Reverse Mortgage Loan Blog

The good news is that Americans are living longer. But the bad news is that a longer life span translates into Americans needing more money than ever to live out their retirement.

And that is the problem for many seniors wanting to stay in their homes rather than having to sell to access the cash locked in their property. Until recently, reverse mortgages were not available to co-op owners in New Jersey, but now one lender has created a proprietary product that can be applied to co-ops as well as other types of dwellings, such as single family homes and condos.

The reverse mortgage addresses the dilemma faced by people rich with real estate but poor in cash by turning the equity in a senior’s home into available cash that requires no monthly payments, nor does it have to be repaid until the owner sells, leaves the home permanently or dies. No income is needed to qualify, either. The only requirement to be eligible for a reverse mortgage is that the borrower owns his or her home, be 62 years of age and not be delinquent on any federal debt. Loan amounts are calculated based on age and property value. Consumers should know that all reverse mortgages have some type of upfront fees making them more expensive than other mortgage products.

Countrywide launched their product, The Simple Equity, in February. Bryan Fitzpatrick, area sales manager for Countrywide’s Reverse Mortgage based in Englewood Cliffs, says the demand for reverse mortgages has grown steadily year over year. In 2005, the number of reverse mortgages extended nationally by all lenders totaled 43,131. In 2006, that number increased to 76,621. New Jersey ranks sixth in the country in reverse mortgages taken. And, with vast numbers of baby boomers moving into their 60s, this is likely to be just the beginning of the reverse mortgage trend.

Fitzpatrick says The Simple Equity product can be structured as a line of credit, taken as a sum, or can be advanced monthly, depending on the client’s needs. “The Simple Equity can be used for any purpose and doesn’t affect Social Security income, Medicare benefits, pension benefits or prescription benefits,” he said.

The difference between taking a reverse mortgage on a single-family home and a co-op is that the owner must get co-op board approval before proceeding with the loan.

Fitzpatrick said, “it helps seniors stay in their homes and to live a better quality of life in retirement.”

The Countrywide proprietary product shares features with the Home Equity Conversion Mortgage (HECM), which is the federally insured product issued by the Federal Housing Authority (FHA). Both loans are non-recourse loans, meaning you can never owe more than your home or co-op is worth at the time it is repaid. Should the home lose value after the loan is advanced, the amount above the home’s value is forgiven at the time of repayment. “Since the bank is guaranteeing the product, and not the government, the upfront mortgage insurance premium [MIP], which can be quite expensive, is not charged, and this means that closing costs will be less for borrowers with our product,” says Fitzpatrick.

The MIP ensures that lenders issuing the HECM reverse mortgage will meet their obligations.

“Consumers need to exercise caution and do their homework when dealing with new proprietary products offered by lenders.” said Bronwyn Belling, the reverse mortgage coordinator for the AARP Foundation, which is funded by the federal Department of Housing and Urban Development. She’s concerned about the changing dynamics of these loans since they will not be sold to Federal National Mortgage Association (Fannie Mae) but to Wall Street investors instead. “We don’t know if the loan terms will change after it’s sold,” said Belling.

She’s also concerned that the rates may be high on these products as well. She advises consumers to visit with a HECM counselor. HUD requires all reverse mortgage applicants to meet with these non-profit counselors either in person or by phone to go over all their options to make sure that a reverse mortgage is the best choice. Belling also says that if consumers don’t need a loan right away they should wait. “There may be better products and lower fees and more choices available in one to two years,” she says. The fact that competition is growing as more companies begin to offer reverse mortgages may bring rates down on the proprietary products as well as the HECM.

“Consumers need to know that this product works well for some people and not for others,” said Belling. She recommends that seniors talk over their decision with a trusted adviser or family member.

“It’s an important financial decision, so don’t rush,” she said. “Make sure to understand the transaction first and realize that you are spending the inheritance of your children.”

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