Reverse Mortgage Inconvenient Truths
 

It seems, in my opinion, there have been a lot of posts about reverse mortgages. Apparently, there are many inconvenient truths that you may be unaware of. The following I found to be particularly egregious.
Why should taxpayers be on the hook when a reverse mortgage turns toxic?

This from the Heritage Foundation

“Because of the largesse of federally financed subsidies in the Federal Housing Administration’s reverse-mortgage program, the federal government has gradually crowded out private insurers from the market for these financial products since the program began in the late 1980s.
Indeed, amid the multi trillion-dollar maze of federal insurance and guarantee programs lies the Federal Housing Administration Home Equity Conversion Mortgage program—an insurance program providing loss coverage on reverse-mortgage originations backed by federal taxpayers.
The loan program simply has become a severe financial burden for federal taxpayers. The Federal Housing Administration reports that the Home Equity Conversion Mortgage program faces a financial shortfall totaling roughly $14 billion in fiscal year 2017.
To avoid any further compounding of the fiscal fiasco, policy leaders should wind down the federal Home Equity Conversion Mortgage program, and in the interim certainly refrain from any misguided reforms that would increase moral hazard, put more taxpayer money at risk, and ultimately continue to crowd out private mortgage insurers from the market for reverse mortgages.”

Reverse mortgages tend to be promoted by hard sell hucksters hoping to garner huge commissions at the expense of seniors up against the wall financially. Some RM brokers locate and focus upon target rich environments such as TV and capitalize on what is essentially a mother lode. It ain't pretty. Major lenders such as Chase, Wells Fargo and Bank of America got out of this repulsive lending business years ago.

My father had one. He passed away about 3 years ago at 93 and at that time his payoff was ~$140,000 on a small condo worth maybe $60K in Broward County in South FL. After he passed the bank and the condo assoc and Bath fitters lawyers (they gave him at 93 yrs old a $7K loan for a bathroom remodel 3 months before he passed) all tried over and over to collect from ME but on an attorney's advice I just ignored it since I had nothing legally to do with it. Just walked away from it Went into foreclosure and has sat empty since then. The RM was great for him in the years he had it. When he took it out in 2006 the bank valued the $60K property at $170,000 !!!!!! The $600/month + SS helped him "live" by himself especially after my mother passed well before that. They netted well over $100,000 on it. The Feds got it and still own it. He couldn't have got anywhere near that anount on a HELOC.

Another inconvenient truth is that 25% property tax increases force many seniors on fixed incomes to fall into the reverse mortgage trap.

What happened to the remainder of the money? Did you keep it? Not judging but really asking.

I think that makes the OP point. Sorry to hear your dad Passed

Sooo, if a couple has no children, wouldnt a reverse mortgage be a good deal? Asking for a friend......

In most cases, if they need cash, they would be better off by taking out an 80 percent, 30 year conventional mortgage, put the money in the bank, and use it to make the monthly mortgage payments. If they are still in the house when the money in the bank is gone, they can refinance. With a reverse mortgage, they will only get about 50 percent of the house value, pay huge closing costs, and will be forced to sell the house if they need to move into assisted living. Do the math.

What bank will loan to a retiree with no income other than ss? The banks we spoke with didnt care how much cash on hand we had. With no income, no mortgage.
The closing costs for a reverse werent huge either.

I think much of the property tax increase is because our homes have escalated so much in value. And that is true almost everywhere in the U.S. Just to see if I may be right, remember how much you paid for your property and see what the three usual places to check consider the value. (Redfin, Realtor.com and Zillow) They are fairly close to the amount it will sell for in my opinion.

I am not a realtor, never have been and really am not crazy about them.

Another option is to sell the house and rent a comparable house. But, I would avoid a reverse mortgage if I could. It is really not a good deal. For the closing costs, did you consider the required mortgage insurance payments and the fees that are rolled into the loan?

During normal times Citizens First, the bank of TV developer, will have a monthly reverse mortgage seminar at Arnold Palmer CC given by Jennifer Grovesteen. We attended one in early 2017 and liked the benefits it would give us. My wife and I were both over 62, we have no children, both our parents are dead and we have have no brothers and sisters, essentially no heirs to worry about.

