Wall Street Journal Covers Upcoming Changes To Reverse Mortgages

image Over the weekend, the Wall Street Journal published another article about reverse mortgages in its Encore section of the paper.  WSJ journalist Anne Tergesen writes about the changes in the program and what we can expect once the new provisions become active.   

"We’ll see a surge of applications," says Peter Bell, president of the National Reverse Mortgage Lenders Association.  The new law which was passed over the summer, lowers the fees and raises the amount homeowners can borrower against.  It’s expected these provisions will become active around Nov. 1st, but as of today we haven’t seen any Mortgagee Letter. 

While the origination fees are capped at $6,000, it’s only one part of the total cost which can total as much as 10% of a home’s value, says David Certner of AARP. advocacy group for older people.  It’s comments like this from AARP that bother me.  Even though AARP was supposedly a big supporter of the changes included in HERA, it’s clear people in their organization still aren’t behind the product. 

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Earlier this year in a Bloomberg article Certner said, “This is still a high-cost product and not one that should be someone’s first choice when looking for additional income”.  He added,  “Homeowners with a home value of $400,000 can now participate and will pay $6,000 in origination fees, instead of $8,000”.

AARP should stop criticizing reverse mortgages unless they start providing alternatives they’ve “deemed” worthy.  

Reverse-Mortgage Fees Drop, Loan Limit Rises (WSJ)

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  • Thanks for speaking up about the constant stream of criticism from AARP… including the above comment. Maybe someone should take a closer look at the products AARP is selling to seniors while “trying to make a buck” of their own?

  • The reverse mortgage is a Godsend for many seniors. A recent survey by the federal government estimates that over 5 million seniors go to bed hungry every day. For many of them the reverse mortgage is their only choice. To think that seniors living on paltry social security checks have other options is naive and irresponsible. AARP is more interested in press coverage than helping needy seniors.

  • It’s not only bad for the seniors in desperate need, Sandy, but for those who are somewhat better off as well. AARP’s negative comments have no doubt enouraged many seniors to opt for HELOC’s and traditional home equity loans rather than reverse mortgages, in the belief that they were preferable “low cost” choices. Now where are they? Saddled with required payments in a downdraft real estate market, while their line of credit has been arbitrarily terminated by their lender (if it is still in business), at the very time when their retirement portfolio has been decimated. Oh yes, and they never saw the undisclosed costs and fees that were charged as yield spread premiums on their loan and which they pay every month to their servicer. AARP has done a huge disservice to its constituency, and is only interested in selling them insurance products. Maybe it’s time to re-examine their 501(c) federal tax status?

  • AARP may be the 800 pound gorilla, but their logic is bananas. And they have a way of going ape if someone other than themselves sell a valuable financial product to seniors. I watched AARP CEO Bill Novelli on a panel of Economic experts and successful business men, including Warren Buffet, and he truly was the lightweight among the bunch. In fact, he sounded naive. Far too many platitudes and economic populism spurted when tough questions from the moderator were asked. The fact is, for most seniors without a steady stream of income above social security, and/or with a challenged FICO score, low-closing cost HELOC’s are NOT generally available to them. And how much sense does it make to borrow from a HELOC, spend the money on something needed that will NOT likely increase positive cash flow, and then ask the senior the very next month to begin paying it back, even if just interest only. That will require more money out-of-pocket than the senior was making just the month prior to taking the HELOC. Do your homework AARP!

  • John, thanks for posting this and you nailed it, they really should change thier approach to this. On page 23 of their publication, “Home Made Money”, they list the alternatives and moving into a less expensive home is one of them but there’s no mention of taking the hit on the more expensive one first.

  • If AARP was truly looking out for seniors in the area of budgeting and finance, they would more proactively advise seniors to take advantage of the features and benefits of a reverse mortgage BEFORE seniors are desperate and no other source of financing is available to them because of too-high LTV (now the reverse many not be available either), poor credit, low income, late mortgage payments, etc. And, if AARP did its homework, they would link the results of their own survey which states ~78% of seniors WANT to stay in their current home — preferably until their home-going — to some internal number crunching and discover that reverse closing costs are normally fully amortized within the first 5 – 8 years of their loan as compared to a NO-CLOSING COST HELOC (how many of them are still available to seniors?) at a somewhat higher interest rate than a reverse, and that every year thereafter, because of the lower interest rate, their principal balance with a reverse will be lower than that of a HELOC IF they just make the same payments on a reverse as they would with a HELOC fully amortized over 30 years; knowing of course they can skip any payments they choose without penalty or repercussion.

    And what of fixed-rate FHA loans? The FHA fixed interest rate is currently about 3% higher than a monthly-adjusting reverse, and their closing costs are just as high, if not higher (easily 20K or more for many seniors borrowing $250,000) than that of a reverse mortgage’s closing costs. AND, fixed monthly payments of principal and interest MUST be made every month.

    Why doesn’t AARP point this out?

  • I am continually amazed by inaccurate information that comes out of the mouths of individuals who profess to be knowable, intelligent, and experts. People that are in high positions who others listen to for advise on financial matters. Where does David Certner get that the cost of a reverse mortgage is 10% of the value of the home? It is not even close! Will someone please sit down with these people and do an actual scenario in front of them and show them the REAL costs. And ask them what other options they are talking about and do the math on those options.

  • To help everyone better understand AARP’s assertion about reverse mortgage costs, they are not stating that the upfront costs alone can be 10% of the value of a home. What they have been sayng is that if you add up all of the fees, including the 1.) origination fee and 2.) other closing costs, 3.) upfront 2% mortgage insurance premium, 4.) monthly servicing fees over the life of the loan, plus 5.) the ongoing 1/2% MIP, the total can be as much as 10% of the home’s value.

  • Peter:

    Thanks, and fair enough. Then why don’t they make exceedingly clear that a 30-year fixed-rate $250,000 FHA forward loan at 7% with approximately $25,000 of closing costs will also cost about 10% of the loan amount, and about 152% over the life of the loan.

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