Reverse Mortgage for Purchase, Helping Boomers Move to the City

20090217_092348_MercuryNews Despite the media backlash from the Consumer Reports “investigation”, Silicon Valley’s Mercury News writes about how  a couple recently used the HECM for purchase to buy a home in San Francisco. 

Ann Tubbs and Ehtesham Majid used the new program to help purchase a $625,000 two-bedroom condominium located downtown near the city’s waterfront.  "We like city living. We like to walk around at night and look in windows," said Tubbs, who retired from a 30-year-career at Planned Parenthood. She and her husband moved into their new home in August.

"It’s a great program for people like us. We don’t have any children and want the urban lifestyle," said Majid, a retired software engineer.

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According to the article, the couple drew on an some inheritance money and savings to come up with the 40 percent down payment used to help buy their condo.  "You have to make a significant down payment, twice the amount of a normal down payment," said Tubbs.

"Then you are done,’ added Majid. Of course, there is still the matter of property taxes, homeowners dues and other expenses associated with owning a home.

Reverse mortgages shift gears (Mercury News)

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  • Upon seeing Mr. Bachman associated with an article, I start looking for errors. Discouragingly they are usually glaring and not that hard to find. This article is no exception; however, it is good to see a reporter wrote this article (press release) rather than PR people.

    Where is the problem in this article? It is the sloppy and errant definition of the maximum claim amount (“MCA”) that is presented TWICE in the article – yes, twice. To educate the author, on a HECM for purchase transaction (and only a HECM for purchase transaction) the MCA is the lowest of 1) “THE PURCHASE PRICE”, 2) the appraised value of the home, or 3) the lending limit, currently at $625,500. The gross available proceeds (called the principal limit) are calculated using the principal limit factors which are expressed as a percentage which is then multiplied by the MCA.

    It seems someone forgot to tell the author about HUD Mortgagee Letter 2009-11 which amended HUD Mortgagee Letter 2008-33 to add the purchase price to the computation of the MCA. But why should small details ruin such truly great and remarkable self promotion?

    It is interesting that the total selling costs to the seniors on the sale of their former residence were exactly an anemic 3% of the sales price. In computing equity on the termination date of the home in the HECM for purchase transaction, there seems to be no need to look at selling costs. But then why spoil such great promotion with consistency? Or why show the more likely higher selling costs even though it is fairly certain that the argument is made by Mr. Bachman’s employees that HECM upfront costs are so much lower than selling costs? Of course in the example the selling costs are less than $200 higher than the HECM upfront costs. I guess this proves consistency is only for “the marketing challenged”.

    Although not wrong per se, there is a fascinating label taken from the calculator — “cash received.” What cash was received by whom? This cash would have been received by escrow in this type of California acquisition. Yes, technically the borrowers receive it indirectly, i.e. for their benefit, but if you checked with the borrowers it is doubtful that they would feel they received it. It could have been shown as “cash to acquire new home;” however, that would not have reflected calculator (the best calculator there is) terminology and besides that what is the real need for clarity?

    When providing all of the information for an example as was done here using this “amazing” calculator, it would have been helpful to point out the APR. With a definite termination date of 10 years, a fixed interest rate of 5.56%, and all costs grouped as needed to make the computation, it would have been easy. While APR cannot be calculated on an adjustable rate HECM, it can and should be calculated on a fixed rate HECM with all of the information which this example presents. Oh well, it was only published in and by the Silicon Valley MercuryNews.com.

    It also would have been helpful to have shown the monthly servicing fee and pointed out that the FHA MIP annual rate on the outstanding balance of the loan is 0.5% which is charged monthly. Oh well, “if wishes were horses, then beggars would ride.” But then again this article was primarily focused on Mr. Bachman and his firm as clearly indicated by the links to his company, HUD, and the author but no one else including Mr. DeMarkey or his firm.

    It should be pointed out that the article was posted on the 20th and updated on the 23rd and yet it still contained such “delightful” tidbits. So what did the author catch or change? Those of us who do not follow Mr. Bachman on a daily basis will never know.

  • Dear Critic – wow – you need to get a life – what a rant and your dislike for Mr. Bachman, amazing! You missed the entire point of the article – two people got the home of their dreams with a purchase reverse mortgage. I know, I did the loan.

  • Some readers seem to have missed the point of the Consumer Reports article. The article does not condemn reverse mortgages. In fact, CR is positive or, at worst, neutral on reverse mortgages. The focus of the “investigation” is on how they are marketed, particularly when combined with another financial product that is inappropriate for the homeowner.

    The article quotes Peter Bell of NRMLA and Meg Burns at FHA. They are hardly critics of reverse mortgages. The article also tells the stories of some homeowners who were put into reverse mortgages inappropriately, and goes on to describe the disastrous consequences.

    Articles such as this will continue to be published, and regulators and legislatures will continue to respond, until the charlatans and scam artists are driven from our business.

  • Some readers seem to have missed the point of the Consumer Reports article. The article does not condemn reverse mortgages. In fact, CR is positive or, at worst, neutral on reverse mortgages. The focus of the “investigation” is on how they are marketed, particularly when combined with another financial product that is inappropriate for the homeowner. rnrnThe article quotes Peter Bell of NRMLA and Meg Burns at FHA. They are hardly critics of reverse mortgages. The article also tells the stories of some homeowners who were put into reverse mortgages inappropriately, and goes on to describe the disastrous consequences. rnrnArticles such as this will continue to be published, and regulators and legislatures will continue to respond, until the charlatans and scam artists are driven from our business.

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