Our neighbors received one about six months earlier. After we listened at the seminar we decided it was for us, so we took steps to get one in April 2017. We own our CYV outright, paid cash in 2011. The out of pocket expenses was two items. First an appraisal, which was about $300 and then a phone counseling that made sure you were aware of what you were doing, that was about $100.

Citizens First gathers all the facts and info and then turns it over to Sun West Bank who will actually handle the loan, I believe Citizens is paid $3,000 for their services. Our fees were about $9,000 which are just part of the loan, which I don't ever plan on paying back. Our CYV was appraised at $239K when it was done almost 3 years ago, it's worth about $259K now. You will receive about 45% of the appraised value. We took out $50,000 initially and paid off a car and some other things. Since we haven't touched the balance, our funds available will climb about $200 a month. It's nice knowing we have something to fall back on if something big comes up, peace of mind.

Right now if we were both to die, whoever we left our home to would sell it and then pay back about $68,000 and the rest would be theirs. The $50,000 we've taken out, the $9,000 in up front fees and about $7,200 in accrued interest ($200 a month during the loan).

Reverse Mortgages | Citizens First Bank - The Villages, FL

So we taxpayers are left holding the bag again. I wonder if the condominium association fees, property taxes and utilities are being paid.

Reverse mortgages are a great opportunity - to those that sell them.

IMO there is no good financial loan. You going to pay lot more than you borrow. It’s way system set up.

Home equity lines have worked well for us in the past. Cost to set it up were zero and only paid when used.

Do it to the Man
 

Yea, you know .. Do it to the Man .. Nobody gets hurt .. right ?? Maybe the commenters NJ tells you something

I suspect that the appraiser is under pressure to “hit the number”. Over valuing a property was a common practice around 2006. If the property doesn’t appraise high enough then the lender doesn’t get paid, commission-based salesman doesn’t collect exorbitant fee and appraiser may be out of a job.
Obviously, none of this is a concern to them as the taxpayer is on the hook to make them whole to the tune of billions of dollars every year. This product needs to be thru private lenders and let them take the risk

If that were to happen here, I would imagine the maintenance wouldn’t get done, mold and mildew would set in, the yard would get weedy and not mown, the neighbors would rightly complain, the district would impose fines that wouldn’t get paid, and eventually (months?), the lender/Feds would try to sell it.

Excellent points! I was approached by a RM salesman that tried to convince me that this product would provide me a line of credit should I encounter a financial “crisis”. I suggested I would opt for a HELOC or downsize in a worst case scenario. I did a a little research and found the following article published by Forbes. Truly frightening!

“THE HIDDEN TRUTHS ABOUT REVERSE MORTGAGES:

The ads make them look so great. Vacations, living a great lifestyle, happy couples, smiling at their good fortune. Sincere movie stars of a certain age make the commercials believable. You can get cash now. It's so easy. Just get your reverse mortgage and your problems will be solved. Pay off debt. Have fun. What's wrong with this picture?
A reverse mortgage is more debt and one of the most expensive forms of credit you can get.
It Can Affect Any Dependent in the Home
If the elder who needs care in a facility has non-borrowing family members in that home, the loan is still due. Anyone left in the home must move out, go to a care facility or be taken in by someone else.
The Amount the Lender Will Loan is Limited
If the elder borrows, say, $200,000, and ends up needing care 24/7, that reverse mortgage cash she got will be exhausted in about two years or less. Then what? Default, foreclosure and Medicaid paid nursing home. All seniors need truthful counseling to warn of the negative consequences and potential harm of reverse mortgage products.
So what's the bottom line? Consider a reverse mortgage an option of last resort. If you or your aging parent gets charmed by the TV ads, get advice from a competent financial planner and elder law attorney before doing anything.”
BUYER BEWARE!!!

You can think of any scenario and pull out the worse points and say, this terrible. What if there are no dependents living in the home? What if there no children or any other heirs to leave your home to? What if this will be your last home and you plan never to move again.

