Reverse Mortgage Loan Blog

As Congress struggles toward consensus on a bailout bill against a backdrop of failing banks, tightening credit and a shaky stock market, mountain seniors may be questioning whether the investments on which their retirements depend are secure.

For many of them-but not all-the answer to their anxiety may be a reverse mortgage, a financial product that allows them to draw on the equity that’s built up in their homes and employ it for a wide range of uses.

One Crestline senior believes taking out a reverse mortgage two years ago may have been one of the smartest financial moves she ever made.

“My situation was bad. I really didn’t know what to do,” said Marly Walters, a 72-year-old divorcee with no children. “I was living on hardly anything.”

Walters had retired from an information technology position with Fox Studios in 2000 and bought a home in Crestline when prices were still low. Her equity rose dramatically in the next few years, and in 2006, before prices began sliding, she decided to act.

She learned about reverse mortgages, she said, when she visited Amber Financial in Crestline, owned by Leslie Dodge-Taylor, to ask about taking some of the equity from her home. She then studied them online before deciding to go ahead with one.

“I had an old car. I couldn’t buy a new one,” Walters said. Her monthly income, including Social Security and a modest pension, was only $1,400, and her mortgage ate up half of that.

‘IT REALLY SAVED ME’

“It (the reverse mortgage) really saved me from living in poverty,” she said. Now she has no mortgage payment and has access to a line of credit deriving from the equity on her nearly 2,000-square-foot home.

When she began talking with friends about applying, she said, they were negative. “I have some very dear friends in Huntington Beach who advised against it, but they didn’t have any good, logical reasons. They were talking about their situation, and not mine,” she said.

But for Walters, the question boiled down to this: Why would you live in a situation where you can’t afford to do anything, especially if you have no children to inherit your home?

So for Walters, a reverse mortgage made good sense. For others, it may not. In any event, the reverse mortgage market, still in its infancy, is growing dramatically, Dodge-Taylor said.

In an interview, she outlined how reverse mortgages work, how they can help seniors and when it may be wisest to pursue them.

To get a reverse mortgage, three main factors are considered, she said-the borrower’s age (homeowners must be 62 or over to apply) their home’s equity and the amount owed on it. Also, before borrowing, applicants must receive third-party financial counseling from a source approved by the federal Department of Housing and Urban Development (HUD).

If a borrower has an outstanding mortgage, reverse mortgage proceeds will be used to pay it off before proceeds are distributed, and to secure a reverse mortgage on a mobile home, it must be on a permanent foundation and have been built after 1976, according to Wikipedia, the online encyclopedia.

Once approved, interest begins accruing on the loan, just as it would on a “forward” mortgage. With a reverse mortgage, however, the loan is not paid off until the borrower dies or leaves his home for 12 months or more, such as moving to a senior-care facility.

At loan’s end, the loan can be paid off with the proceeds of the sale of the house. If the borrower’s heirs want to inherit it, they can refinance it, just as though they were buying it.

IN DIRE STRAITS

“Each person’s situation is different, depending on their age,” Dodge-Taylor said. “Lots of people coming to us for reverse mortgages aren’t too concerned about their kids. They’re in dire straits. They want to live better.”

The adult children of many reverse mortgage applicants actually support their parents’ desire for relief, even though a reverse mortgage will mean they won’t inherit a paid-for house some day. Dodge-Taylor said the children often tell her they don’t have the money to support mom and dad, and a reverse mortgage will relieve them of that obligation now.

Borrowers have a choice of how they can take the funds they get through a reverse mortgage. They can take a lump sum, open a line of credit or opt for a monthly check for the rest of their lives.

About 70 percent of her clients take either the lump sum or open the credit line, said Dodge-Taylor, an independent reverse mortgage broker who’s been handling reverse mortgages for the past four years, and has been a HUD-approved lender since 1976.

Closing costs for a reverse mortgage “are very similar and not that much more expensive than a first-time purchase” made with an FHA loan, she said.

Financial benefits to borrowers can vary greatly, depending on their age, home value and amount owed. Drawing from her files, Dodge-Taylor cited the case of a 74-year-old woman whose home was appraised at $315,000 and who owed $47,000 on it. Her reverse mortgage gave her a credit line of $159,745.

Dodge-Taylor said credit lines are often the best option because, unless drawn upon, they don’t incur interest; instead, they pay it, and usually at a higher rate than a borrower could get from a savings and loan.

A borrower’s age can be a key factor in how much money he will net after his mortgage payment disappears. A 62-year-old borrower with a $200,000 home and a $100,000 existing mortgage at a 6-percent interest rate got rid of his $650 monthly house payment and netted $8,000, she said.

WAIT AND GET MORE

But by waiting another 10 years, the same borrower-even with no change in equity or loan balance-could have netted $25,000, she said. Actually, the net would have been higher, because the house would have appreciated and the loan balance would have dropped.

In the past three years, Dodge-Taylor said, three clients have been saved from foreclosure by a reverse mortgage. Another couple got into financial trouble because they were gamblers, she said, and were rescued from fiscal crisis with a reverse mortgage.

“You can’t keep them from their habits, but you can keep them from losing their home,” she said.

Reverse mortgage payouts can be customized to meet a borrower’s unique needs. One of Dodge-Taylor’s clients, she said, was a couple, he 82 and she 79 and “a spender,” with no money to live on. They got a $200,000 reverse mortgage, and agreed to put funds into an escrow account for 15 years to pay their taxes and insurance and protect their home.

The mountain communities cover the gamut from a small broker like Dodge-Taylor to the Blue Jay office of Wells Fargo Bank, the number one reverse mortgage lender in the United States.

Speaking from his corporate office in North Carolina, John Mlekush, marketing growth and development manager for senior products for Wells Fargo Home Mortgage, provided additional insights into the reverse mortgage phenomenon.

“The number of eligible seniors taking advantage of reverse mortgages is small,” he said. “The market has tapped only 1 to 2 percent of eligible families.”

Reverse mortgages are an especially good idea for people who have been unable to provide adequately for their retirement needs, Mlekush said, and can take advantage of the equity in their homes.

“We call reverse mortgages the fourth leg of the stool of retirement,” he said.

One group for which these mortgages may not be a good idea, he said, are people who don’t intend to stay in their homes for long.

Mlekush said seniors need to know about the benefits of reverse mortgages “so they don’t have to be the product of last resort.”

There are many more considerations about reverse mortgages-issues like tax implications, loan costs and what to expect at the end of the loan-that cannot be covered here. A good synposis can be found in Wikipedia, on the Internet under reverse mortgages.

Found here.

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