How Grandchildren Can Impact a Reverse Mortgage

inman_logo Inman News had an interesting article that mentioned some of the financial obstacles that are preventing seniors (subscription required) from acquiring reverse mortgages. According to Ralph Rosynek, President of 1st Reverse Financial Services, it’s delinquent student loans. Rosynek said, “the elderly often co-sign for student loans on behalf of their grandchildren”. Not only student loans Ralph… car loans too!

Last week I was at a seniors home discussing her reverse mortgage options and she began to tell us how she had co-signed three different car loans for her grandchildren. Little did she know that these three car loans could force to move out of her home.

Here is the situation:

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  • 85 year old woman
  • $70,000 mortgage balance
  • Appraised value = $100,000 to $115,000

If the appraisal comes in close to the $115,000 we should be able to eliminate her mortgage payment with no out of pocket costs. But what happens if the value comes in at $100,000? If this happens, she would need to bring $5,000 to closing and because of her current financial situation this isn’t possible.

As we started to go through all of her bills, I realized that the three car loans that she co-signed for her grandchildren may prevent her from being able to refinance out of her current 11% adjustable rate mortgage. The three cars will show up on her credit report as debt on top of her current mortgage balance which will hurt her DTI. While her debt should total $70,000 (Mortgage), she is looking at $115,000 (Mortgage + 3 car loans) instead. Her social security check isn’t large enough to be able to cover that sort of a debt ratio, so refinancing her may not be possible. It kills me knowing that this sweet woman’s grandchildren are taking advantage of her but this is one of those situations I’m sure I will run into more and more.

Anyone else run into this type of situation?

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  • I think there is a huge problem with people coming up short for reverse mortgages. I think a bank should come out with a product where the borrower will be able to get a reverse mortgage and at the same time finance the other couple of thousand and pay it off, not as a personal loan (because most borrowers have crappy credit and income situatiosn) but tied into the reverse mortgage. I think that will help out thousands of people and keep them from getting rid of their houses.

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