Things to do in Washington DC: NEW REVERSE MORTGAGES BRING PERKS,BUT ALSO SOME RISK

NEW REVERSE MORTGAGES BRING PERKS,BUT ALSO SOME RISK

The new breed of reverse mortgages allow for higher loan amounts and lower fees but may charge higher interest rates.

Reverse mortgages allow homeowners,

  • 62 and older to convert home equity into income, with the lender paying out via a lump sum,monthly payments or a credit line. When the house is sold,the lender is paid back with interest.
  • With a typical reverse mortgage, the homeowner never owes the lender more than the value of the home. More lending institutions are getting comfortable with reverse mortgages and offering more variety so more choices are available. There are more resources and more products.

This allows you to set aside a portion of your home's equity to be preserved for your heirs. The fees charged are a lower percentage of the home's value than those charged on traditional reverse-mortgage loans,but the interest rate on the bank's new product is generally higher. There is an older generation that believes in paying off the mortgage and having the home free and clear, but boomers have used home-equity lines of credit their whole life. They are more likely to see their home as a financial resource.

 

To receive a free list of "Houses for sale in Washington DC",please don't hesitate to give me a call at your earliest convenience. I can be reached at (202) 378-0283 (Direct) or (301) 560-6700 x1154 (Office). Thank you very much. Looking forward to working with you and helping you make your home purchase a stress free and very happy one. Lanre Folayan - Real Estate Professional - Exit Premier Realty. "Buy and sell a home in Washington DC"

 

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Comments

Sounds like they are not planning on leaving the house to the kids.
Posted by Vicky Poe, Realtor/ Auctioneer (Good Ole Rocky Top) over 12 years ago

Lanre,

Please do a chapter 2 and give us more info on reverse mortgages as I was always curious as to how they work.

Good post!

Thanks,

Karen Monsour, Realtor, Fort Lauderdale, Fl

Posted by Karen Monsour, REALTOR, SSRS - Sells FL Waterfront, Short Sale Expert! (Coldwell Banker Fort Lauderdale Beach) over 12 years ago
This sounds like a better product over all than existing reverse mortgage programs which seem to leave the lenders in the catbird's seat with regard to interest and leaves the heirs disappointed when the worst happens.  This program sounds like it may indeed be more ethical.
Posted by Keith Stoller (Keith Stoller Tax & Business Solutions) over 12 years ago

Vicky-At least with the new Senior Equity Maximer from Bank of America,homeowners can set aside part of their equity to their heirs.

Karen - I am not a reverse mortgage expert. However,I recommend two sites. One is www.reversemortgage.org. The other one is www.reverse.org - HIGHLY RECOMMENDED! This is the site of Ken Scholen who is said to be the one who invented reverse mortgages.

Keith - I agree.

Posted by Lanre-"THE REAL ESTATE FARMER" Folayan, I don't make promises.I deliver results.SOLD HOMES (Keller Williams Select Realtors-Buy a home in Washington DC. Sell a home in Washington DC) over 12 years ago

Lanre,

Thanks for the links, I'm bookmarking as I blog.

Karen

Posted by Karen Monsour, REALTOR, SSRS - Sells FL Waterfront, Short Sale Expert! (Coldwell Banker Fort Lauderdale Beach) over 12 years ago
Anytime Karen. By the way,are you going to the Exit Convention in Colorado this month?
Posted by Lanre-"THE REAL ESTATE FARMER" Folayan, I don't make promises.I deliver results.SOLD HOMES (Keller Williams Select Realtors-Buy a home in Washington DC. Sell a home in Washington DC) over 12 years ago

Hello Lanre and everyone.

I was raised to understand one basic rule of life.  That is, life is filled with trade-offs.  I do appreciate your article in general, but wish to point out a couple quick things.

 First, your title says that reverse mortgages contains "risk".  When I think of that word, really bad things come to mind.  So I went to Merriam-Webster online and found these definitions for "risk":

1: Possibility of loss or injury : peril

2: someone or something that creates or suggests a hazard

3 a: the chance of loss or the perils to the subject matter of an insurance contract; also : the degree of probability of such loss b: a person or thing that is a specified hazard to an insurer <a poor risk for insurance> c: an insurance hazard from a specified cause or source <war risk>

4: the chance that an investment (as a stock or commodity) will lose value

At the risk of sounding defensive, since I'm a reverse mortgage professional, I want to point out that that reverse mortgages are not for everyone.  However, for those whom a reverse mortgage makes the most sense. they are protecting their #1 tangible asset from the risk of foreclosure, or otherwise being forced to move from the home in which they are most comfortable. 

