New York Times: Reverse Mortgages Making a ‘Quiet Comeback’

Reverse mortgages earned a bad reputation in the past when they were abused by some lenders across the country, but now they are making a modest comeback and are being seen as a way to fill gaps of income in retirement, according to a recent article by The New York Times which notes home equity is now making a lot more sense for older Americans to tap into.

The proceeds from a reverse mortgage can help borrowers pay for out-of-pocket health care costs or other financial issues that people hadn’t planned for when saving for their retirement, the article explains.

“Since the loans are insured by the government, the Federal Housing Administration will cover any shortfalls between the final loan balance and net proceeds from the sale,” the article points out. “That means you don’t have to worry about being ‘underwater’ on the loan in case the home’s value is less than the mortgage amount.”

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Even though the perks, when used in the right situation, are great and the changes made in the last few years to the program make it the much safer than in the past, reverse mortgages are still not being used much.

Those perks are being noted by financial planners however, and they are starting to recommend them to their clients as a way to offset costs in retirement.

Making sure potential borrowers do their research and shop around is also stressed. “Like other mortgages, they [reverse mortgages] have closing costs, which range from $4,000 to $15,000, though those amounts typically are not paid upfront because they can be added to the loan’s principal,” writes the article.

Borrowers shouldn’t feel they are going at it alone, speaking with a trained counselor and taking a look at the FHA’s website are also extremely important to know what exact costs will be and what all the details of a reverse mortgage are.

Getting an elder-law or estate-planning lawyer involved also may be necessary if the borrower hopes to include their home in a legacy plan.

Read the full article from The New York Times

Written by Alana Stramowski

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  • Sounds great but is nothing but a myth: “’Since the loans are insured by the government, the Federal Housing Administration will cover any shortfalls between the final loan balance and net proceeds from the sale,’ the article points out. ‘That means you don’t have to worry about being ‘underwater’ on the loan in case the home’s value is less than the mortgage amount.’”

    The only loan type mentioned before the words “the loans” are reverse mortgages. Throughout the article reverse mortgages and HECMs are used as if they were synonymous. What folly!

    Then it is claimed that loan shortfalls are covered by FHA. While FHA insures HECM lenders, they do NOT insure any other kind of reverse mortgage, period. What this article makes it look like is that the HECM is recourse that the insurance makes non-recourse but that is not the case. The insurance insures the lender, not the borrower. In order to qualify for FHA insurance, the loan ITSELF must be non-recourse. In fact all reverse mortgages must be non-recourse under federal law found at 15 USC 1602(bb) [or 15 USC 1602(cc) depending on the version of the US Code you using].

    The best part of the article is where there is a recommendation for consumers to seek advice from CFPs and CPAs. But that recommendation falls short in that it does not advise consumers to seek the advice of these same advisers but only from those who are competent in reverse mortgages as well as financial and retirement planning.

    The article is a mish mash of good and bad information. For example the title of the article is just plain false. There has yet to be any indication of any recovery. First, how would 30,000 endorsements for 2016 be a quiet comeback when for more than a decade we have never had a fiscal year with less than 50,000 endorsements? Second, the 30,000 endorsements are for the first seven months of fiscal 2016 while the almost 115,000 endorsements is the total for 12 months of fiscal year 2009. Yet 2016 is expected to be the worst year for endorsements in more than a decade and will definitely be lower than last fiscal year, so how is that a quiet COMEBACK???

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