Reverse Mortgage Loan Blog

The reverse mortgage industry, hammered for high fees and high pressure sales tactics, has steadily improved its procedures and its image. Loan fees and interest rates have been lowered, consumer disclosure has improved, and the federal government’s insured reverse mortgage program has provided stability and credibility to the industry. A-list lenders have expanded their presence in the market; Wells Fargo and Bank America are the nation’s top two reverse mortgage lenders.

Now that the industry is cleaning up its act, it is finding that customers are very hard to find. The volume of reverse mortgages is off nearly 40 percent so far this year, and is on an annual pace to record only 70,000 transactions nationally for the entire year. The number of lenders active in the reverse mortgage market has plunged by more than half in the past year to roughly 600, according to Reverse Mortgage Insight, which tracks industry trends.

Reverse mortgages allow qualified borrowers (the youngest owner must be at least 62) to tap the equity in their home, pay off their existing mortgage balance, and remain in their home as long as they’re able. Homeowners remain responsible for all home maintenance expenses and property taxes. Under certain conditions, the products are a sensible solution for aging homeowners who are running short on retirement funds.

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Bank of America Merrill Lynch plans to sell a $92 million bond backed by troubled reverse mortgages insured by the federal government, according to a term sheet obtained by Reuters.

The bond is supported by 760 “home equity conversion” mortgages, or those in which the lender gives the older borrowers cash in return for equity in the home. The borrowers are all in distressed situations, including foreclosure.

The residential mortgage-backed security (RMBS) comes as Wall Street tries to revive a private-issuer market that has been largely shuttered since the financial crisis erupted in 2008. But just one of the handful of RMBS has been backed by new, standard mortgages that are needed to expand credit to U.S. homeowners.

Wall Street dealers in the past two months have also securitized distressed home loans held by Kondaur Capital Corp. and private equity giant Lone Star Funds. In such deals, the liquidation value supports the bonds.

BofA’s issue will be priced with an interest rate of 4 percent, with about 21 percent of the underlying collateral set aside as credit enhancement, or investor protection from loss, the term sheet said.

If proceeds from the sale of a property securing a reverse mortgage are insufficient to pay off the balance, a claim will be filed on the Federal Housing Administration insurance.

Found here.

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Senior homeowners frustrated by a drop in their retirement investment income may want to consider a reverse mortgage.

The amount of money available for a reverse mortgage (senior homeowners age 62 and older qualify) is based on the age of the homeowners, the equity in the home, interest rates and FHA loan limits for the area. Borrowers are qualified based on their age and home value rather than on credit score or income.

Borrowers are allowed to stay in their homes indefinitely if they keep up with property tax payments and homeowners insurance premiums, and maintain their homes in reasonable condition. However, owners must keep the property as their primary residence. The reverse mortgage loan will be repaid when the home is sold or when the owners die.

If the reverse mortgage amount is larger than the value of the home, the owners and their heirs will not be required to make up the difference.

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Many of the bad guys from the subprime disaster are now targeting seniors

“Isn’t it time you started to enjoy retirement your way?” asks actor Henry Winkler in the television commercial for a San Diego reverse mortgage company. “It’s a government insured loan that turns your home’s equity into tax-free cash that you can use for anything.”

Reverse mortgages have gone mainstream – no longer sold as something for seniors who are house rich and cash poor and need money to make ends meet. Today, they’re marketed as a way for homeowners 62 or older to crack open a giant piggy bank.

The pitch is working. The market for reverse mortgages has more than doubled from 2005 to 2008. Last year, more than 100,000 seniors took out these loans. Some consumer advocates think that’s a dangerous trend.

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As 79 million Baby Boomers march toward retirement, Wells Fargo, Bank of America and MetLife are there to offer reverse mortgages.

The three companies account for 52% of the retail and wholesale reverse-mortgage marketplace, according to Reverse Market Insight. Ten lenders, which also include Genworth Financial, make up 89% of the market.

Reverse mortgages may provide an attractive opportunity for the growing number of retirees looking to make additional money or reduce the likelihood of running out of money. Financial advisers have been saying Americans are ill-prepared for retirement, especially after the stock-market collapse and deep recession of the past two years.

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The Federal Housing Administration’s reverse mortgage program allows a consumer to withdraw some of the equity in his home while they remain in their residence. Known as the The Home Equity Conversion Mortgage (HECM), there are certain requirements that must be met to qualify for the program. With a HECM, you choose how you want to withdraw your funds, whether in a fixed monthly amount or a line of credit or a combination of both. (NOTE: Private reverse mortgage programs exist, but are not backed by the United States Department of Housing and Urban Development.)

