Reverse Mortgage Loan Blog

The Reverse Mortgage must be too tempting of a subject these days. It’s one of those subjects that with just a very small amount of research some journalists feel like they are “experts” and ready to take on the perceived injustice of the product.

Unfortunately, too many do not spend the time to actually interview a reasonable sampling of the hundreds of thousands of senior borrowers whose lives have been improved with reverse mortgages.

Also, the “experts” quoted and those writing the articles are typically very reputable sources such as Consumer Reports, Forbes, The Wall Street Journal, and all the news organizations to whom they deliver their articles who pick them up and rerun them. Cases in point, several articles that have run and the rebuttals we have written showing all the errors and misstatements of fact are linked to this article.

Our latest journalist is Alexandra Zendrian of Forbes.com with a recent article titled “Avoid Reverse Mortgages”. Now Alexandra did a fair job of getting most of the facts of the reverse mortgage program itself pretty close to correct. She misstated some basics such as the maximum Lending Limit being $625,500 and not a maximum “Loan Amount” of $625,000 (which is a huge distinction), the “expert” she quotes using incorrect required equity levels for qualification, and the effect of the reverse mortgage on Medicare is also wrong.

Medicare is not affected although need-based programs such as Medicaid could be affected if borrowers are not careful to keep their available assets below the required levels, but even those borrowers often find reverse mortgages helpful in other areas and successfully utilize the line of credit option.

But what Ms. Zendrian does do is title her article “Avoid Reverse Mortgages” and then follows it up with the statement to “Keep away from the mortgage of last resort”. As a reverse mortgage lender, we agree that a reverse mortgage is an expensive loan and that it is not for everyone.

We also agree that if a reverse mortgage is not needed or desired for a specific reason and there is not a less-expensive alternative available, that borrowers should not get a reverse mortgage just to have one, due to the costs involved. But it seems that may be where our experience actually working with senior borrowers and over 34 years mortgage banking experience may set us apart from Ms. Zendrian and why we may differ on many of her other conclusions or those of her experts!

Ms. Zendrian quotes Ron Roge, Chief Executive Officer of R.W. Roge and Co. who she says states that he feels that a reverse mortgage should be a decision of last resort. He goes on to say that they should exhaust other options and only if they want to remain in their homes despite expenses such as property taxes, insurance and home maintenance should a reverse mortgage be considered. However, most borrowers with whom we speak love their home, have a very low tax base due to the amount of time they have lived in their home and that is exactly why they are seeking a reverse mortgage…because they do want to stay in their homes, this is what they must do to achieve that goal because they don’t have other options.

Ms. Zendrian then quotes Dan Deighan of Deighan Financial Advisors regarding a creative solution of selling your home to your kids. Again, we find that most reverse mortgage recipients do not have family members who can afford to even help their parents during these economic times, let alone buy their homes!

To purchase a non-owner occupied home on what is termed in the industry as a “non-arm’s length transaction” requires a large down payment, and then, if the financing can be secured, requires that the children have the income, assets and credit scores to support the additional financing as well. Children who are that well off could probably just as easily help their parents without coming up with a 25% down payment to purchase their parents’ home with non-owner occupied financing…let alone making the additional monthly payments on that loan.

Bryan Hopkins of Hopkins Wealth Management informs Ms. Zendrian that children and families can also help the parents. In the real world, we are seeing seniors looking to reverse mortgages to stay in their homes or to help less fortunate family members during these tough times. She also states that Mr. Hopkins suggests the use of an equity line.

I would suggest anyone use the least expensive option as well. But what Ms. Zendrian does not tell the reader is that borrowers are having their equity lines frozen by banks who felt that the home values had either dropped or the incomes may not be adequate to continue to keep equity lines in place and without notice, they have closed or frozen lines of credit, cutting off access to the funds many borrowers were using.

We receive calls every month from borrowers who have had their equity lines of credit taken away and since they can no longer receive a loan wherein their income and credit is not considered in qualifying, many senior borrowers no longer qualify for these types of loans. Since equity lines require monthly repayment and many mature homeowners do not have the incomes required to make those repayments, they cannot just “get an equity line”.

The bottom line is this, a reverse mortgage is not for everyone. If you do not need to get one, then by all means, save yourself the money. An FHA forward loan currently allows borrowers to put only 3.5% down on a purchase but also requires a large mortgage insurance premium to be paid by the borrowers. Younger borrowers purchasing a home who can put 20% down, meet all the credit criteria and can qualify for a conventional loan would not have to pay HUD mortgage insurance.

I would counsel them to take the less expensive loan under those circumstances as well. To simply tell someone to look for a less expensive option is a very simplistic statement and one that goes without saying. But for borrowers who don’t have the income to qualify for a traditional loan but need the cash, who do want to stay in their home and need the help that a reverse mortgage can give them, the reverse mortgage can be an extremely welcome alternative. You cannot tell people as a blanket statement to stay away from reverse mortgages any more than you can tell all seniors that they should get them. The keys are the circumstances of the individual borrowers and education.

I cannot say whether it’s better to pay the costs of a reverse mortgage now or to sell in a depressed real estate market and neither can Ms. Zendrian or any of her experts. One reverse mortgage I did was for a 68 year old real estate investor with 40 years experience who is convinced that in 3 years values will be back to a point that the costs of his reverse mortgage will make it well worth his while. what he does know for sure is that if he did not do the reverse mortgage now, he would be forced to sell while values are down. Is he right?

Will values increase enough to more than make up for the costs of his mortgage and any accrued interest in the next 3 years? As I tell all my customers, after 34+ years experience, my crystal ball is broken or I would not be working anymore and would be enjoying the cool tropical breezes on my yacht anchored off my island in the South Pacific! But since I don’t know what will happen all the time, I have to go with solid fact and the solid facts tell me that the reverse mortgage is a viable financial tool when used correctly.

The facts also tell me that there are an abundance of journalists like Ms. Zendrian who really have no experience with reverse mortgages, do not understand the product or the ramifications of the alternative advice they give, but just can’t help themselves anyway and keep writing these articles. I just think it’s a shame that there are folks who can really use the product but are too frightened to even find out the facts after reading an article like this one.

Found here.

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