Reverse Mortgages As A Loan Modification Strategy

image MortgageOrb recently posted an interview with Randy Gilster, president of First American Loan Production Services where they discuss using reverse mortgages as a loan modification strategy.  While Gilster says using a reverse mortgage is an important tool in a loan modification strategy, it’s not for everyone. 

He estimates that based off an AARP study of loans during the second half of 2007, 7.3% of all delinquencies and foreclosures were with consumers aged 62 or older. This works out to approximately 177,000 borrowers who would be eligible to use a reverse mortgage to modify their loan.

Q: Can you explain how a reverse mortgage can be used for loan modification?

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Gilster: It’s easy to understand the advantages of using a reverse mortgage to help a retiree who owns a home or has a great deal of equity. But there are millions of older Baby Boomers and seniors who have mortgages. If they get behind on their payments, a reverse mortgage may still be a viable loan modification option. Unlike refinances or home equity lines of credit, for example, reverse mortgages don’t have income or credit requirements, which can become deal-breakers for some modification options. That’s why a number of government agencies and advocacy groups suggest at least considering reverse mortgages, if the borrowers meet the qualifications.

Q: How many mortgage holders might be able to use a reverse mortgage to save their homes from default?

Gilster: Foreclosure data by age is hard to come by, but according to an AARP study of loans during the second half of 2007, 7.3% of all delinquencies and foreclosures were with consumers aged 62 or older. This works out to approximately 177,000 borrowers.

When you add Baby Boomers to the mix, and drop the age criteria to 50 or older, approximately 650,000 borrowers fell behind on their mortgages last year, and 50,000 were foreclosed on.

Q: What are some of the issues that make it difficult to qualify borrowers for reverse mortgages, especially in view of the current economy?

Gilster: While reverse mortgages are an important tool for loan modification, they won’t work in every situation. There has to be a certain level of equity in the home. Also, not all property types qualify: For the most part, they can’t be used with co-ops, second homes or investment properties. The condition of the property also comes into play, and how the property is owned can also be an issue – for example, if the title to property is held as an irrevocable trust.

Other issues can complicate the processing or underwriting of a reverse mortgage – for example, tax liens or judgments, bankruptcies, power of attorney, delinquent federal student loans, and how title is held on the property. For example, if the senior has a son or daughter who is under 62 on the title, he or she will need to be removed before a reverse mortgage can be closed.

To read the rest of the interview check out the link below.

PERSON OF THE WEEK: Randy Gilster Examines The Reverse Mortgage Sector

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  • We took a reverse mortgage out two years ago..and bought a vacation home. It was easy, reliable and did the trick. I would recommend it wholeheartedly… esp. for people who would like to eliminate a mortgage payment …Why not use your equity????

  • Randy,
    Enjoyed your article. I too would like to see accurate statisticts on senior homeowners in default, forereclosure & in bankruptcy.

    I have worked with attorneys that will make contact with officers at mortgage companies that have the authority to accept a reduced payoff, so that the senior can qualify the RM.

    Having been a direct hard money lender years ago, I know for a fact, that carrying a non-performing loan on your books can definetly hurt.

    It just might be in the best interest of the mortgagee to accept a lessor payoff, and remove the loan from their books, then have the client go into foreclosure/ bankruptcy.

    Of course the client can then proceed with the RM.

    For additional info, I can be reached at:
    dbernstein@barclayfunding.com

  • Saving a home from foreclosure is not impossible but does take a lot of work,persistance and time on the part of the homeowner, the originator and the investor. And, yes, the numbers do need to be reasonable.

    We did a “short settlement in lieu of foreclosure” and closed Mr. & Mrs. N’s HECM in February. The 1st MRTG backed off most of their fees and accepted a lower amount. The 2nd Mrtg didn’t get much but it was more than they would have likely gotten in a foreclosure, and a lot sooner too.

    In the paper this morning was the obituary for MR.N. This loan closed just in time. It is worth our effort to try.

  • Reverse mortgages aren’t new to me but I’m still a little confused by it. However, based on your explanation, I think it’s a good way to modify your loans. After all, not everyone will qualify for certain loan modification programs like Making Home Affordable, so this may be a good alternative.

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