxable money market funds for Valley Forge, Pennsylvania-based Vanguard Group Inc. Glocke said he’ll be more willing to shift money he’s invested in U.S. Treasuries back into financial-sector commercial paper covered by the plan.

One of the determining factors of how much money someone has access to from a reverse mortgage is the 10 year Treasury yield. HUD and FHA have set a floor limit of 5.5% which would maximize equity access or yield for the reverse mortgage borrower. Last week it was very close to 5.5% but it went up on Monday evening to 5.77% and that means the borrower will not have access to as much equity access and it could be the difference in whether you qualify or not in situations where there is an existing mortgage to pay off.

Things have not been stagnant in the reverse mortgage business. Yes, lending limits are set to increase to $417,000 around November 1st and the origination fees will be limited to $6000, down from a high of $7255, so someone will be able to get more and spend less. However, home prices continue to decrease in almost all areas of the country and margins have increased from 1.00% back in March to 2.00% recently which impacts how much interest accrues on balances and now if yields have hit bottom and are on their way up, you have a decision to make.

Do you sit tight and hope that every facet affecting a reverse mortgage weighs in your favor or do you act now and lock in what you know you can get access to?

Its not the first time you’ve read this!!

The recent signing of the HOUSING AND ECONOMIC RECOVERY ACT OF 2008 (HR 3221) by President Bush puts into motion something that has been long in the making and that’s a modernization of FHA rules for reverse mortgages. Some of the changes facing potential reverse mortgage clients are an increase in the national lending limit from the individual county limits now in place. Folks in some parts of the country will see their lending limit rise from as low as $200,160 to an anticipated $417,000 and that’s good news for those with home values over their county lending limits since any equity access was determined from the lower of the appraised value or the respective county lending limit. In many cases where the reverse mortgage was to utilized to pay off an existing forward mortgage there wasn’t enough cash access to pay off that mortgage and the borrower either had to come to the table with money or look for alternative methods which often led to selling the home and in a down market, that’s neither easy or fun.

Another change is with the origination fee, currently capped at 2% of the lesser of the appraised value or the county lending limit. The new bill will keep the 2% up to $200,000 but cap the origination fee at $6000 which is more than $1200 less than some of the highest fees where county lending limits were as high as $362,790. In that case, 2% of that amount would have resulted in an origination fee of $7255.80.

Higher lending limits combined with lower origination fees are great for those seniors whose circumstances have them looking at ways to increase their monthly cashflow without making risky investments in a roller coaster stock market.

Some new additions to the bill are for folks in co-ops and those looking to use the reverse mortgage as a finance tool to help them purchase a home, most likely in a downsizing event. Currently, only New York co-op owners are able to secure reverse mortgages because of their prevalence. There are other pockets of the country with co-ops and this will be a relief for those co-op owners as other means of financing have disappeared as most boutique programs are no longer available. In the event someone wants to downsize from a larger, more expensive home, the ability to purchase a home using a reverse mortgage is also a welcome addition. As an example, someone in a $400,000 home can sell the home, take a portion of the proceeds for purchase of a less expensive home, say $200,000, and instead of putting up the entire value in cash, they can put down a small portion, in this example, half of the value and finance the other half and not only do they eliminate monthly mortgage payments, they keep a larger portion of their cash in their pocket and in this market, cash is king. Instead of having $200,000 left over from the sale of the home, they now have $300,000 and no monthly payments as long as they live in the home. That’s also great for those that don’t currently qualify for a regular mortgage because of bad credit or insufficient fixed monthly income as those programs have gone the way of the other boutique programs once offered by most forward lending brokers.

Some other features are a prohibition against requirements to purchase additional products as a condition for HECM eligibility such as annuities or life insurance policies. That is good news as the recent negative information about reverse mortgages has been because of this very practice. Folks short on cash flow that need a reverse mortgage should not have their money tied up in any annuity, be it immediate or deferred. The reverse mortgage provides more cash flow with less restrictions than the annuity could anyway in most situations where monthly cash flow is short. Another mention is about a study to determine consumer protections and underwriting standards for HECMs which will help to insure that purchase of any additional products by a consumer is appropriate for the consumer.

We like the new changes, they are consumer protection focused and open up opportunities to help save some homeowners from increasing monthly payments on their forward mortgages that were having a harder and harder time making that increased payment amount and the homebuying function is a great tool for credit challenged or those looking to downsize into more affordable housing.

8,270 HECM reverse mortgages were endorsed during November 2007 according to the most recent HECM activity report released by HUD. November’s HECM production is a 10.6% gain over the 7,478 HECM’s endorsed in November 2006 but a 1.7% decrease from October 2007 when 8,417 HECMs were endorsed. More troubling: November was the third consecutive month that HECM production fell below its 12-month moving average – the first time this has occurred since mid-2005.

The 12-month moving average provides a clearer trend line of HECM loan growth by smoothing out month-to-month variations. Interestingly, despite the fact that monthly HECM activity has dipped below the 12-month average for three straight months, the 12-month average itself hit an all-time high of 9,004 in November, due mostly to the exceptionally strong HECM activity earlier in the 12-month period.

For the calendar year 2007, 100,286 HECMS were endorsed compared to 77,879 during the first eleven months of 2006 – a 29% rise. For the twelve months ended 11/30/07, 108,046 HECMS were endorsed – a 30% rise over the 82,838 endorsed during the prior twelve month period.

Clearly, falling home values and the problems in the traditional mortgage sector are taking their toll on the once torrid growth of reverse mortgages. We’ll have more to report on the most recent HECM statistics in future posts.

We came across this table that was part of a presentation at the . The table shows, by borrower age, the cause for HECM reverse mortgage loan payoffs.

We’ve previously written about the surprising fact that the majority of HECM loans are paid off within seven years. This chart expands on this showing the general reasons why HECM loans are paid off.

Most notable is the fact that less than 1/3 of HECMs terminate due to death. Overall, the vast majority of HECMs terminate because the borrower sells and/or moves out – not because the borrower dies while living in their home. (more…)

Much has changed over the past year in the HECM loan market: Florida has taken over from California as the reverse mortgage activity “hot spot” in the U.S.; new products like the HECM 100 and HECM 125 have emerged, and the overall volume of HECM loans has increased substantially. We thought it would be interesting to track HECM market changes in each of the locations that HUD processes home equity conversion mortgages.

The following table shows, for each location, the absolute change in HECM volume and the change in market share. Time periods used for comparison are the 12-month periods ended 10/31/07 and 10/31/06. Most of the significant changes reflect the emergence of Florida HECM activity and the corresponding declines in California HECM activity that we’ve noted before. But some other interesting points emerge as well: (more…)

Our prior use of a “heat map” showing Home Equity Conversion Mortgage Growth in U.S. States was well received by visitors so we thought we’d make it a monthly feature using data from HUD’s monthly HECM activity reports.

The map below is based on percentage changes HECM growth rates for the 12-month period ended 10/31/07 compared with the 12-month period ended 10/31/06. RED, ORANGE, and YELLOW states all had HECM growth rates exceeding the national average while BLUE and GREEN had growth below the national average. More detailed color code descriptions are included below the map:

(more…)