Chicago Tribune: Reverse Mortgages 101

The Chicago Tribune reports on the pros and cons of reverse mortgages, stating that the 500,000 homes with reverse mortgages can be seen as a good thing or a bad thing—depending on whom you ask.

“To housing advocates, the loans for seniors age 62 and up are little better than those found in the subprime housing market, with egregiously high fees and aggressive marketing tactics,” the article states. “To others, from lenders to mortgage counselors and many seniors themselves, they can be a lifeline of ready cash to help fund retirement.”

The Tribune points to HUD’s call for delinquent property reporting, due in February, and quotes National Council on Aging VP Barbara Stucki as saying many seniors with reverse mortgages don’t fully understand the obligations of the loans.

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“For seniors in certain situations, however, it can be a good, if last, resort,” says the Tribune. “Borrowers receive their payments for as long as they stay in their home. If borrowers live beyond their life expectancy established at the time of the loan agreement, the bank (or its insurer) takes the loss.”

Finally, the article refers to the lawsuit filed recently by AARP against the Department of Housing and Urban Development, which alleges that some reverse mortgage borrowers are currently facing foreclosure on their homes because of changes to the program that took place in 2008.

View the entire article.

Written by Elizabeth Ecker

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  • I have a great deal of respect for Mr. Cole, even though I find he either needs correction from time to time or like here, it seems his thoughts are moving faster than his mouth. “‘These are very expensive loans, and then when the market picks back up they’ll send people out to look at these properties,’ Prescott Cole, senior staff attorney for California Advocates for Nursing Home Reform, said of the banks. ‘At that point the senior is basically a squatter, and they’ll force him into default and flip the property.’”

    What it seems Mr. Cole is saying is that some seniors have fallen behind on home maintenance and repairs and one day we, lenders, will go out “default” hunting to gain possession of the homes of seniors. What Mr. Cole fails to portray is the problem of insuring such properties and the real concern, the safety of the senior inhabiting the home. If a senior was going to stay in the home so long that repairs become a problem then it seems that the “high costs” which Mr. Cole consistently complains about would be a much lower percentage cost when expressed as actual APR.

    Unfortunately Dr. Stucki is portrayed as doing her best to harm the industry when it is said: “Barbara Stucki, vice president of home equity initiatives for the National Council on Aging, said more reverse-mortgage borrowers are falling behind on their property taxes or insurance, prompting lenders to begin foreclosure proceedings.” What is odd is that she does not say that it is HUD which is pushing for correction of defaults through its issuance of Mortgagee Letter 2011-01. Both she and Mr. Cole even question the effectiveness of counseling.

    Here are some other ridiculous statements: “Borrowers receive their payments for as long as they stay in their home. If borrowers live beyond their life expectancy established at the time of the loan agreement, the bank (or its insurer) takes the loss.” It seems the columnist while talking about equity does not understand that if at termination the value of the home exceeds the balance due no matter what time in life it is, the borrower will keep that difference net of selling expenses. Nor does the columnist seem to perceive that staying in the home alone is insufficient to keep receiving tenure, term, or any other payouts from a reverse mortgage if the balance due was paid off, all sole surviving borrowers sold the home and are leasing back, all surviving borrowers gifted their interests in the home to others, there is an irreversible default, there is an unresolved bankruptcy, or in some other way payouts are suspended or the loan terminated.

  • I have a great deal of respect for Mr. Cole, even though I find he either needs correction from time to time or like here, it seems his thoughts are moving faster than his mouth. “‘These are very expensive loans, and then when the market picks back up they’ll send people out to look at these properties,’ Prescott Cole, senior staff attorney for California Advocates for Nursing Home Reform, said of the banks. ‘At that point the senior is basically a squatter, and they’ll force him into default and flip the property.’”

    What it seems Mr. Cole is saying is that some seniors have fallen behind on home maintenance and repairs and one day we, lenders, will go out “default” hunting to gain possession of the homes of seniors. What Mr. Cole fails to portray is the problem of insuring such properties and the real concern, the safety of the senior inhabiting the home. If a senior was going to stay in the home so long that repairs become a problem then it seems that the “high costs” which Mr. Cole consistently complains about would be a much lower percentage cost when expressed as actual APR.

    Unfortunately Dr. Stucki is portrayed as doing her best to harm the industry when it is said: “Barbara Stucki, vice president of home equity initiatives for the National Council on Aging, said more reverse-mortgage borrowers are falling behind on their property taxes or insurance, prompting lenders to begin foreclosure proceedings.” What is odd is that she does not say that it is HUD which is pushing for correction of defaults through its issuance of Mortgagee Letter 2011-01. Both she and Mr. Cole even question the effectiveness of counseling.

    Here are some other ridiculous statements: “Borrowers receive their payments for as long as they stay in their home. If borrowers live beyond their life expectancy established at the time of the loan agreement, the bank (or its insurer) takes the loss.” It seems the columnist while talking about equity does not understand that if at termination the value of the home exceeds the balance due no matter what time in life it is, the borrower will keep that difference net of selling expenses. Nor does the columnist seem to perceive that staying in the home alone is insufficient to keep receiving tenure, term, or any other payouts from a reverse mortgage if the balance due was paid off, all sole surviving borrowers sold the home and are leasing back, all surviving borrowers gifted their interests in the home to others, there is an irreversible default, there is an unresolved bankruptcy, or in some other way payouts are suspended or the loan terminated.

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