Fox Business Presents Handy Reverse Mortgage Q&A

The Fox Business Network — no stranger to open-minded coverage of the reverse mortgage — ran a basic Q&A for potential borrowers this past weekend, providing a rundown of common questions that originators and brokers likely face every day.

“Forget downsizing or migrating to warm weather — an overwhelming number (83%) of pre-retirees and retirees today say they want to remain in their homes for as long as possible,” Fox Business writes, citing recent research from The American College of Financial Services in Bryn Mawr, Pa.

“The survey also found seven in 10 seniors do not understand reverse mortgages,” the piece continues, summarizing an all-too-familiar conundrum facing the industry.

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Fox Business then sits down with Meghan Keller, a Home Equity Conversion Mortgage consultant at American Financing, to break down the HECM basics, from eligibility requirements to draw limits to what happens when the loan becomes due.

Some of Keller’s descriptions might cause the average borrower’s eyes to glaze over — including the leadoff summary of the HECM as a “negatively amortizing product” — but she also provides some program overviews that could help consumers better understand reverse mortgages.

“While there’s no perfect formula for determining how much you can get with a reverse mortgage, the rule of thumb is you’re eligible to convert 50% of your available equity,” Keller told Fox Business, providing a simple, if inexact, way for borrowers to visualize the potential of a HECM in their financial situations.

The Q&A with Keller represents the latest appearance of reverse mortgages in Fox Business’s coverage; back in May, the network featured the HECM for Purchase product on an episode of “The Property Man.”

Read Fox Business’s full coverage here.

Written by Alex Spanko

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  • Here is the opening sentence explaining what a HECM is: “Unlike a conventional mortgage, FHA or VA loan, a reverse mortgage — also known as a Home Equity Conversion Mortgage, or HECM — is a negatively amortizing product through which a homeowner ‘converts’ the equity in their home into an asset.”

    This is one of the worst definitions of a reverse mortgage I have read. First, not all reverse mortgages are HECMs even though all HECMs are reverse mortgages.

    Second, home equity is neither an asset nor a liability since it is the numerical difference between the two. It can be positive or negative. However, a HECM does NOT convert home equity “into an asset.” What utter nonsense. The home is an asset, period. The debt against it is a liability. Cash is also an asset. A HECM does not convert anything into cash. It allows borrowers to borrow cash at the cost of having greater debt against the home; it is a nonrecourse mortgage not something else.

    Third, the HECM is only negatively amortizing to the extent that the borrower chooses to defer pay downs on accruing costs.

    The author goes on to explain a simple principal limit “rule of thumb” by writing that the prospect should be able to “convert 50% of your available equity as a reverse mortgage. So, if you own a home valued at $400,000 with a $100,000 mortgage, you should be able to convert $150,000 as a reverse mortgage.” Yet this not the simple rule of thumb. It is based on the value of the home, not its equity. What would happen if the home was worth $400,000 and the mortgage was $320,000, under Keller’s rule of thumb, the borrower could get a HECM of $40,000 yet there is no way that this home is eligible for a HECM no matter what the age of the borrower or the expected interest rate, unless the borrower can bring sufficient cash to closing, this home and borrower cannot qualify for a HECM.

    With all of the incorrect information in the article, someone needs to mentor and train this industry representative.

  • “While there’s no perfect formula for determining how much you can get with a reverse mortgage, the rule of thumb is you’re eligible to convert 50% of your available equity.”

    Say what?

    Further, from the article itself: “So, if you own a home valued at $400,000 with a $100,000 mortgage, you should be able to convert $150,000 as a reverse mortgage.”

    I stopped reading at that point.

    • REVGUYJIM,

      When I first read equity I thought the example would correct that misstatement, instead Keller reinforces the incorrect rule of thumb in the example. What a mess!!

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