If you borrow $200K, then your home was appraised for about $450K, someone didn't plan to well if they need $200K on their first draw, maybe they bought too much home. Second, a home worth $450K in TV could be sold and you can downsize easily to a cottage, a CYV or a patio villa, something they should have done to begin with and had more cash on hand. There's 3 BR 2 BA 2 Car cottage in St. James right now for $267K.

What I always find odd are people who don't know another persons situation giving them advice!

I agree that in the scenario you describe that a RM may very well be appropriate. Prior to making such a life changing decision, I would contact a qualified professional to help me review my options. If I had no legacy desires, my goal would be to bounce only one check - the mortician!

Again, reverse mortgages can
Be a great financial tool.
The huge commissions are a myth! All loan officers make a pretty good commission. It is not an easy
Job being a loan officer, I’ve done it and there is a lot of training and knowledge necessary to be a loan officer. Reverse Loans are getting better and far more main stream.
Banks that do reverse will foreclose if the money owned is higher than the actual value. A good thing for the next person/investor to buy.
It’s important to do comparisons on costs but closings are expensive
No matter what kind of loan you use.
I’m planning to do a reverse refi when I turn 62 and I know more than most about loans and real estate!

Reverse Mortgages. Don't take one. Just Spend less. Live on what you can - not what you want. Very simple concept.

I don't know about that. The spread on my home is $118K between the 3 of them.:faint::faint:

So what you saying the lender didn’t make no money off the loan :1rotfl:

Most buy over their head why they get into money problems.

That's because they guy posting is a TOTV sponsor. So, he is PAYING to be here and his posts, while meant to look informative, are basically advertisements.

Try putting up your own ad here for any service watch it get removed. He basically has a license to advertise.

I used to like Tom Selleck ... is he that broke that he has to hawk this crap?

There's nothing wrong with Reverse Mortgages if you understand what they are and how they work. There are situations with any financing that can put you into an unfavorable condition. Most of the NaySayers don't understand what a RM is or how it works. I've had many mortgages and one reverse mortgage. Even though I should not have used the reverse mortgage when I did it did not turn out bad for me. In fact it worked out quite well and gave me some advantage over having a regular mortgage.

I find that people tend to label things they don't understand as 'Wrong' or 'Bad' and sadly many other people adopt that opinion rather than taking the time to find out for themselves.

I'm not an advocate of Reverse Mortgage, but I would not say there's anything wrong with them.

Not at all.

When we used the line of credit, and we did, we paid interest on the loan.

The advantage is no cost to set up the line of credit as opposed to the cost of setting up a reverse mortgage.

I disagree. I understand what a reverse mortgage is and how it works, but I don't think it is appropriate for most people. I think that many people, who buy a reverse mortgage, are sold the product by a commissioned broker, who doesn't fully explain the pros and cons or the alternatives. And, many of those people, who shouldn't buy a reverse mortgage, do so without understanding what it is and how it works. This is also true for many other financial products sold by brokers who want to make a commission.

I couldn’t agree more. This was the entire point of my original post. I received 4 offers in the mail just in the past week for free chicken dinner seminars. It makes perfect sense why TV is a breeding ground for unscrupulous sales tactics. After all, what better place for the fox to set up home if not next to a bunch of chicken coops?

a free chicken dinner? well why didn't you say so!!! LOLOL

otherwise, you're right on.

I like to go when they have it at some of the better restaurants here in the Villages.

Do not go back for a second visit with these guys but often do learn something that is useful to me.

Just look at the numbers! It’s clear why the lenders don’t care. They are made whole and we pay the price

RM Example:
Directly from the Federal Reserve website. Notice the fee total of $11,625. Notice there is no line for “commission”. I can guarantee you paid it. The house was valued at $275,000 and mortgage-free. Also, notice the total owed after 5 and 10 years. EYE POPPING!

