The New Rules of Reverse Mortgages

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We just had a representative from Well Fargo home Mortgage present this to our sales staff - REALTORS. Your article was referanced in the presentation.
It's good to know that the program is available. As you point out - it may not be right for everyone. However, it is a source that could help a homeowner own something that they might otherwise not be able to own.
Thank you for the article.
http://www.ErieRealEstateBlogs.com

Paul Gornall of PA 2:01PM February 26, 2009

The article states " That's because the HECM loan levies the interest rate on the amount drawn down ". I believe this means the adjustable interest rate in effect at the time of drawing funds will apply.
But what happens later on, when the interest rate rises? Example: if one draws $5,000 in March 2009 with an interest rate of 3.00% and draws $8,000 in Jan 2010 with an interest rate change to 4.50%. Does the March 2009 $5,000 also carry a rate of 4.50% or is the March 2009 rate fixed at the time of drawing funds?

Joe of NJ 12:53PM February 20, 2009

Splendid article with certain infelicities that need explained. As to the comment on FHA HECM's cost increasing 10% per month. This is pure and simple Hogwash!
As to the origination fees, they are now capped @ less than $6k and this is on the maximum mortgage. Not remotely the $20k as indicated in the article.

James of CO 8:32PM February 12, 2009

Philip,
Not many folks have written such a well-researched, even-handed article on this topic.
You deserve a pat on the back for telling both sides of the story, without hyperbole.
Bill's comments above miss the point that the equity line option allows seniors to leave any money they don't yet need in the equity line, but at a zero balance on that equity line, and pay zero interest on that available balance.
Thank you,
Scott Tucker
Member, National Council on Aging
Author, Reverse Mortgages...from Z to A
http://www.ReverseHomeLoanBook.org
1-800-789-4831

Scott Tucker of IL 9:20AM February 11, 2009

Excellent article that explains the program simply and in laymans language. I do take exception to one point that is made. The Reverse is a non-recourse loan but the borrower/estate have no liability only if the property is foreclosed. There is no "free lunch". FHA Mortgagee Letter 2008-38 clarifies this misconception. Easily found by Googling FHA Mortgagee Letters and choosing the year 2008.

Chuck of CA 2:10PM February 10, 2009

Wow!'Missionary loan officers' - how refreshing indeed to have 100% commissioned sales loan officers - not too many driving around in Ferrari's - as trusted senior advisers!
These loans are a wonderful idea but, as you mention, require the Senior to take all their available equity in cash or a huge credit line rather than the loan or credit line they need or want. Studies in Austrailia show that these huge credit lines, available to pull your equity at a moments notice are much like having a teller machine in your living room - and that the temptation to use it is incredible, with most sucumming to the temptation...
With the Miracle Of Compound Interest - in Reverse - these loans are merciless 'equity eaters' and am sorry to report that the 5% interest examples quoted are way off the mark - the interest is charged monthly and then added to your loan balance with the next months interest being charged on the principle and interest from the prior month and so on and so on - this is anothe3r reason why the $20,000 in up front fees is so dramatic - if the Senior never touches their credit line they will pay tens of thousand of dollars in interest just on the fees they were charged - perhaps some real examples of how a 5% reverse loan works, say over 7 years, would be responsible to report - likely all the equity is gone... and the pitch that the Senior can still live there payment free even with all the equity gone needs a little work too - since these loans typically do not last more than 5 years; AND A BIG WORD OF CAUTION... As you point out the older you are the more you can borrow (because you are not likely to outlive the interest) - this is also pointed out by the trusted senior advisers who do not hesitate to explain how the younger wife or husband can be removed from title in order to qualify for the loan (if the spouse is less than 62) or to qualify for a higher loan amount... unfortunately when the elder spouse needs 24/7 care or otherwise moves out (divorce?) or passes on, the loan becomes due and payable and the loan must be paid off - usually meaning the spouse must move - imagine having your spouse pass on and then you must move from your home, alone and with no equity remaining for your future.
There is much more to the loan than meets the eye - not to mention recent aging studies on how many of us will become easy targets for Senior advisers - and an hour on the phone to a counselor - whose training was co-designed with the reverse lending industry is not all that reassuring (AARP involvement or not)
LASTLY - LETS NOT FORGET THAT THESE ARE ARMS, WORSE THAN ANY SUB PRIME ARM EVER CREATED IN THAT THE INTEREST RATE CAN INCREASE 10% IN ONE MONTH - SO A 5% EXAMPLE IS A BEST CASE EXAMPLE IN THAT RATES ARE MUCH MORE LIKELY TO INCREASE THAN DECREASE AND YOUR LOAN INTEREST RATE WILL CHANGE EACH AND EVERY MONTH AND CAN POP UP TO 15% IN ONLY ONE MONTH!

BILL of CA 12:30PM February 10, 2009

How refreshing to read a well researched article that has no bias, but just tries to tell the truth about the subject. Phillip has done an outstanding job of putting the information out there and letting people decide for themselves if this program is right for themselves or their families. Those of us in the reverse mortgage industry do indeed look at this job as either a ministry, or a "missionary ferver" as he writes. We work hard every day to help seniors enjoy a more comfortable retirement by aging in place, which is what an overwhelming number of seniors say they want. Too often reverse mortgage companies are lumped in with individuals who are not doing this the right way. Those people are purged from the industry, never to work in it again.
If you spoke to 100 reverse mortgage customers, and asked them about the experience and what it's done for them, I propose that you'll find an that the majority, and overwhelming majority, would tell you that it's been wonderful for them and that they'd do it again. Just call one of the many borrowers who have been saved the from the threat of foreclosure due to using a reverse mortgage to pay off an existing mortgage that they could no longer afford. Ask what they think.
To the skeptics who say, just sell and move to a smaller home I say try telling that to a 73 year old who has all her memories in that home. Oftentimes they don't want to move, no matter the cost. The emotional cost of selling and moving can throw the senior into a more difficult situation than taking a reverse loan. Again, the reverse loan allows these individuals to "age in place" which is what they want. No self righteous observer knows better what is right for these wonderful people than they themselves, their families, and their trusted advisors.
Thanks again for your article Mr. Moeller. Would all journalists do so well a job in research and writing information without the bias that is too often found today.

Brien B. of NC 9:19AM February 10, 2009