GAO Studies Reverse Mortgage Industry at Request of Congress

When participants convened in private last week at the annual policy conference of the National Reverse Mortgage Lenders Association in Washington, D.C., government officials, academicians, attorneys and business executives could “let down their collective hair,” unencumbered by the news media, which were not permitted to attend.

One speaker, from the Government Accounting Office, spoke to RMD about his appearance there and summarized his remarks. The GAO is charged with “determining that government entities are doing what they are supposed to (and) that funds are being spent for the intended purposes, and that applicable laws and regulations are being complied with.”

Steven Westley, GAO assistant director, says his agency will issue results of two studies, respectively at the end of June and the end of July, each produced at the behest of Congress and the Obama Administration. The first examines reverse mortgage marketing, cross-selling and HUD’s oversight of counseling; the second reports on the impact of fees and loan limits on participation and product availability, according to Westley.

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He says the twin studies reflect feedback from “HUD officials, various independent participants, consumer groups, individual lenders and others”. The GAO, Westley notes, has not previously looked at reverse mortgages, “but now that they are more popular and important, Congress wanted [this] information.” Results must be made public within 30 days after they have been delivered to Congress and the White House.

Neil J. Morse has been a communications professional working in the mortgage finance industry for more than a decade, currently specializing in the reverse mortgage sector. He can be reached at nmorse@morsecommunications.com

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  • Everybody is talking about the benefits of Reverse Mortgage (RM). But what about the disadvantages of it? How much, at the end of ten years do I have in the loan and inerests? How much profit will I get if I sell the house? Will my beneficiaries be happy with what they get? If they can not sell the house in the first year after my death then the bank will foreclose and take it back. It seems to be that this RM is a very expensive deal for the senior citizen.

  • Manny,

    You must remember the senior is not making any mortgage payments for as long as they live in the property.

    This feature alone is one reason that most seniors take out a reverse mortgage. To improve one's quality of living by having their home work for them is not a bad deal at all. Not to mention how many reverse mortgages have save seniors from going into foreclosure, pay debts off, giving the senior additional income to be able to live a better life and on and on about the benefits.

    However, a reverse mortgage is not for everybody. It is our job as reverse mortgage professionals to recognize this. We have a fiduciary responsibility to guide our senior clients properly. The items you mention may be a good reason for you not to take out a reverse mortgage. For many other seniors, those items would not be a concern. One must look at each senior and determine their need and why they want a reverse mortgage.

    Your points are well taken but do not fit many seniors needs. A reverse mortgage is a wonderful program, but has been abused so in the past couple of years. The negative publicity that has been hitting the industry is so unjust. We have to back in time a couple of years and remember how we as an industry were proud to say how much we were regulated by HUD. It is sad what is happening to such a great program, the senior is the one suffering the most in today's environment. That is my opinion sir, for what it is worth to you. Have a great day.

    Regards,

    John A. Smaldone

  • Manny,

    Just to be fair, let's use your words applied to a conventional residential mortage instead of a Reverse Mortage: “Everybody is talking about the benefits of a Forward Mortgage for homebuyers. But what about the disadvantages of it? How much interest, at the end of ten years will I have paid vs. principle? How much profit will I get if I sell the house? Will my beneficiaries be happy with what they get? If they can not sell the house in the first 3 months after my death then the bank will foreclose and take it back. It seems to be that this forward mortgageRM is a very expensive deal.

    I guess in the end, it is all about perspective!!!! the critics of the RM need to get some.

  • Everybody is talking about the benefits of Reverse Mortgage (RM). But what about the disadvantages of it? How much, at the end of ten years do I have in the loan and inerests? How much profit will I get if I sell the house? Will my beneficiaries be happy with what they get? If they can not sell the house in the first year after my death then the bank will foreclose and take it back. It seems to be that this RM is a very expensive deal for the senior citizen.

  • Manny,rnrnYou must remember the senior is not making any mortgage payments for as long as they live in the property.rnrnThis feature alone is one reason that most seniors take out a reverse mortgage. To improve one’s quality of living by having their home work for them is not a bad deal at all. Not to mention how many reverse mortgages have save seniors from going into foreclosure, pay debts off, giving the senior additional income to be able to live a better life and on and on about the benefits.rnrnHowever, a reverse mortgage is not for everybody. It is our job as reverse mortgage professionals to recognize this. We have a fiduciary responsibility to guide our senior clients properly. The items you mention may be a good reason for you not to take out a reverse mortgage. For many other seniors, those items would not be a concern. One must look at each senior and determine their need and why they want a reverse mortgage.rnrnYour points are well taken but do not fit many seniors needs. A reverse mortgage is a wonderful program, but has been abused so in the past couple of years. The negative publicity that has been hitting the industry is so unjust. We have to back in time a couple of years and remember how we as an industry were proud to say how much we were regulated by HUD. It is sad what is happening to such a great program, the senior is the one suffering the most in today’s environment. That is my opinion sir, for what it is worth to you. Have a great day.rnrnRegards,rnrnJohn A. Smaldone

  • Manny, rnrnJust to be fair, let’s use your words applied to a conventional residential mortage instead of a Reverse Mortage: “Everybody is talking about the benefits of a Forward Mortgage for homebuyers. But what about the disadvantages of it? How much interest, at the end of ten years will I have paid vs. principle? How much profit will I get if I sell the house? Will my beneficiaries be happy with what they get? If they can not sell the house in the first 3 months after my death then the bank will foreclose and take it back. It seems to be that this forward mortgageRM is a very expensive deal.rnrnI guess in the end, it is all about perspective!!!! the critics of the RM need to get some.

