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Older Americans were one of the last segments of the population to see home prices rebound, but overall home values for seniors remain significantly lower than 2008 levels. Despite this rise in the national average, the report also showed significant decline in many large states, including Florida, Texas and New York.

This mixed recovery in terms of senior home values will likely continue as individual markets reduce inventory and regain their footing. Data from the most recent S&P/Case-Shiller(1) Home Price Indices shows that many markets within these states continue to show improvement, and this should eventually contribute to an increase in home values for older Americans as well.

“Even a minimal gain in home value is a reassuring sign for older Americans because many of these individuals live on a fixed income and rely on their home to support their retirement lifestyle,” said Eric Bachman, founder and CEO of Golden Gateway Financial. “This is especially true for those considering a reverse mortgage because as their home increases in value, so does their potential for greater reverse mortgage proceeds.”

Additional observations from the data include:

– The average age of users remained roughly consistent

– Self-reported senior home values rose by a little more than three

percent between the third and fourth quarter of 2009

– The average existing forward mortgage debt dropped slightly to

$143,360

– Reverse mortgage average max up front proceeds available rose by

roughly three percent while the average max monthly proceeds available

dropped by 13 percent

2009 Reverse Mortgage Calculator National Averages

Q1 ‘09 Q2 ‘09 Q3 ‘09 Q4 ‘09

========== ========== ========== ==========

Average age 69.5 69.3 69.4 69.4

========== ========== ========== ==========

Average home value $ 413,371 $ 407,557 $ 369,762 $ 381,895

========== ========== ========== ==========

Median home value $ 300,000 $ 300,00 $ 270,000 $ 275,000

========== ========== ========== ==========

Percent with existing

mortgage 49.9% 49.8% 51.3% 47.6%

========== ========== ========== ==========

Average existing mortgage

debt $ 161,265 $ 152,455 $ 144,497 $ 143,360

========== ========== ========== ==========

Average max up front

payment $ 143,872 $ 151,089 $ 136,711 $ 132,912

========== ========== ========== ==========

Average max monthly payment $ 922 $ 1,097 $ 993 $ 863

========== ========== ========== ==========

2008 vs 2009 Reverse Mortgage Calculator National Averages

Q4 ‘08 Q4 ‘09 2008 Avg 2009 Avg

========== ========== ========== ==========

Average age 69.2 69.4 69.1 69.4

========== ========== ========== ==========

Average home value $ 412,550 $ 381,895 $ 437,496 $ 390,328

========== ========== ========== ==========

Median home value $ 290,00 $ 275,000 $ 300,00 $ 286,000

========== ========== ========== ==========

Percent with existing

mortgage 46.1% 47.6% 51.7% 50.0%

========== ========== ========== ==========

Average existing mortgage

debt $ 149,691 $ 143,360 $ 154,762 $ 149,996

========== ========== ========== ==========

Average max up front

payment $ 136,191 $ 132,912 $ 131,637 $ 141,146

========== ========== ========== ==========

Average max monthly payment $ 880 $ 863 $ 789 $ 973

========== ========== ========== ==========

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Unfortunately many older folks simply don’t know how or where to look to find the funds that would allow them to do so. The immediate need for seniors now is supplementing the income to provide the standard of living they desire.

In the past, the typical reverse mortgage was taken out by a single woman, age 75, who needed funds to fix up her home so she could comfortably age in place. But reverse mortgages are now also being used to support a more well-to-do routine.

For example, former Puget Sound-area residents Frank Williams, 77, and his wife, Carla, own 35 weeks of time shares each year in five different systems. They work points, bonus time and favored status like some people work airline miles. They know how to successfully maneuver through each different organization to gain the maximum overall benefit. They are now actively filling in their timeshare schedule into calendar year 2022.

That’s organization.

The Williamses took out a reverse mortgage on their principal residence in New Mexico not to buy more timeshare weeks, but to make sure they didn’t have to skimp getting to them or cut back on activities once they arrived.