“Account Opening Fees:
Loan Origination. $4,735
Inspection. $500
Title Search & Insurance. $595
Appraisal. $295
RM Insurance Premium. $5,500 (if your home valued higher, it’s 2%)
TOTAL: $11,625
Also, monthly fees:
Servicing Fee: $35/mo.
RM Mortgage Premium: 0.5% annually
Monthly Interest charges on the draw.
Initial line of credit was $186,974
Amount owed after 5 years: $51,025 + $186,974 = $237,999
Amount owed after 10 years: $97,764 + $186,974 = $284,738”

Can you imagine how much the taxpayers are going to be on the hook for after 15, 20 or even 25 years depending on the age of the borrower and their life expectancy?
Answer: Billions

In 2018 taxpayers were on the hook for over $13,000,000,000 from reverse mortgage foreclosures.

"“They want to stop the bleeding,” Lynn Drysdale, an attorney who works with Jacksonville Area Legal Aid, said of lenders. “They have to go through a foreclosure before they can file a claim with HUD (Housing and Urban Development).”

Because the loan is federally insured, the government will make up most of the difference between what is owed on the mortgage and what is recouped from the sale of a foreclosed home. The defaults have caused a drain on the government’s Mutual Mortgage Insurance Fund, according to a Federal Housing Administration report to Congress. The insurance fund had $2.11 billion in fiscal year 2018, but it had to pay $15.75 billion to cover claims filed by reverse mortgage lenders, leaving the fund's reverse mortgage portfolio more than $13 billion in the hole, the report stated."

https://www.naplesnews.com/story/new...ss/1192702001/

Wonder how much the govt collects in insurance on these loans.

$2.11B was collected in insurance premiums, I believe from regular mortgages as well as RMs. The government paid out $15.75B, most of which was paid out due to RM foreclosures. We taxpayers are picking up the tab. We supplement the industry as the lenders literally cannot lose and of course the various commissions and fees they garner for every imaginable little thing they do along the way are humungous.

More proof that these are horror stories in the making. This is from a 2016 article in “Consumer Reports”.

Reverse-Mortgage Ads Still Making Misleading Claims, Federal Regulators Say:

Senior alert: Consumer watchdogs say reverse-mortgage companies are still trying to trick you with ads promising a risk-free way to tap the equity in your home.
That’s the message from the Consumer Financial Protection Bureau, which on December 7, 2016, ordered three reverse-mortgage companies to stop running deceptive ads and pay almost $800,000 in total in fines for making false promises to potential borrowers and claiming that consumers could never lose their homes.
But seniors who don’t keep up with payments on taxes, insurance, utilities, and upkeep risk defaulting on the loans and being forced to move out.
“These companies tricked consumers into believing they could not lose their homes with a reverse mortgage,” said CFPB Director Richard Cordray. “All mortgage brokers and lenders need to abide by federal advertising disclosure requirements in promoting their products.”
The CFPB says these companies, in voluminous print, television, and radio ads, and distribution of direct-marketing information kits, made false claims, including that borrowers would “always retain ownership” and “can’t be forced to leave.”
The CFPB said the ads also claimed there are no costs to reverse mortgages, when in fact you have credit report fees, title insurance costs, appraisal costs, other closing costs, and a fee for government mortgage insurance.
A Troubled History
Though a number of regulatory changes have been made to protect consumers, advertising remains a troubling component of the reverse-mortgage lending business.
Lenders barrage potential borrowers with ads featuring B-list actors such as Henry “The Fonz” Winkler and Robert Wagner aggressively pitching reverse mortgages to seniors as a risk-free way to supplement retirement income.
American Advisors ran TV ads almost daily and distributed its information kits to more than 1 million people. Its newest pitchman started in September: Tom Selleck.
This isn’t the first time the CFPB has cracked down on misleading advertising by the industry. Last year the bureau issued a report saying that many reverse-mortgage ads are inaccurate or omit important information.
The CFPB has sent warning letters (PDF) to mortgage advertisers targeting older Americans and took an enforcement action against a reverse-mortgage lender in 2015 for misrepresenting itself as a government agency.
Consumer Reports has also long been concerned about the risks of reverse mortgages and advocated for important changes for more disclosures. CR helped make it mandatory for seniors in California to fill out a detailed questionnaire walking them through the loan’s possible consequences before filling out a mortgage application.