AARP Video Details Reverse Mortgages, Lawsuit

A series of three video reports addressing reverse mortgage issues was released by AARP’s Inside E Street, and was posted on AARP’s website this week.

The first in the series of videos is a segment titled “Loan of Last Resort: Is a Reverse Mortgage For You?” that includes two interviews with reverse mortgage borrowers: One, a success story, and the other, featuring one of three plaintiffs in the pending lawsuit against the Department of Housing and Urban Development that was filed earlier this year.

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While the AARP video shows that a reverse mortgage can be a helpful tool for the right borrower, it also mentions “high fees,” “complicated rules,” and notes some of the the issues of the HUD lawsuit, including the non-recourse guidance that was changed in 2008 and was rescinded earlier this year.

In the case of one plaintiff in the lawsuit against HUD who faced foreclosure upon the death of his wife—the only borrower on title—AARP explains, “lenders sometimes encourage only the elder member of a couple to put his or her name on the deed, because the borrower is eligible for a bigger loan.”

View the AARP Inside E Street video.

Written by Elizabeth Ecker

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  • The one thing which is totally glossed over is the lawsuit.  However, hearing the story from Mr. Bennett is quite interesting although not particularly insightful.
     
    Susanna Montezemolo is a good match for Peter Bell.  A big difference between the two is that Susanna wants to see the dark side of reverse mortgages even though she concedes the good while Peter is more upbeat looking for its best features without denying the flaws.  Both represented their separate views well.
     
    Looking at some recent AARP magazine articles, the column by Liz Weston, an alleged financial expert, in the April/May 2011 issue of AARP the Magazine jumped out.  In it she states:  “A reverse mortgage is a loan against your home equity that you don’t have to pay back as long as you live there. Assuming you have enough equity in your home, you could use a reverse mortgage to pay off your existing mortgage.”
     
    Forgetting about the “as long as you live there” clause, the two sentences literally make no sense whatsoever.  No reverse mortgage is a loan against home equity.  They are all first liens against the full value of the home, not just the equity on the home.  Who cares about the equity in the home?  If the equity is $500,000 there is no clear indication the borrower is eligible for a reverse mortgage.  It is all based on home appraised value, the total currently due on outstanding mortgages and other liens, and, if necessary, the total value of other assets (net of taxes) belonging to the prospect available to pay down existing liens.
     
    For example, if a senior has a $1,150,000 home with a $650,000 mortgage against it (a $500,000 equity) and no other liens against it, what reverse mortgage is available to help this person if all they have is $50,000 in other assets that they can reasonably use to pay down the liens?  This is exactly why people look bewildered and say reverse mortgages are too complicated and confusing.  On one hand people talk about equity but then that does not count, it is all about value and total amounts due.  That is not straight talk it is what many seniors see it as, double talk.

  • The one thing which is totally glossed over is the lawsuit.  However, hearing the story from Mr. Bennett is quite interesting although not particularly insightful.
     
    Susanna Montezemolo is a good match for Peter Bell.  A big difference between the two is that Susanna wants to see the dark side of reverse mortgages even though she concedes the good while Peter is more upbeat looking for its best features without denying the flaws.  Both represented their separate views well.
     
    Looking at some recent AARP magazine articles, the column by Liz Weston, an alleged financial expert, in the April/May 2011 issue of AARP the Magazine jumped out.  In it she states:  “A reverse mortgage is a loan against your home equity that you don’t have to pay back as long as you live there. Assuming you have enough equity in your home, you could use a reverse mortgage to pay off your existing mortgage.”
     
    Forgetting about the “as long as you live there” clause, the two sentences literally make no sense whatsoever.  No reverse mortgage is a loan against home equity.  They are all first liens against the full value of the home, not just the equity on the home.  Who cares about the equity in the home?  If the equity is $500,000 there is no clear indication the borrower is eligible for a reverse mortgage.  It is all based on home appraised value, the total currently due on outstanding mortgages and other liens, and, if necessary, the total value of other assets (net of taxes) belonging to the prospect available to pay down existing liens.
     
    For example, if a senior has a $1,150,000 home with a $650,000 mortgage against it (a $500,000 equity) and no other liens against it, what reverse mortgage is available to help this person if all they have is $50,000 in other assets that they can reasonably use to pay down the liens?  This is exactly why people look bewildered and say reverse mortgages are too complicated and confusing.  On one hand people talk about equity but then that does not count, it is all about value and total amounts due.  That is not straight talk it is what many seniors see it as, double talk.

  • I didn’t have time to watch the video, but regarding the act of taking one spouse off title to get a larger loan, I believe that this topic and its potential consequences are covered in counseling.  Also, our policy has always been to include the non-borrowering spouse in counseling.

    • Norman,
       
      I have zero confidence that counseling does anything right in that regard other than give some vague and very confusing warnings with some worthless advice.  No one counselor (not even those with law degrees) who provides national counseling can possibly know and be CURRENT on the real estate, family practice, trust and estate, and tax (including real estate tax) laws in every state in the nation.
       
      HUD has failed miserably in not requiring a caveat at some point in counseling (maybe better at multiple points in counseling) informing the counselee that the advice of the counselor is based on general guidelines and principles that should not be relied upon and may not be appropriate based on the specific facts and circumstances of the counselees.  Counselors should then advise counselees to seek the advice of attorneys and financial and tax advisors who know the state laws of the state where the home is or will be located.
       
      The caveat should be restated when one spouse will be coming off of title or already is off of title.  There are many things which can be done to provide protective compensating measures in such cases.  Here knowing specific and CURRENT state law is crucial.
       
      I have heard insurance people wax on and on about how life insurance will fix the situation.  Ask them about divorce mentioning the life insurance policy itself could be at risk in that case.  The responses are interesting and sometimes humorous.
       
      To say nothing can be done is utterly wrong but while life insurance MAY be a partial solution, it is utterly incompetent to suggest it as the sole answer.  No spouse literally must come off of title in most states.  Title changes can be done to life estates but even then there is the risk of the right to stay in the home.  Notes can be created with options and other compensating instruments but the advice of attorneys licensed in the state where the collateral is located should be sought as well as financial and tax advisors.

      While the costs might seem prohibitive at the time, imagine being Mr. Bennett a few years out when income in relation to inflation could be much worse, etc.  Every counselor and originator should be required to listen to that interview.

      The_Critic (also called Zorro)

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