“I know a lot of people are skeptical about reverse mortgages, but it worked for us,” Frank Williams said. “Our friends want to leave everything they have to their kids, and that’s OK. Our kids are doing fine, they own their own homes, and would rather see us enjoy the rest of our lives.”

Consumers can choose how to receive the money from a reverse mortgage. The options include a lump sum, fixed monthly payments (for life), a line of credit or a combination of the above. The most popular option — chosen by more than 60 percent of borrowers — is the line of credit, which allows consumers to draw on the loan proceeds at any time.

The size of the reverse mortgage depends on age at application, the loan type and home value. In general, the older the consumer and the more valuable the home (and the less amount owed), the larger the reverse mortgage.

A reverse mortgage can be viewed similar to a home equity loan but without a monthly payment. Owners do not repay the loan as long as the home remains the principal residence. Income and credit rating are not considered when qualifying for the loan. There is no requirement that owners requalify during the term of the reverse mortgage, but property taxes and home insurance must remain current.

With a home equity loan, borrowers must make regular payments to repay the loan. These payments begin as soon as the loan is originated. To qualify for such a loan, the borrower must earn a monthly income great enough to make those payments. If payments are not made, the lender can foreclose, forcing the sale of the home.

The Williamses took out a home equity loan to do a major remodel on their home. He repaid most of the debt by selling off some lackluster bonds, then paid off the remainder with a reverse mortgage from Golden Gateway Financial. The couple also receives $1,500 a month, tax free, for the next 20 years from funds remaining in the reverse mortgage.

“I had some assets that I didn’t really want to sell because I thought they would rebound and do quite well,” Frank Williams said. “So, I look at the reverse mortgage as a way of buying us some time for those assets to come back. The bonds that I did sell were not yielding anything close to the interest rate we were paying on the home equity loan, so I sold them and paid it down.”

In winter, the Williamses spend up to five consecutive weeks in the same timeshare unit on the Big Island of Hawaii. They then will hop over to Kauai for a couple of weeks and then maybe hit Palm Springs and San Diego before drifting back home to New Mexico. Northern Idaho is a favorite summer spot.

But why would they want to pay $22,000 to $23,000 in annual fees rather than simply plunk that down on a mortgage for a second home?

“I have no delusions about timesharing being a good investment. They’re a lousy investment,” Frank Williams said. “But we enjoy doing what we do, going where we go. We have no regrets and wouldn’t change anything.”

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Through the reverse mortgage, you can “borrow” money for a period of time (usually between 10 and 20 years) against the value of your home, but without giving the house up. This money can be received either in a single payment in the form of monthly payments or as a line of credit which is available to the limit of the total borrowed funds. A reverse mortgage can either be on a residence or any other property that the person may have ownership until death. In fact, the bank will not require that the money be repaid until the property is sold or the owner dies. Banks advise to take on a monthly pension as security, in case the owner may live longer than the term of the mortgage.

The alternative to reverse mortgages is the sale or rental of the property. In both these cases one has to leave their home and look for another, which isn’t the most desired option for adults who want to continue living at home.

Reverse mortgages may only be granted by accredited institutions and by those insurance companies authorized to operate in Australia.

Options for heirs

When the owners of a reverse mortgage dies, their heirs must repay the cash which their deceased member had been receiving. The heirs have two options:

• They can keep the house and repay the loan with their savings or obtain another financing facility.
• Sell the house and repay the debt owed by the parent.

Tax advantages

Reverse mortgages have a number of tax advantages:

• The monthly fees received from the reverse mortgage are exempt from taxes.
• The reverse mortgage is also exempt from payment of transfer taxes and legal fees.
• The same applies for legal and registration fees for cancellation of the mortgage.

Disadvantages

The main disadvantages are:

• Costs involved setting up the mortgage
• As in any other type of bank loan, there is the interest charges.
• It can be seen as a loss of assets that took a lifetime to acquire, or a decline in the future inheritance of the family.

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If legislation is compared to an auto race, then some proposals on a fast track might be ready to take the checkered flag soon after lawmakers gather March 2 for the first day of the Legislature’s 2010 session.

