National limit set for reverse loan program

Are you 62 or older, own your own home and thinking about a reverse mortgage? HUD today approved a new national limit of $417,000 for Home Equity Conversion Mortgages (HECMs).

This is higher than previous lending limits, which varied by county and ranged from $200,160 to $362,790. Those considering tapping their home equity through a reverse mortgage can check out the National Reverse Mortgage Lenders Assn.'s consumer website for a list of local lenders.

Just curious: Has anyone out there used a reverse mortgage to remain in their home rather than go through a foreclosure?   

-- Lauren Beale

Your thoughts? Comments?

Photo: Chatsworth resident Betty Jenkins used a reverse mortgage to pay off a mortgage on the home she has lived in for 20 years. Credit: Stephen Osman  / Los Angeles Times

Comments

[Uncle Billy Is Shocked]

Thanks for asking this question.

[Ace]

"Just curious: Has anyone out there used a reverse mortgage to remain in their home rather than go through a foreclosure?"

Ummm.... not likely. In order to get a reverse mortgage you generally have to own your home outright or have a very small mortgage.

Also, the fees on a reverse mortgage are typically about 10 percent of the entire mortgage and probably the most expensive way possible to borrow against your home. It is far cheaper to get just a regular mortgage.

[michhar1994]

I think this is something that should have been done a long time ago. Reverse mortgages are the instrument of the Devil!! (I know that sounds harsh, but I believe it).

My family just completed the sale of a relative's home that he owned since the early 60s. His wife was very ill and he took the loan to pay for her healthcare costs. To make a long story short, the contract stipulated that the bank got 50% of the appreciated value of the home plus whatever money was lent during the contract's duration (the contract ended when he passed). He lived to be in his 90s, so he "got them back" in the end, but the house needed to be sold to cover the debt when he died. Almost 50 years of equity was given away to an unscrupulous lender, and for what?

I think this is a good vehicle for people who have no heirs and wish to "cash out." But to use this type of vehicle to avoid forclosure, or pay for other things is folly (in my humble opinion). I would find any other way to solve your financial situation before doing this, even with the new "safeguards" in place.

[Jack Wilkes]

I am shocked to read these two comments above. First to the comment on having a current mortgage to pay-off. Your information is inaccurate. The amount a senior can receive is based on the value of the home and the age of the youngest borrower. They must be at least 62. A rule of thumb based on todays rates for a monthly adjusting reverse mortgage would allow a 70 year old senior with a $200,000 home to receive around $120,000 net after closing costs. A 62 year old with $200,000 could receive around $105,000. Secondly, the upfront closing costs average 5.5 % not 10 %. Another option would be to sell the home to have access to money. If that route is taken , they will pay 6-7 % in real estate commissions and have to move.
To the person that stated that says reverse mortgages are the instrument of the devil. I assure you with 100 % accuracy that" There is NOT a federally insured reverse mortgage in the United States today that allows a lender to share the increased equity in the home. I do not know where you got that information, it is totally false and misleading information. The fact is the title to the home stays in the borrowers name. The loan and interest is paid back when the borrower either sells the home or passes away. If the borrower passes away the family has up to one year in which to pay the loan back, any money left, belongs to the estate, NEVER the lender, NEVER. Please get the facts prior to believing any information as stated above. Contact HUD, AARP, The National Reverse Mortgage Lenders Association or any number of other non-profit agencies.

[Gloria Boone]

First: I don't know where Ace gets the 10% cost figure for reverse mortgages; the costs are 2% for FHA Mortgage Ins.;, and used to be 2% for originators, but is now 1.5%, and the other normal loan closing costs like title insurance, settlement, recording, state loan taxes, etc. are about 1-1.5% At the highest that is 5.5%. It costs 6% to sell a house + 1% for miscellaneaous sellig costs + the costs of moving. Plus the lender has money out - on the line - that they don't know if it will be two years of 15 or 20 years before their investment is repaid. Would you loan money that way?

I personally have used the reverse mortgage to save people from foreclosure. In one case this elderly woman was ill and legally blind, and her son came to us. Her credit cards were maxed out, her medical bills were past due, and her 1st and 2nd loans were both in foreclosusre. And here she was sitting on lots of equtiy in the house, even with the loans. We got her a reverse mortgage - paid off the two loans, paid all credit cards and medical bills - and there was still enough left over to send her monthly checks of $640. Her income was $2400, and now is over $3,000. She has no bills, no mortgage payment and can now pay for the kind of in-home care she needs; and her son can go back to his business befoe he goes BK. because of staying home to care for his mother.

As for Michhart 1994: Are you sure it was the lender that came after 50% share of the house -- or was it Medicaid, through the lender, since a Medicare claim has priority over a loan, but expects the lender to collect and pay them when the house is sold and the loan paid off. Then the lender gets what they have loaned out. If the value of the house is less than the mortgage, then the FHA insurance pays the difference to the lender.

