The pros and cons of reverse mortgages…yes, mortgage can be foreclosed if terms & conditions aren’t met.
Enjoy Your Retirement Years with a Reverse Mortgage
HUD OIG takes stock of past and lingering reverse mortgage issues
12-13-2018: Reverse Mortgage Market Sees Sharp Uptick in Jumbo Interest… interest is strong and rising, with some seeing volume increase from single digits to as much as almost 20 percent this year. In lieu of federal regulations concerning counseling requirements on proprietary reverse mortgages, the firms offering them as an option often have their own rules concerning a prospective borrower undergoing counseling before they can proceed to close a proprietary reverse mortgage loan.
11-23-2018: Real estate trouble: Reverse mortgages deplete FHA insurance reserves. The Federal Housing Administration’s 2018 audits revealed that losses from real estate reverse mortgages destroyed about a third of the taxpayer-guaranteed insurance reserves…FHA offers reverse mortgage program for seniors, called Home Equity Conversion Mortgage (HECM) that represents only 6 percent of FHA guarantees, disclosed its economic net worth plunged to a negative -$13.6 billion
4-15-2016: More than 60% of borrowers used their reverse mortgage proceeds to pay off a mortgage…About 12% of federally insured Home Equity Conversion Mortgage (HECM) program were in default of paying property taxes or homeowner’s insurance…Also, income from a reverse mortgage isn’t taxed unlike a withdrawal from an IRA and avoids higher income levels that increase Medicare Part B & D Premiums…There has to be at least 40% equity in the home to approve a Reverse Mortgage…The Reverse Mortgage Stabilization Act of 2013 prohibited the withdrawal of about 40% of the remaining eligible equity in the first 12 months…Most reverse mortgages today are insured by the Federal Housing Administration (FHA), as part of its HECM program…Single-purpose reverse mortgages are also offered by some state and local governments and non-profit organizations. Source: CFPB & WSJ, 3-321-2016, R4.
3-23-2016: Home Equity Conversion Mortgages (HECMs) are being used to open lines of credit under reverse mortgages instead of lump sum withdrawals (about 60% of reverse mortgages are created using lump sum payments on 2nd homes) of a home’s equity. One benefit of a line of credit is that during stock market down cycles, withdrawals against the home’s equity can be less damaging over time than withdrawing income producing assets after dropping in value. Also, unused portion of a line of credit tends to grow over time and income from a reverse mortgage isn’t taxed (like a withdrawal from a IRA or other investment vehicle, there’s no income tax. And this fact could help some avoid jumping into a higher tax bracket increasing their Medicare Part B and Part D premiums. WSJ, 3-21-2016, R4.
6-5-2015: Beware those Celebrity Studded Reverse Mortgage Ads – CFPB
3-16-2015: California Senior homeowners at risk of losing home to foreclosure could qualify for as much as $25,000 in assistance. The Reverse Mortgage Assistance Pilot Program is intended to help financially distressed California homeowners 62 years or older who have a FHA Home Equity Conversion Mortgage (HECM).
2-11-2015: Some complaints (about 1,200 complaints out of about 630,000 loans) filed about reverse mortgages include the misunderstanding that:
- Borrower has the responsibility to pay property taxes and homeowners insurance – if they go unpaid, it triggers loan defaults;
- If only one borrower, then upon death – surviving spouse gets booted from house – loan must be repaid upon the borrower’s death or else bank takes the home under foreclosure;
- Loan terms may prohibit adding additional borrowers to the loan in order to extend its term or allowing children to assume the loan for an aging or deceased parent; or
- Either loan servicers or lenders do not provide an understandable and streamlined process for paying off the loan
Reverse mortgages are FHA insured lines of credit (i.e., loans) available to those homeowners age 62 or older allowing them to borrow a portion of the current equity in their own personal residence. It is primarily used to help supplement their retirement income. The loan is due upon the death of the homeowner (borrower). If the proceeds from the property sale (normally required to pay the reverse loan) is less than the loan balance, the heirs/estate isn’t liable for the difference since the FHA insures the excess amount. Note: A recent poll indicated almost 2/3 of US citizens between 50-65 are worried they won’t have enough money in retirement.