Borrower Requirements

To qualify for the FHA’s HECM program, a homeowner must be a minimum of 62 years old. In addition, you must own your home outright or have only a small mortgage on the property. The residence must be your primary home, and you must not owe any money to the federal government. Participation in a HECM counseling program is also required.

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Former Federal Housing Administration Commissioner Brian Montgomery, who oversaw the nation’s most popular reverse mortgage product for nearly five years, sees a “pivotal” year ahead for the industry that allows seniors to tap the equity in their homes.

”This is a service that helps solve a social need,” said Montgomery, now a partner in a Washington, D.C.-based consulting firm. “Because of cash shortfalls in the program, the amount seniors can borrow will be reduced for the second time. In the big picture, the number we’re talking about amounts to a rounding error in the federal budget.”

In 1989, the FHA agreed to insure the Home Equity Conversion Mortgage (HECM) program. It gradually garnered market share because it not only allowed owners over 62 to stay in their homes for as long as they wished, but it also protected the owner in the event the lender went out of business.

In 2009, the program’s fund suffered a $198 million shortfall that was generally attributed to the decline of home values, national media stories about unscrupulous lenders and a call by some legislators to keep reverse mortgages from becoming the next subprime debacle. In 2010, the shortfall is expected to be $250 million.

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More retirees are being targeted by financial fraudsters. Often, these scammers are themselves elderly

Annuities. Reverse mortgages. Life insurance pools. Principal-protected notes. The options being offered to senior citizens hoping to ensure a comfortable retirement are dizzying. And in a growing number of cases, that may be the intention as more scammers–often elderly themselves–try to con retirees. Though hard numbers are difficult to come by, many lawyers and advocates for the elderly say more seniors than ever are being lured into investment schemes that are unsuitable for people of their age or are outright swindles. “Seniors who suffer from isolation and diminished capacity make ideal targets,” says Steve Riess, a San Francisco attorney who represents elderly victims of con artists peddling bogus investments.

One out of five Americans over the age of 65 has been the victim of a financial scam, according to the Washington-based Investor Protection Trust, a nonprofit that promotes shareholder education. That means more than 7.3 million seniors have been taken advantage of financially through inappropriate investments, high fees, or fraud, which insurer MetLife says comes at a cost of more than $2.6 billion a year. “Older people are being targeted because, as 1930s robber Willie Sutton said when asked why he robs banks, ‘that’s where the money is,’” says Kathleen Quinn, executive director of the National Adult Protective Services Assn. in Springfield, Ill.

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If you’re in the market for a mortgage, it pays to know about all the options available to you – including a recent addition to the field, the combo mortgage, which can reduce overall mortgage costs while providing a great deal of financial flexibility.

But is a combo mortgage right for you? Let’s look closer at your mortgage options, their strengths and weaknesses.

Traditional options Fixed-rate mortgages offer the security of a locked-in interest rate for a specific term (usually five years). You have the peace of mind of knowing what your payments will be over the term you’ve selected and that’s great for budget management. At the end of the term, you will need to renew your mortgage at the prevailing interest rate, which could be much higher than your original rate.

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For six years, former presidential hopeful Fred Thompson played Arthur Branch, the gruff, straight-shooting district attorney in the television series Law and Order. Thompson’s character had an unflinching commitment to the letter of the law. The same can’t be said for a firm that Thompson has been pitching for lately in TV ads: a mortgage company that’s landed in hot water in a half-dozen states for allegedly preying on elderly Americans and, in some cases, violating state law.

This spring, Thompson, a jowly ex-GOP senator from Tennessee, signed on to serve as the national spokesman for American Advisors Group (AAG). In an ad for the company, Thompson stands in front of a charming white house with an American flag flying out front and sings the praises of a lesser-known mortgage product called a reverse mortgage: “Join hundreds of thousands of other Americans who have used a reverse mortgage as a safe, effective financial tool,” he implores viewers.

Thompson’s new employer, however, has a troubled track record. Regulators in Florida, Illinois, Maryland, Massachusetts, Virginia, and Washington State have cracked down on the firm for deceptive marketing and consumer fraud. In February, for instance, the Illinois attorney general, Lisa Madigan, sued AAG and its president for direct-mail solicitations that Madigan described as “extremely misleading.” That same month, the state of Massachusetts temporarily banned the company from doing business in the state.

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