State Sen. Mike Fasano, R-New Port Richey, has been guiding three of his bills toward speedy approval – changes to the Florida Public Service Commission, reverse mortgage safeguards and public employee collective bargaining.

PSC changes

First out of the legislative gate could be Senate Bill 1034, which would strengthen the ethical code for PSC commissioners and the top staff of the agency.

Fasano and state Rep. John Legg, R-Port Richey, have been hammering away on this topic since revelations last fall about cozy relationships between regulators and utility executives. The reform bill is ready to go March 2, the first day lawmakers gather. The Florida House version, HB 565, also is gathering steam.

“The senator intends to bring transparency and accountability” to the regulatory agency, Greg Giordano, Fasano’s chief legislative assistant, remarked.

Since the PSC functions as a quasi-judicial body, the changes would require the PSC members to follow rules similar to the code for judges, Giordano explained. It’s unacceptable for a judge to have private conversations with attorneys about an ongoing case, for instance. So changes would raise the threshold for PSC commissioners against what is known in legal circles as “ex parte” communications.

Another amendment would toughen penalties that could be imposed on utilities trying to curry the favor of PSC officials. If found guilty, the company could be liable to pay a fine of one-tenth of 1 percent of operating revenue, based on the most recent fiscal year.

“That’s a pretty good incentive for them not to engage in these activities,” Giordano said. Complaints would be heard first by the Florida Commission on Ethics.

Top PSC officials also would be barred for four years from taking a job with a utility regulated by the agency or lobbying on behalf of a utility they used to oversee.

Mortgage safeguards

Some senior citizens have been stung by reverse mortgages on their homes, which prompted Fasano’s S.B. 1532.

Reverse mortgages are loans designed for people ages 62 and older and who have a significant amount of equity in their homes, Giordano explained.

“My primary concern is that not one senior citizen be taken advantage of by an unscrupulous lender of reverse mortgages,” Fasano commented about his bill.

“Reverse mortgages can be a very good product when sold by reputable lenders to properly educated borrowers,” Fasano added. “In the hands of unscrupulous people it could be a nightmare for a borrower.”

A company offering reverse mortgages will be required to provide a list of five, federally authorized counseling agencies to a potential borrower, Giordano elaborated. Fasano’s bill would require a certification of completion from a counseling class before the loan can be finalized.

Disclosure requirements would be toughened, Giordano said.

Fees would be capped at 2 percent of the value of the loan. Some dishonest firms have been charging outlandish origination fees and other charges.

Collective bargaining

Senate Bill 610 has stirred some controversy among some unionized deputies, yet the measure is moving swiftly through committees.

If collective bargaining reaches an impasse, the proposal would declare sheriffs, tax collectors, property appraisers, supervisors of elections, and clerks of the circuit court as the “legislative body” for their respective employees.

Some Fraternal Order of Police state officials fear the bill could usurp the authority of Florida Public Employees Relations Commission in resolving disputes.

Pasco Sheriff Bob White and many other Florida sheriffs, however, expressed support for the bill during a Feb. 16 hearing in Tallahassee. They argue that contract disputes could wind up before county commissioners in some cases instead of the sheriff and other constitutional officers.

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By educating themselves, seniors can avoid these bad decisions, decide if a reverse mortgage is the best course and find an ethical provider. While these loans can be appealing (instead of making monthly payments, the bank pays you – either as a fixed amount each month, or a lump sum), they also are complex. If you believe a reverse mortgage could work for you or your family member, the next step is to gain a realistic understanding of this type of loan.

1. Understand the criteria

Reverse mortgages are available to borrowers age 62 or older. To qualify, you must have a significant amount of equity built up in your home. Homeowners with little equity generally will not qualify for a reverse mortgage.

2. Know your equity

Equity in a property is the difference between a property’s market value and the amount of claims held against it (such as mortgage loans or liens). If a home is completely paid off, the equity is the current market value of the home. If you have a mortgage, your equity equals your home’s value minus the balance of the mortgage. You must pay off any existing mortgages with the proceeds from the reverse mortgage before you begin receiving income.