It has been years and years (1989) since lenders asked for an interest in the appreciation of the house. But if the woman was ill, and half of the house was hers Medicaid and the convalescent home had a right to ask for the money.

A man I did a reverse mortgage for had to get it to pay for his wife's bills that were being paid by Medicaid. The money from the loan went to the convalescent home where the woman had been for 2 years; and since 1/2 of the house was hers, they had a right to request funds; it was the owner, his son, and his medical attorney who decided the reverse mortgage was the way to go. Now, while his wife is ill, and if she passes away, he has what is left of the reverse mortgage (that part over 50% of value); he can also refinance it if he wishes, since the loan cap has increased, and probably get some income from it; and know that he will never have to leave his home. In the meantime, his childen do not have to bear the cost of their mother's illness, or the father's living -- while they are raising their children, and have many of their own bills.

This damning of reverse mortgages is so out-of-hand over the whole internet, and it's because people just get an opinion without ever really studying it. For a lot of people it is a welcome relief to their financial worries - and it's nice to know it's out there. Heirs have a choice - spend money now to care for your ailing parents, and inherit more, or help the parents use their own assets to take care of themselves. An inheritance is a privledge, a luck of the draw; it is not a right.

Gloria
Reverse Mortgages
http://reversemortgagesnow.blogspot.com (See section on Reverse Mortgage Basics on left side of blog)

[Scott]

For info on reverse mortgages in Florida:

http://reversemortgagesandiego.org/index.php

[michhar1994]

To Mr. Wilkes,

Unfortunately, you are wrong. Simple as that. We just went through this, to the dismay of many in my family. Now, they did change the rules recently, but that does NOT change the fact that this happened to us. If you wish to scream and pound your chest, so be it: it makes you look like an idiot.

Sincerely,

michhar1994

[michhar1994]

To Gloria,

Thank you for the information. Unfortunately, the situation my family member was in was exactly as I stated. The reverse mortgage was taken out several years ago. As I stated in my first post (which Mr. Wilkes attacked), I stated that the only thing that my family member did was live long enough for the lender to take a minor hit. That being as it may, the equity of the home was given away to the lender. Medi-cal was not involved. He had to pay for basically long term care which was not covered by medicare...that is where the money went. Several members of my family were contemplating suing the lender and if they would have done it sooner, the attorneys agreed that they had a case, but it failed to happen for other reasons.

Basically, my issue is simple: if you do not care to preserve wealth, than this is a good vehicle. If you DO want to preserve wealth, then this might not be the route for you. Simple as that.

Sincerely,

michhar1994

[Mary C.]

If some seniors did not take reverse mortgages, they would not be able to afford to keep their house. Would some prefer that their parents live their lives to preserve the children's inheritance rather than do what is best for themselves and make themselves happy? Reverse mortgages can make sense for people with heirs as well as those without. I do agree that seniors need to know what they're getting into. But it makes sense for some, because they may not have pensions to make up for the low pay of Social Security. They may need to have maintenance done to the house (and the house value would drop, anyways, if they did defer maintenance). They might want to take trips to enhance their quality of life after a lifetime of working, or need it to pay bills. If a senior worked hard all their life to afford that house, good for them if they can get something back out of it. If an heir feels otherwise or maybe has a sentimental attachment to the home and wants to keep it in the family forever (and there is some incentive to do that, since heirs inherit the parent's Proposition 13 tax rate here in California), then they need to discuss that with the senior and volunteer to make up the money gap that otherwise would have been met by the reverse mortgage.

[Todd Meyer]

Michar1994, Mr. Wilkes and Gloria are absolutely correct. Your loved ones didn't take out an FHA backed reverse mortgage if the lender got 50% of the equity. I'm sure Gloria and Mr. Wilkes take the time with their clients and heirs to educate them on how the reverse mortgage works. The problem with the general public is they try and scare people about the best tool out there for seniors. The senior never makes a payment for their entire stay in their home and the heirs are covered by insurance. According to AARP the satisfaction rate of the reverse mortgage by seniors is at 93-95%. That is much higher than a traditional mortgage.

[Marty Johnson]

I've read the comments above and the mistatements made are common and are MYTHS! The comments made by ACE & MICHHAR are simply UNTRUE!

Reverse Mortgages are FHA/HUD backed loans that are designed to HELP seniors, not harm them. Indeed, because of the considerable safeguards built into the program, the Reverse Mortgage cannot harm the senior in ANY way. It is an EXCELLENT vehicle for seniors to enjoy the golden years of their lives without the burden of repayment. They can use the money for any purpose like prescriptions, healthcare, home repairs, or gifting. After both parents have passed on, the heirs inherit the home, but NOT the debt. Yes, the estate will have to satisfy the debt, but it is usually upon the sale of the home. The remaining equity is passed on to the heirs.