Reverse Mortgage Line of Credit that Grows

Using the payment option of an equity line of credit seems to be a popular payment option for the adjustable rate reverse mortgage program. The reverse mortgage program or Home Equity Conversion Mortgage (HECM) is a program for mature Americans, 62 or older, who need to supplement their current monthly income by using the equity in their current homes. The reverse mortgage program offers mature borrowers the ability to choose their interest rate terms, fixed or adjustable, as well as their various payment options for the adjustable rate.

With the three primary payment methods, monthly payments, lump sum or an equity line of credit, under the adjustable interest rate reverse mortgage programs many mature borrowers are using the equity line of credit (ELOC) as their primary income funding source. According to the AARP, an organization dedicated to informing mature Americans about various topics, “the line of credit option is by far the most popular option.”

Read the rest of this entry »

Sphere: Related Content

Lawmakers look at rising scams for reverse mortgages

The housing bubble, lax regulatory oversight and an influx of shady loan professionals have made lawmakers uneasy about the safety and soundness of the government-backed reverse-mortgage program.

At a field hearing Monday in St. Louis, the U.S. Senate Special Committee on Aging, led by Sen. Claire McCaskill, heard government officials and consumer advocates discuss problems with the program, including aggressive marketing tactics, fraud and taxpayer liability for loans on homes whose values have plummeted.

Reverse mortgages, increasingly used by seniors to help finance retirement or pay medical bills, are often accompanied by excessive fees and marketed with overly aggressive tactics, said McCaskill, a Missouri Democrat.

Read the rest of this entry »

Sphere: Related Content

Reverse Mortgages Leave Seniors at Risk, GAO Says

HUD Defends Programs’ Safeguards

The Department of Housing and Urban Development has left elderly borrowers vulnerable to abusive lending practices because of shortcomings in programs that offer reverse mortgages, according to a report released yesterday by the Government Accountability Office.

Reverse mortgages, which are usually backed by HUD’s Federal Housing Administration, enable seniors to withdraw equity from their homes. The loan and the accumulated interest do not have to be paid back until the owner dies or sells the home. But the upfront costs are substantial.

While these loans have become more attractive to seniors as the economy has soured and housing values have dropped, reverse mortgages are complex. That is why the FHA has long required that the seniors take part in HUD-approved counseling sessions before these loans are processed. Yesterday’s report concluded that HUD “lacks effective controls” over the counseling programs.

Read the rest of this entry »

Sphere: Related Content

Reverse Mortgages for Home Purchases

THE federal government issued new guidelines at the start of 2009 that would allow older borrowers to use reverse mortgages to buy a principal residence. But few lenders were ready to offer this option - until fairly recently.

The problem, said Peter Bell, the executive director of the Reverse Mortgage Lenders Association, had been that lenders needed more information from the government about acceptable underwriting procedures.

These details have since been worked out, he said, and in recent weeks, a number of lenders have placed their first loans in the pipeline. New York, however, is not well represented in that mix, according to Mr. Bell, in large part because the loans cannot be used to buy co-op apartments.

Read the rest of this entry »

Sphere: Related Content

Seniors using reverse mortgages to repair diminished nest eggs

Seniors’ portfolios hammered by the stock market decline are getting a boost from reverse mortgages. Such mortgages allow seniors to get monthly payments based on the equity value in their homes - the amount that the value of the home exceeds any mortgage on the home.

It’s reported that in recent months the number of reverse mortgages backed by the government jumped nearly 20 percent from the same period last year. And it’s not just the stock market decline that’s at work: a tough housing market has made it more difficult for seniors to sell their homes and downsize.

Especially for older individuals who intend to remain in their homes for the rest of their lives, the reverse mortgage may be the ideal way to deal with a cash shortfall.
It’s especially attractive because it can provide monthly payments to the homeowner for life and does not have to be paid off until the owner’s death or when the home is sold.

Read the rest of this entry »

Sphere: Related Content

Reverse mortgage debate in overdrive

The warning bells sounded pretty loud and clear earlier this month when a top banking regulator compared the potential risks of reverse mortgages with the subprime lending crisis.

