MarketWatch Compares Reverse Mortgage With Other Equity-Tapping Tools

A reverse mortgage is one viable way to tap into home equity for urgent or ongoing financial needs, writes MarketWatch in an article this week that compares different tools for borrowing against home equity. 

Versus a home equity loan or a home equity line of credit, the “catch” with reverse mortgages is that they are only for people who are 62 and older, MarketWatch states. The article also points to the fees that come with reverse mortgages, as well as the mortgage insurance premiums that are required, as potential negative factors. 

The article appears to have missed the financial assessment rules implemented last year, as it says in error that there is no credit check or income requirement. 

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MarketWatch does cover the loan obligations including property taxes and homeowners insurance that must be met. 

While reverse mortgages have gotten a bad rap because earlier products required the homeowner to turn the title over to the bank, they can be the right product for the right people, the article states, based on an interview with Darren Ferlisi, a mortgage officer at Integrity Home Mortgage in Frederick, Maryland. 

Read the MarketWatch article.

Written by Elizabeth Ecker

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  • The article states: “Livingstone cautions that for seniors with bad credit, a reverse mortgage might not be the best choice because banks are so concerned about seniors falling behind in property tax payments, they can sometimes escrow as much as $50,000 or 10 years’ worth of property tax assessments to protect against delinquency.”

    Is this the best explanation this originator has for what a LESA is and how much it can be? A fully funded LESA can be for 38 years and includes not just taxes but also insurance and is for 120% of the sum of the two. It is simply a sinking fund computation using monthly compounding at the sum of the expected interest rate and the ongoing MIP rate of 1.25% at the beginning of the payment period.

    The author states that a HECM can be on a second home!

    Here is another great quote: “…Ferlisi, a mortgage officer…. The Consumer Financial Protection Bureau, after the passage of the Dodd-Frank financial reform law, cracked down on banks or lenders paying out higher commissions to brokers for steering seniors to the more expensive reverse mortgages. ‘Commission is paid at the same rate, regardless of the program or interest rate,’ he said.” Really? Where is Darren getting his info from?

    After reading and rereading the other errors in this article, I had a hard time understanding how the mortgage being presented in the article was either a reverse or a HECM.

    • I agree with you. I would also note that many of the folks selling these products miss the valuable selling tool that the LESA can be. Assuming an individual with bad credit and an issue paying their bills wants or needs a HECM to stay in their home, the LESA can be a perfect selling point. The taxes and insurance are already being taken care of by the lender through the HECM, there is no need to budget separately for those items. For someone who wants to stay in their home, a fully funded LESA is a large step in that direction. With the taxes and insurance paid, the portion of their budget that they put toward housing costs is vastly reduced. Utilities and maintenance now become the majority of the housing budget.

      Don’t get me wrong, things are not perfect, but it can be a very useful selling point, particularly to an adult child who is worried about a beloved parent losing their home.

      Frank J. Kautz, II
      Staff Attorney

      Community Service Network, Inc.
      52 Broadway
      Stoneham, MA 02180
      (781) 438-1977
      (781) 438-6037 fax
      FrankKautz@csninc.org

    • If you mean “reverse or a HECM” in the context of a non-FHA reverse vs. the FHA HECM, I agree. Non insured programs are dangerous, and still represent the “loan of last resort”.

      • Dan,

        No, I meant any reverse or HECM based on the article. As someone who has been dealing with reverse mortgages for over a decade, I could not recognize from the content of the article that any current reverse mortgage product was being presented.

  • The_Critic makes valid points as far as he/she goes. If a senior has bad credit a Reverse Mortgage may be their only option to tap their equity if they need it. Home equity loans and HELOCs fell out of favor with banks after the bubble burst and many are now just getting back into that market. To prevent it from happening again they have higher credit standards (usually 700) and have more stringent qualifying requirements. Home equity loans and HELOCs lenders are expecting to be repaid monthly and many are bound by the QM and ATR requirements of Dodd-Frank.
    A Reverse Mortgage may not be the perfect solution but for a senior struggling to keep their home it may be the best one.

  • “The right product for the right people”…if you’re over 62, own your home, and have positive equity, you happen to be one of the MILLIONS of “right people”. That means the FHA-HECM is right for you.

    • Dan,

      There are millions of senior homeowners who do not need and should not get a HECM. But for millions more when prudently and strategically used, it is a sound cash flow tool that should be available to them throughout retirement.

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