  • Manny, thanks for your perspective questions. How much in ten years do you have in loan and interest depends on how much you use from your reverse mortgage. If you took $50,000 at closing to pay off an existing mortgage, then that $50,000 plus closing costs will have accrued interest and need to be repaid upon your passing or moving away. As Mr. Smalderone says, you would have been paying interest on that $50,000 anyway which would have depleted your cash flow. With the reverse mortgage you are not having to pay that mortgage anymore.

    How much profit? Again, depends on how much you use. Property values have dropped and continue to do so but in 10 years they could be back up so any increase in home value over amount that accrues in your reverse mortgage will be yours or your family's upon your passing or moving away.

    As far as your beneficiaries being happy with how much they get is subjective. Is anyone happy with any amount of “free” money? At least it won't COST them anything, where an upside down forward mortgage could. You hear about people complaining that when you win the $5,000,000 Lottery that you don't get the whole thing anyway- again, its subjective. You have great questions that need to be considered as I'm repeating Mr. Smalderone's response but in most cases the positives far outweigh how much money an heir is going to receive. It is, I have to remind my clients, about your quality of life, not all about them.

  • IMHO, the only way a HECM can go into foreclosure is when their are no heirs or anyone to sell the property. I won't matter what the market is, you just lower the price until it sells, and the FHA insurance will make up any shortfall. No tax liability.

  • Why the hell would I care if my greedy heirs get any moeny at all? It's the senior's life to enjoy. After all, they spent their whole life working for what they have, so should they enjoy the fruits of thier labor? They can never owe more than the house is worth anyway. Why should they care if their greedy deadbeat kids get anything at all? If the kids are doing well, have a job, and are otherwise responsible, they wouldn't care if they got anything at all, it would just be a bonus.

  • Touche Matt.
    With All respects to Mr. Santos, I believe we do not receive enough balanced comparisons when Reverse Mortgages are in question.

    In my opinion as a reverse and forward originator, a reverse mortgage is no more risky than a forward mortgage is. We did one for our mother but not for my father. She needed the additional resources and he does not. Neither my sisters nor I would jeopardize my mothers financial well being. We happen to believe that what is our mothers is our mothers and not ours. If she leaves us something, that's nice. if she lives more comfortably to 110 because a RM relieved a financial burden then all the better for her and us. Our family will have been blessed.

    Until a better way for exercising the investment in property comes along, i say that a reverse mortgage is the best thing Uncle Sam ever did for senior homeowners
    Howard Walters

  • Manny, thanks for your perspective questions. How much in ten years do you have in loan and interest depends on how much you use from your reverse mortgage. If you took $50,000 at closing to pay off an existing mortgage, then that $50,000 plus closing costs will have accrued interest and need to be repaid upon your passing or moving away. As Mr. Smalderone says, you would have been paying interest on that $50,000 anyway which would have depleted your cash flow. With the reverse mortgage you are not having to pay that mortgage anymore. rnrnHow much profit? Again, depends on how much you use. Property values have dropped and continue to do so but in 10 years they could be back up so any increase in home value over amount that accrues in your reverse mortgage will be yours or your family’s upon your passing or moving away. rnrnAs far as your beneficiaries being happy with how much they get is subjective. Is anyone happy with any amount of “free” money? At least it won’t COST them anything, where an upside down forward mortgage could. You hear about people complaining that when you win the $5,000,000 Lottery that you don’t get the whole thing anyway- again, its subjective. You have great questions that need to be considered as I’m repeating Mr. Smalderone’s response but in most cases the positives far outweigh how much money an heir is going to receive. It is, I have to remind my clients, about your quality of life, not all about them.

  • IMHO, the only way a HECM can go into foreclosure is when their are no heirs or anyone to sell the property. I won’t matter what the market is, you just lower the price until it sells, and the FHA insurance will make up any shortfall. No tax liability.

  • Thanks to all of you for answering my questions. There other factors I am considering to finalize the benefits of this scenario, which I will take to the numbers and let you know what I come up with. My present monthly mortgage is $1,230. With a Reverse that money can be used to buy and pay another real estate, which with its equity in ten years will be included in this scenario. I will be looking at repossesed houses as an additional investment. I think this option in turning this into an investment portfolio may give more confidence into the RM.

    Thanks Guys for your help…

    Manny

  • Why the hell would I care if my greedy heirs get any moeny at all? It’s the senior’s life to enjoy. After all, they spent their whole life working for what they have, so should they enjoy the fruits of thier labor? They can never owe more than the house is worth anyway. Why should they care if their greedy deadbeat kids get anything at all? If the kids are doing well, have a job, and are otherwise responsible, they wouldn’t care if they got anything at all, it would just be a bonus.

  • Touche Matt.rnWith All respects to Mr. Santos, I believe we do not receive enough balanced comparisons when Reverse Mortgages are in question.rnrnIn my opinion as a reverse and forward originator, a reverse mortgage is no more risky than a forward mortgage is. We did one for our mother but not for my father. She needed the additional resources and he does not. Neither my sisters nor I would jeopardize my mothers financial well being. We happen to believe that what is our mothers is our mothers and not ours. If she leaves us something, that’s nice. if she lives more comfortably to 110 because a RM relieved a financial burden then all the better for her and us. Our family will have been blessed.rnrnUntil a better way for exercising the investment in property comes along, i say that a reverse mortgage is the best thing Uncle Sam ever did for senior homeownersrnHoward Walters

  • Thanks to all of you for answering my questions. There other factors I am considering to finalize the benefits of this scenario, which I will take to the numbers and let you know what I come up with. My present monthly mortgage is $1,230. With a Reverse that money can be used to buy and pay another real estate, which with its equity in ten years will be included in this scenario. I will be looking at repossesed houses as an additional investment. I think this option in turning this into an investment portfolio may give more confidence into the RM.rnrnThanks Guys for your help…rnrnManny

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