3. Understand how the loan and income work

The most common type of reverse mortgages is formally known as a home equity conversion mortgage (HECM), because it converts the equity in a home into a mortgage that repays the homeowner, instead of being paid by the homeowner. A reverse mortgage is available regardless of the owner’s current income or credit rating. The income typically does not affect Social Security or other benefits.

4. Find out how much you could borrow

The Federal Housing Authority regulates how much homeowners can borrow with a reverse mortgage. The amount varies with the home’s value and the borrower’s age. Get a ballpark figure with a calculator such as AARP’s.

5. Determine the costs

Reverse mortgages are relatively expensive, because lenders must do more “upkeep” than they do on traditional loans. For that reason, lenders charge higher fees, sometimes up to 7 percent of the home’s value. These fees are usually taken from the home’s equity, reducing the net amount.

6. Understand the outcome for your home

Senior homeowners with a reverse mortgage can continue to live in the home until their death, as long as they pay property taxes (as they would need to do with any home ownership). When the last surviving homeowner dies, the home must be sold or refinanced with a traditional mortgage by the heirs of the estate. This means the home cannot be handed down free and clear to heirs.

7. Realize that a HECM is a debt

A reverse mortgage is a debt. The money you receive is owed to the lender. The loan comes due when you sell the house, move out of the house or pass away. Thus, your home will not be left free and clear to your heirs. Heirs must repay the loan if they wish to keep the home.

8. Educate yourself

Seek out trustworthy sources for information on reverse mortgages. Two good resources include the AARP, and the Federal Trade Commission’s reverse mortgage fact page. For personalized counseling on your options, call the U.S. Department of Housing and Urban Development (HUD) at 888-466-3487 to be referred to an approved counselor. These counselors also can help you understand if you qualify for other benefits that might improve your financial situation. Most counselors charge about $125 for this service, but the fees can be paid from home equity. If you cannot afford the fee, you cannot be turned away.

A reverse mortgage can be a wonderful tool to help seniors live in the comfort of the home they worked hard to attain. But as with any major financial transaction, educating yourself is the best way to make the right decision for your future and that of your heirs.

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For some people, a reverse mortgage or home equity conversion may be the answer.

A reverse mortgage is exactly what it sounds like, that is, a loan against the equity of your home which generally converts that equity into tax-free funds. The borrower must be 62 years old or older, and occupy the property as their principal residence. The home must be mortgage free, or have a small remaining mortgage which will be paid off by the reverse mortgage.

No income, employment or credit requirements are necessary, but the borrower must receive counseling from a HUD-approved agency to receive a certificate of eligibility. The loan can be advanced as a lump sum, fixed monthly cash advances, or a line of credit.

The amount that can be borrowed is based on a formula that factors in the age of the youngest homeowner, the interest rate, appraised value, and the county where the property is located. Interest is charged on the balance outstanding, and the loan does not need to be repaid as long as a borrower lives in the home, paying the taxes, insurance and upkeep.

It sounds like a great deal, and for some people a reverse mortgage is the answer that allows the senior to stay in his or her home. However, approach such a plan with a great deal of caution. The closing costs are steep, and a reverse mortgage can have unintended consequences for a surviving spouse.

While the equity remaining in the home does belong to the surviving spouse or the homeowner’s heirs, there may be little to no equity remaining, depending upon the amount of interest owed, and cash advances that were made.

For instance, an older spouse may choose to pursue a reverse mortgage, but may die and leave a younger spouse with no home (persons under age 62 years may not be a borrower), and little equity from a sale of that home after the loan is repaid.

Even if one spouse dies, and the other spouse is also a borrower, the surviving spouse may wish to move to a retirement community, but may not have sufficient equity remaining in the home when it is sold to purchase more appropriate housing.

The closing costs must be examined closely also. What on the surface appears to be a good alternative to a traditional mortgage or line of credit, a reverse mortgage may come with high closing costs that could make refinancing a mortgage a more attractive alternative.

But some people might not have sufficient income to pay the monthly payments associated with traditional mortgages. For them, a reverse mortgage might be a more attractive alternative.