10-7-2014: First half of 2014, about 28,000 reverse mortgages were issued worth >$7 billion, according to FHA data….Reverse Market Insight (analyzed the data) expected total 2014 value to exceed $12.7 billion.
9-16-2014: FHA insured reverse mortgages are on the rise and expected to continue to help the approximately 80 million baby boomers approaching the age of 70 (typically the age where most reverse mortgages are generated).
2-26-2014: Reverse mortgage foreclosures: Reverse mortgages are loans against the equity in a home which are eligible by and allow elderly homeowners to convert the equity in their homes to income, or a line of credit (see definition of reverse mortgages). Since these mortgages can involve lines of credit, they can become delinquent and result in a loss of the home through foreclosure. So please take care to advise your loved ones appropriately.
10-24-2013: New Home Equity Conversion Reverse Mortgage (HECM) rules are more complicated and prohibit borrower from drawing out cash too fast and must wait 12 months before drawing the majority of funds. Source: http://www.bnd.com/2013/10/24/2866005/the-mortgage-professor-reverse.html
9-14-2013: Watch out for possible scams increasing with the release of the revised reverse mortgage guidelines and choose a revere mortgage lender carefully. Source: http://realestatemarbles.com/emortgagesnews/2013/09/10/read-this-before-signing-your-reverse-mortgage/
9-9-2013: A new Financial Assessment and Property Charge Guide – see Mortgagee Letter 13-28 was released by FHA that outlines guidelines for a borrower’s credit history, cash flow, credit and income analysis, and other factors. It also outlines requirements to determine limits of loan proceeds withdrawn and/or dedicate to pay escrow property taxes and homeowners insurance. The guidelines become effective for loans assigned an FHA case number starting on January 13, 2014. Source: Mortgage News Daily article “New Restrictions on Reverse Mortgages Aimed at Sustainability” on 9-4-2013.
9-4-2013: Almost 600,000 reverse mortgages exist and may rise. Some retirees use it as a back-up line of credit in case their existing home equity line gets cancelled (which is possible) or as a cash flow strategy to pay off their traditional mortgage and not withdraw their 401K or other retirement funds that may be taxed. Source: WSJ, 8-17-18, 2013 B8
8-15-2013: Question of whether HECMs should be supported by the US Government? http://www.macon.com/2013/08/15/2609214/the-mortgage-professor-should.html
5-13-2013: Reverse mortgages for people with home equity up to $625,000 might use an FHA reverse home equity conversion mortgage (HECM) to get up to 50% of their equity and those over that amount may use a jumbo revere mortgage to pull out up to 25% of the equity. Source: http://online.wsj.com/article/SB10001424127887324266904578459170357590616.html
2-4-2013: Does your lender suggest to leave your spouse off the reverse mortgage? Think again – It may mean the surviving spouse will lose the house! Think about having both names on mortgage. Source: http://www.pantagraph.com/business/real-estate-q-a-don-t-leave-spouse-off-reverse/article_4c4f7fbe-6780-11e2-9581-001a4bcf887a.html?comment_form=true
12-26-2012: FHA said it would tighten mortgage standards for some reverse mortgage borrowers (including the elimination of Reverse Mortgage and replace with the Home Equity Conversion Mortgage Saver which restricts the total amount borrowers an borrow) by January 31, 2013. Source: WSJ, 12-19-12, Page A2
12-21-2012: Be careful to include your spouse on reverse mortgages or else they may be squeezed out since mot require payment of loan after borrower dies. Source: http://www.sun-sentinel.com/business/realestate/house-keys-blog/sfl-singer-housing-questions-link-20121221,0,5719342.story
Update 11-5-2012: Traditional v. Reverse mortgages – is there a comparison or are they different animals? It all depends, but here’s some info to chew on regarding pros and cons: http://www.mortgagenewsdaily.com/03092011_reverse_mortgages.asp
Recently, Bank of America has stated their intent to get out of reverse mortgage loans because they are not profitable. (Especially under the current market of declining real estate values.)
Some advocates recommend reverse mortgages as a final option since it would make the individual’s government assistance (including Medicare and harder time funding long term medical care.
References to products and services are not a specific endorsement, but the user must perform their due diligence and investigate whether the product or service is right for them. I welcome any or all comments that would help others.