Comments on: USA Today Says Reverse Mortgages Can Be Costly, Compared to What?

By: James E. Veale, CPA, MBT

James E. Veale, CPA, MBT — Wed, 13 May 2009 05:49:03 +0000

Based on the information in the AARP example, the TALC percentage on the total costs incurred is 9.21% after 12 years which is 1.71% higher than the assumed interest rate of 7% plus the 0.5% for the MIP fee on the outstanding balance. All of the AARP computations are correct; however, the information does not indicate what type of HECM the example is based on.

The 1.71% higher effective interest rate reflects the effect of the upfront fees plus the $35 per month servicing fee. The facts are, percentage costs are much greater when significant portions of the available proceeds are not taken and taking the proceeds are delayed. Yet total costs are much lower.

I hope this information is helpful.

By: louise

louise — Tue, 12 May 2009 18:03:40 +0000

As one HUD underwriter we know says, “What can you compare a reverse mortgage to?”

What other mortgage product does what a HECM does for seniors? Sure there are costs, and yes, they are heavy, but the alternatives require seniors to prove income, credit-worthiness, and the ability to pay back the money. Hello! Knock-knock! Do most of the seniors you know have great paying dependable jobs with income that allows them take on such a loan?

I don’t like the double digit MIP any more than the next person (although with the recent disclosures about FHA insurance I guess that is just a cost of doing business). I also don’t like new seniors entering the RM market enduring higher margins because of Fannie Mae’s historical financial troubles (but that’s unlikely to change because I don’t like it). Still, I don’t know of another loan product that could do for Mrs. Yormine what a reverse mortgage did.

By: John Brodey

John Brodey — Tue, 12 May 2009 16:40:36 +0000

There is nothing to be afraid of. The advertising and marketing are intended to educate and inform which is essential to raising public awareness.
Alternatives? As Peter Bell has stated; ‘I don’t know of another loan product that will give a borrower a substantial amount of money for some undetermined period of time during which they do not repay one penny. If I’m an investor, that doesn’t sound very inviting.
Costs? Well again, what are the alternatives? If you sell your home (lucky you), you are paying a 5% sales agent commission, associated costs, moving expenses, and if it’s a new home/condo you’d better be paying cash cause most seniors won’t meet income requirements for a regular mortgage. I usually see closing costs for my clients stay in the 4-8% range of the net available coming to them. That’s not terrible. It’s all about perspective but I do hate seeing an MIP in five digits.

By: Vern | Mortgage Loans

Vern | Mortgage Loans — Tue, 12 May 2009 15:49:15 +0000

I’m wary of the reverse mortgage products out there, mostly because they advertise them like crazy, which to me is always a sign of some sort of flaw with the system (otherwise advertising would be at normal levels). When I see Robert Wagner pitching a RM 20 times before I go to work, all I can do is pray that my grandparents, and later my parents, won’t need to take one out.

By: Terry Meland CMC CRMS

Terry Meland CMC CRMS — Tue, 12 May 2009 15:02:08 +0000

In the AARP example, the remaining unused line-of-Credit will have grown at 1/2% above the interest rate for 12 years. Offering the borrower $166,152 in the line without any additional application or consideration of the value of her home. That may be very conforting and offer a degree of security no other program can offer.

By: Brenda

Brenda — Tue, 12 May 2009 14:23:41 +0000

Over my 20 years in finaning, I have talked to people who couldnt pay their mortgage or other bills because of the cost of medicine. I think that if this loan helps them be able to buy their medicine, pay utilities, and keep their home, it is worth the cost.

By: William J. Green

William J. Green — Tue, 12 May 2009 14:13:45 +0000

Reverse Mortgages are like our democracy. The system is flawed, leads to inequities, is costly, and occasionally produces undesirable consequences. But it is still better than the alternatives . . . which are ???

While the interest rate remains relatively low — it won’t for long — it is important to emphasize to seniors contemplating a reverse that the no monthly payments feature is an election (sure sounds like a democracy). They can elect to make no payments ever, or they can elect to make any payment they want if and whenever they want. In other words, they can choose the devil they know or the devil they don’t know. Either way, the interest rate, like many politicians, is a devil they can decide upon. Costly? Yes. Suspect? Deservedly so.

One way or another, we’re going to keep politicians in the White House and the House of Representatives, but we are responsible to elect the ones that reside in those houses and the ones that won’t.

By: George Cooper

George Cooper — Tue, 12 May 2009 12:40:11 +0000

Exactly! Thank you. It is a fact that your life expectancy is longer in your own home than in a “home.” So, what would USA Today have the widow Helen do? Do they want her to sell her home, go into assisted living, and have a shorter life? Or, do they want her to go live with her children, if she has any, rather than independantly? Did they ask the kids? You are exactly right – expensive compared to what. What is it worth to enjoy a few extra years of life, living independantly, among family and friends, knowing that no debt can be passed on to your survivors? I hope this option is available to me when I reach 86.