NBC Affiliate Segment Discusses Pros, Cons of Reverse Mortgages

An NBC affiliate recently produced a segment discussing the pros and cons of reverse mortgages.

“You’ve probably seen the commercials or ads online promising to turn your home into cash without having to sell the property, move out of it, or repay a loan every month,” the WSFA.com segment begins. “They’re advertising reverse mortgages and more and more senior citizens are taking advantage of them. What those people may not realize is that reverse mortgages come with potentially serious risks.”  

Pros include getting to keep and remain in the home, and easier qualifications for seniors versus a traditional mortgage, it says, while cons include ongoing responsibility for taxes and insurance, home repairs, mortgage insurance, and origination fees. 

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In many cases, a reverse mortgage is the answer to what a borrower might need to make ends meet, the news segment acknowledges, going on to cite financial advisors’ warnings to fully understand how the loan works.

NBC highlights what it calls a reverse mortgage success story—the case of Hilda Funk, a widow in her early 80s who struggled to make loan payments on her mortgage following her husband’s passing. Funk was afraid she’d lose her home and initially considered taking out a second mortgage before learning about getting a reverse mortgage.

“This is the answer to what we needed so we can stay in our house,” she told the NBC affiliate, calling the reverse mortgage a ‘blessing.’ “I can stay in it as long as I’m here, which is a very big relief for me.” 

However, whether or not a reverse mortgage is the correct financial option varies by situation, the segment notes.

“The only way you can determine that is by your specific needs and your specific situation,” Bill Hawkins, the associate director for Alabama’s AARP chapter, told NBC, recommending that people “get expert advice.” 

A financial advisor quoted in the segment believes reverse mortgages are “never the right answer,” instead recommending exploring other options, including selling the home.

View the full WSFA.com segment

Written by Alyssa Gerace

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  • The following shows the competency of the chief financial and business coach for The Dave Ramsey Show as to mortgages: “‘It actually works opposite of what a traditional mortgage would be,’ says Chris Hogan. In a traditional mortgage, you make payments, the principle goes down and you’re closer to owning the home.” Really? This expert has no idea what owning a home is, based on his remark about “you’re closer to owning the home.” Mortgagors own the home despite owing on the mortgage.

    Then there is the following interesting statement: “A reverse mortgage pays you. You don’t owe anything as long as you’re in the home, but once it’s vacated, the entire loan has to be paid up.” Perhaps none of the balance due must be paid down but the balance due is still owed.

    Hogan is quoted as saying: “‘You still have to do all the regular upkeep on the home and on the loan. Fees can be very high. You can pay up to 10 percent in fees, so on a $100,000 loan that’s $10,000 that would immediately go to the loan company.'” What is regular upkeep on the loan? That is one of the strangest statements about debt I have read.

    But then we get very clear why Hogan is an expert on debt. He is the chief financial and business coach for The Dave Ramsey Show. While I do not always agree with Dave, he seems to know a lot more about debt than his chief financial and business coach.

    Hogan goes on to say: “The goal is for people to be in a house, pay it down, and the home to be able to appreciate, so it becomes an asset for people in retirement….” What does paying down a mortgage have to do with the ability of the home to appreciate? Mr. Hogan does not seem to know that the home of a mortgagor is the asset of that person.

    And of course being the expert he is on mortgages, Hogan concludes: “Hogan says, adding, ‘Selling the home is a better option than taking out a reverse mortgage.'” I am sure Chris is just as competent in presenting the “real” and “secret” values of snake oil.

    The other segments were overall reasonably good to excellent.

    • What about the comment on the “con” being you still have to pay your property taxes and homeowners insurance? This could imply that the reverse isn’t doing ENOUGH for the homeowner. (rolls eyes)

    • This is the most ridiculous explanation I have heard about a reverse mortgage. Please show me where a person who has a home value of $100,000.00 would pay $10,000.00 in closing cost. As for the taxes and up keep whether you have a reverse mortgage or regular mortgage you still have to pay your taxes. Most senior do not want to leave their homes and selling it may cost undo emotional and mental stress. If they have live in their home for thirty years or more they have developed a relationship with their neighbors, and are familiar with the neighborhood, grocery stores, restaurant, theater, etc and to have to reestablish themselves in a new environment can be very challenging. It is unfortunate that this kind of information is being disseminated in the news. It gives a bad understanding of a program that is very beneficial to seniors.

      • reynold1,

        Here is what you say: “Please show me where a person who has a home value of $100,000.00 would pay $10,000.00 in closing cost.” Please point out that anywhere in the article.

        Here is what Chris Hogan actually said: “You can pay up to 10 percent in fees, so on a $100,000 loan that’s $10,000 that would immediately go to the loan company.” Thinking before reacting is a virtue.

        I do not defend the nonsense Hogan is promoting but he clearly states that the loan amount is $100,000, not the value of the home. Got it?

