Philly Enquirer: Reverse Mortgage Requires Research

Reverse mortgages can be useful in allowing senior borrowers to convert home equity into cash, but should not be taken without research upfront writes the Phildelphia Inquirer this week.

“Seniors often look to a reverse mortgage for extra cash,” the article begins. “But if you have savings, a family with whom you could live, or low-income assistance, a reverse mortgage should be your very last option.”

The Inquirer spoke with credit counseling agency Take Charge America’s Chief Education Officer Mike Sullivan for his take on reverse mortgages.

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Reverse mortgages are an expensive way to borrow money, Sullivan told the publication. He outlined cost considerations including mortgage insurance, origination fees and closing costs as well as taxes and insurance and home maintenance.

Read the article at Philly.com.

Written by Elizabeth Ecker

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  • I don’t know where this author is getting his information. I have been originating HECM for 8 years. To suggest one might “give away” a $100,000 house in exchange for $80,000 in cash shows this writer may have not really checked into what the facts are. That is preposterous! I just closed a loan on Dec 30. These are the numbers off the HUD-1: The Principal Limit was $336,585. The Initial MIP was $2,952. Other closing costs $4,781 (includes Orig Fee, Title insurance, Title Endorsements, Closing service, counseling and appraisal). The initial interest rate is 2.164%. The total closing costs as a % of the loan are 2.2975%. His major misleading statement is that the borrower gives the house away. He retains full title. Of course, he needs to pay taxes, insurance and maintenance…….just as he would with a forward mortgage. The HECM is a great tool for retirement planning and more seniors, and their financial planners, are looking at the HECM much more now since HUD reduced the cash takeouts and lower MIP.

    • Scooter,

      You did not indicate either the PLF or the appraised value. It seems the appraised value was $590,400 and the youngest borrower was 71. It also looks like the first year disbursements are less than 60%. Is all of that correct?

      As to your 2,2975% upfront finance, MIP, and closing cost percentage, why are using total available proceeds when the only additional cash available to the borrower is what is left of the gross proceeds after all upfront costs or just $328,852, making the cost of the additional available cash, 2.35%?

      The legalities and many facts are on your side but the practical experience of HECM borrowers is on the side of the author. For example, while it is important to us to be able to say that the senior owns the home (and to some degree the senior), for many seniors saying the bank owns the home is their way of saying that by doing the HECM, there is no way they will ever pay off their mortgage. Thus when the HECM becomes due and payable they are resigned to losing ownership of their home. Perhaps it is the economic status of the senior which is driving that conclusion or perhaps it is in the way we present such things as home equity on the amortization schedule.

      To me the long term and most difficult thing to dig away at is the perception of losing the home at HECM closing. For all practical purposes for many HECM borrowers, it is a realistic assessment of who will own their home after termination; they have concluded it will not be them or their family.

      How in the world is a HECM, a BETTER retirement planning product now than when there was both Standards and Savers with no first year limitations? Whose Kool Aid have you been drinking?

      The truth is with all of the cutbacks, what we are left markets better as a financial planning product than any other category but to be blunt, HECMs are a lousier financial planning product than they were a year ago. The problem is few knew how to present the Saver to anyone; many complained that there was no one practically interested in it. Yet today’s HECM is essentially a more costly Saver. Know that for all practical intents and purposes what we have today is essentially a Saver. We are just now how and to whom HECMs should be marketed. That is a real shame and loss of time.

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