In a speech to bankers, John Dugan, comptroller of the currency, warned of concerns that seniors may fall victim to marketing pitches and investment schemes and be unaware of the high cost structure of these complicated financial instruments.

“I am struck by some of the similarities to the risks of subprime mortgages: a vulnerable customer class; complex product features that can be difficult to explain and can be susceptible to deceptive marketing; nontraditional, asset-based underwriting; and the potential for skewed incentives for key distributors of the product,” Dugan said.

To reverse mortgage lenders, them’s fighting words, particularly since the loan product — and by extension their bottom line — is expected to grow in popularity as the population ages.

Read the rest of this entry »

Sphere: Related Content

Money Management: Is a reverse mortgage right for you?

Reverse mortgages have become a popular option for seniors who would like to reap some of the benefits of the equity they have built up in their homes. However, it’s important to be aware of both the advantages and drawbacks to these loans. The Connecticut Society of CPAs explains how they work and the issues to consider.

The basics

A reverse mortgage is simply a different kind of home loan, one that is generally only available to people 62 and over. Instead of borrowing to buy a house, the homeowner gets a loan based on his or her equity in a home he or she already owns.

Say, for example, that you own a home worth $200,000 with no outstanding mortgage on it. You are nearing retirement and would like to add some extra income to your retirement savings. The bank offers you a reverse mortgage of $75,000. You can choose to receive the money in payments spread out over time - for example, monthly-or in a lump sum payment. You can also set up the loan as a line of credit that you can tap into as needed.

Read the rest of this entry »

Sphere: Related Content

McCaskill brings reverse mortgage hearing to U. City

Missouri U.S. Sen. Claire McCaskill will lead her next Senate hearing in front of a home crowd.

McCaskill will host a “field hearing” of the Senate Special Committee on Aging in University City a week from today.

The topic: Reverse mortgages, which has drawn volumes of criticism from McCaskill.

A reverse mortgage allows homeowners over the age of 62 to borrow money, essentially, against their home. The loan gets paid back when the borrower sells or dies, and the house defaults to the lender.

However, McCaskill - who has a close relationship with her 81-year-old mother - has warned the loans could be a potential financial hazard to senior citizens.

McCaskill has sponsored legislation that would put stricter regulations on reverse mortgages, including encouraging financial counseling.

The hearing will be 9 a.m. Monday at the Ochs Senior Center on 975 Pennsylvania Avenue. Congressional hearings are typically open to the public, though seating could be limited.

Found here.

Sphere: Related Content

Hope, worries over reverse mortgages

Consumers take a new look at a complex tool that concerns some regulators

Reverse mortgages, under the radar for most of their 20-year existence, are getting new attention from cash-strapped consumers who want them and wary regulators who worry about the possible fallout.

The mortgages let seniors tap the equity they’ve built up in their homes, basically allowing them to cash out the value of their house while still living in it. In other words, the bank pays the borrower instead of the other way around, and that’s an attractive idea in an economic recession.

New legislation has capped some of the associated fees and expanded which houses can qualify for reverse mortgages. The ease of access is another selling point, since the loans don’t have any credit or income requirements - which can be hard for a retired person to fulfill since they’re no longer pulling in a paycheck.

Read the rest of this entry »

Sphere: Related Content

Is a Reverse Mortgage Right for You?

Since the credit and housing meltdown largely removed private reverse mortgages from the market, home equity conversion mortgages (HECMs)-federally insured reverse mortgages-have been growing steadily. Now, with housing activity improving in most markets, the time is right for homeowners age 62 and older to see if a HECM might work for them. The loans have been controversial, and they are complicated, which is one reason that consumer counseling is a required component of the HECM loan process.

Pros. The benefits of a HECM loan are that people get to stay in their homes as long as they wish without making further mortgage payments. They can access the available equity in their home whenever they want, and that amount of money is guaranteed to them because their loan is federally insured. They retain the title to the home until they leave, and any untapped equity or price appreciation can be captured by them or their heirs by selling the home. If they’ve stayed in the home so long that they owe more money on the HECM loan than the home is worth, they can simply walk away with no financial obligations under HECM’s nonrecourse loan rules.

Read the rest of this entry »

Sphere: Related Content