        Yes, it is quite possible to have more than $10,000 in costs on a loan of $100,000. With the new HECM the Principal Limit could be $133,333. Most fixed rate HECMs would be limited to total distributions of $100,000, when the mandatory obligations plus the 10% of the Principal Limit disbursements payout election totals $100,000. Looking at the Principal Limit Factor for a 62 year old of 52.6% with an expected interest rate of 4.75%, the value of the home would be about $253,485 The MIP alone would be $6,337.00 and the origination fee, $4,534.85. Adding in third party fees of just $2,200 and the total upfront costs are $13,072 without violating any HECM or RESPA rules. That is over $10,000 in upfront costs “going to lender” on a $100,000 loan!

        So I do not understand your complaint!!!

  • reynold1,

    Here is what you say: “Please show me where a person who has a home value of $100,000.00 would pay $10,000.00 in closing cost.” Please point out that anywhere in the article.

    Here is what Chris Hogan actually said: “You can pay up to 10 percent in fees, so on a $100,000 loan that’s $10,000 that would immediately go to the loan company.” Thinking before reacting is a virtue.

    I do not defend the nonsense Hogan is promoting but he clearly states that the loan amount is $100,000, not the value of the home. Got it?

    Yes, it is quite possible to have more than $10,000 in costs on a loan of $100,000. With the new HECM the Principal Limit could be $133,333. Most fixed rate HECMs would be limited to total distributions of $100,000, when the mandatory obligations plus the 10% of the Principal Limit disbursements payout election totals $100,000. Looking at the Principal Limit Factor for a 62 year old of 52.6% with an expected interest rate of 4.75%, the value of the home would be about $253,485 The MIP alone would be $6,337.00 and the origination fee, $4,534.85. Adding in third party fees of just $2,200 and the total upfront costs are $13,072 without violating any HECM or RESPA rules. That is over $10,000 in upfront costs “going to lender” on a $100,000 loan!

    So I do not understand your complaint!!!

  • wealthone,

    Today we read and hear that with HECMs that there are “no monthly mortgage payments.” For many seniors their insurance and property tax payments are rolled up into their mortgage payment. So you tell me, If that is the only type of mortgage payment you have EVER had and there has NEVER been a time when you did not have a mortgage payment as long as you have owned a home, what does “no mortgage payments” mean to you? Couldn’t that reasonably mean that the lender will pay all property taxes and insurance and the borrower has no obligation to pay them?

    I have had several seniors and their children call me about the payment of real estate taxes and homeowner’s insurance; none of these folks were borrowers I placed into a HECM or related to them. They complain that no monthly mortgage payments means NO payments of property taxes or homeowner’s insurance. Trying to explain that they misunderstood that no monthly mortgage payments means no monthly payment of just interest and principal and nothing else (other than MIP if they had a FHA loan). Some have reacted as if I had written and spoken the very incomplete lines and was now lying to them. Almost all of the borrowers got their HECMs from other lenders.

    So if you believe that the industry is misleading seniors by saying there are no monthly mortgage payments including property taxes and homeowner’s insurance, then I can understand why someone might view the payment of property taxes and insurance as a con. You probably do not. Viewing such payments as a con could be all wrapped in your perspective of how we advertise.

    I normally try to advertise that with a HECM there are no monthly payments of interest and principal required. Even though “no monthly mortgage payments” is shorter, it is also far less clear in the minds of many.

    So in a listing of pros and cons, where would you fit the continued obligation for the payment of property taxes and homeowners’ insurance? I cannot think of a single reason for putting it as a pro.

    • I’m just going to assume I said it incorrectly. My point was that owning a home has its responsibilities, and paying property taxes and HOI comes with the territory. My feeling after reading his comments was that he made it seem like having to continue to pay the T&I part of PITI was something that a reverse mortgage should also handle. He wrapped that part up in his “cons” section without stating that anyone owning a home outright, without a lien of any type, would still be required to pay T&I. I DO realize that many folks use a RM to actually cover costs of their T&I and its a very useful tool for that very purpose.

      I’m going to, again, assume, that my comment was improperly made and I agree with you wholeheartedly. I was trying to be sarcastic.

      • Wealthone, why do so many reverse mortgage originators like yourself state that T&I are REQUIRED on a home that is owned free and clear? Here is how you put it: “He wrapped that part up in his ‘cons’ section without stating that anyone owning a home outright, without a lien of any type, would still be required to pay T&I. I DO realize that many folks use a RM to actually cover costs of their T&I and its a very useful tool for that very purpose.”

        Let me say this once again. There is absolutely no requirement that a homeowner who has no liens on the home must have or pay homeowners’ insurance. Is that clear enough? Yes, we all realize that it would be dumb for such a homeowner not to have it but it is NO REQUIREMENT.

        Also while there is a requirement to pay property taxes, there are few places in the US where lack of paying one year’s worth of property taxes will throw the homeowner into foreclosure default. In states like California, property taxes must be at least five years past due before the state can take the home.

        There comes a point where excusing misstatements by saying things like the following just gets old: “I’m just going to assume I said it incorrectly.” Please help us all out by writing what it is you mean.

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