A widow who wishes to remain in her home but has insufficient income to meet the annual property taxes costs, or who is paying for care in her home rather than be admitted to a nursing home may find that a reverse mortgage is the key to remaining in the home. The same is true for a single person with no children who has a limited income and high expenses.

Some people wish to have property remain in the family, but they lack the resources to maintain that property. In this case, a private reverse mortgage with the family members may solve the problem without the associated costs.

Reverse mortgages may be the best option for some people. However, careful research and elimination of all alternatives should precede any action.

The legal advice in this column is general in nature. Consult your attorney for advice on your individual situation

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A mandatory nationwide licensing test for reverse-mortgage counselors is stumping veteran housing specialists, some of whom have been advising elderly homeowners in the Charleston area about this type of loan for years.

Several months after the federal government made the exam more difficult, no Lowcountry housing counselor has been able to pass the exam. As a result, area homeowners in search of the required counseling are being referred to agencies in Columbia or Greenville.

Debbie Kidd, head of the Homeowner Resource Center at Family Services Inc. in North Charleston, said she has failed the online test four times. “It’s humiliating for me,” Kidd said. “I’ve done this for 20 years. … Why can’t we pass this test?”

Robert Mitchell of the Trident United Way has taught classes about reverse mortgages to other counselors, yet he, too, did not make a passing score on this first attempt. Asked if he plans to retake the exam, Mitchell quipped: “If I don’t retire before that.”

Once an obscure financial product, reverse mortgages are being increasingly promoted to older homeowners as a way to help them pay their bills. When structured properly, they enable seniors who are at least 62 to tap into the equity they’ve built up in their residences without having to move out.

In recent years, housing advocates have raised concerns about abuses, so federal housing guidelines now require counseling for homeowners before they commit to a reverse mortgage.

Last year, the U.S. Department of Housing and Urban Development made the licensing exam for counselors tougher. A spokesman said the agency “acknowledges the test is intentionally difficult, but we believe it needs to be so because of the vulnerable population” who seek out reverse mortgages.

After receiving complaints from test takers, the department posted more study material online. But HUD also pointed out that 995 counselors nationwide have passed the test so far, leading it to believe “the level of difficulty is not so stringent as to limit the number of counselors available,” according to a statement.

In South Carolina, only two counselors — one each in Columbia and Greenville — have passed the test so far, according to HUD’s database. The number of people statewide who have taken the test is not available.

Locally, Kidd said Family Services has spent thousands of dollars sending some of its staff to training conferences and paying fees to retake the exam.

Kidd described what she sees as some of the more challenging aspects: the test doesn’t reveal the correct answers; some questions are written with double negative phrases; and she contends the test unfairly concentrates on less important details about trusts.

Next time, she’s thinking of taking the exam in Columbia. “Maybe it’s the test center,” Kidd said. “There’s no way I can continue to fail this test with the knowledge I have.”

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Reverse mortgages, which homeowners who are at least 62 years old can use to tap their home equity, have become more popular in recent years. The homeowner takes out a new loan on the house. The bank then gives the homeowner a lump sum, a line of credit or a regular monthly payment — almost like an annuity. The loan is repaid, with interest, when the borrower dies, moves or sells the house.

But there are significant drawbacks. The fees can run as much as 7% of the home’s value, compared with roughly 3% for a conventional loan. Lenders typically won’t allow homeowners to borrow against all of their equity. And in the end, if the loan isn’t paid back, the lender gets the home.

Families in which at least one adult child has amassed a nest egg have another option — buying the house outright, or using some of that money to set up a private reverse mortgage.

Even though it’s a family loan, you should still record it legally so other family members can’t attack the arrangement after your parents die, says Kenneth Kossoff, an estate-planning attorney in California. He also advises paying for a title search to make sure there are no other liens on the house before you make the loan. There also are tax considerations.

Could one of these deals blow up? Certainly. A child funding a reverse mortgage could lose his job and stop paying his parents. Another risk: Home values could fall further, meaning you lend your parents more than you can get in return for selling their house.

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