I will be the first to admit that a reverse mortgage is rarely the best business decision.  One client of mine is a 74 year old widow.  When she called me for a consultation, the first question I asked her, (and typically my first question I ask anyone), was, "what is your number one objective that has you inquiring about a reverse mortgage?".  Her answer, without hesitation, was, "I want to stay in my home."  A couple years ago, she got a loan against her home to pay off credit card debt and make some home improvements.  Now, at her age, she had a part time job at Costco working a table for people to sample foods.  The money she made from this was just enough to make her monthly loan payment.  Her social security income was only $600 per month, so she was really in a bind.  She was faced with the idea of selling her home and moving out of state to live with one of her adult children and their family.  While she loves her children very much, she didn't want to leave her home, or her home town. 

As you might expect, she got a reverse mortgage.  She quit the job she didn't like, and bought herself a new car to replace the clunker she had before.  She is now free of the loan payment she had, and she's getting $700 per month of tax-free income from her loan. 

With the blessing of her 5 children, she got the reverse mortgage.  While many see the "peril" of reverse mortgage being that the potential for heirs to get something after their parents pass away, in most cases, the adult children would prefer their parents spend every cent of it if it means their parent(s) can live their life where they are comfortable with financial independence and peace of mind.  Plus, not all adult children have the money and space to support their parent(s), themselves.  Plus, in most cases, there is still retained equity at the time the reverse mortgage is due, and heirs walk away with money. 

There are many seniors and baby boomers who have not sufficiently prepared themselves for retirement.  They're outliving their savings, and their social security is not keeping up with the demands of the cost of living. 

Ok, I've made that point, I think.  But I do want to point out one other thing before I end.  You said that with a "typical" reverse mortgage, a borrower will not owe more than the value of the home.  To clarify, with any reverse mortgage, the borrower will not owe more than the value of their home.  Reverse mortgages are non-recourse loans, so heirs and the estate will never have to pay anything out-of-pocket.  In the "worst" case scenario, that being the equity is consumed by the reverse mortgage, the heirs will not walk away any worse than they were before. 

Any dignified heir would see that an inheritance is a priviledge, not a right.  If something is left behind for them, wonderful.  But if the parents need this equity for their own purposes, they are free to do so.  It's their money! 

Sorry this is so long.  I just want to make sure everyone gets the full story on reverse mortgages, and a little something about those who benefit from them.  Sometimes you have to be willing to look beyond the numbers and how things look on paper.  I hope my response has helped do that to some degree.

 Thank you for your great post.  I appreciate that you've researched this and that you are interested in getting accurate information out there for people so they may understand how the reverse mortgage option works.

 

Posted by Risks? over 12 years ago

Sorry, I made the last comment, but I didn't realize I wasn't logged in.  (I'm still new to this site).  I didn't mean to leave an anonymous reply to your post. 

 Thanks again for your article!

Posted by Corey Matelli (Reverse Mortgage Company) over 12 years ago

Corey - Thank you for responding to my post. I really appreciate your comment sir and for even educating me more on reverse mortgages. And I definitely understand that it is not for everyone. As you know,the risk is that anyone doing reverse mortgages would be charge higher interest rates. By the way,welcome to Active Rain. I look forward to reading and responding to many of your posts. The real estate agents here are outstanding. Much success to you. Again thank you very,very much for your information sir.Take care. Great post.

Posted by Lanre-"THE REAL ESTATE FARMER" Folayan, I don't make promises.I deliver results.SOLD HOMES (Keller Williams Select Realtors-Buy a home in Washington DC. Sell a home in Washington DC) over 12 years ago

Thanks Lanre.

 Just to further inform you, there are adjustable rate reverse mortgages right now with interest rates in the low 5 percent range, and fixed rate reverse mortgages at 6.5%.  That's not too bad, is it?

Thanks for the welcome.  I'm really enjoying my experience on here.  I have already found a great many folks like yourself who are continually looking to learn and teach so that we all may be better equipped to serve our clients.

Posted by Corey Matelli (Reverse Mortgage Company) over 12 years ago

will this be an FHA underwritten Reverse? Will B of A keep it "retail Only".

 any thoughts on Financial Freedom??

Posted by Lewis Poretz, Business Development Manager (Apex Home Loans) over 12 years ago

Hello Lewis.

 You've asked great questions.  I would like to address your third question.  I used to work for Financial Freedom, so speaking as someone who was "inside" and now sees things from the "outside", I think my observations are qualified.  Financial Freedom was the absolute leader in the industry, and synonymous with reverse mortgage for some time.  They still have very good products.  Unfortunately, they have a well deserved reputation for being difficult to work with when it comes to processing and customer service.  Just try and get a hold of someone in the service department, I dare you.  

I recently did a re-fi for a couple who had a FF reverse mortgage.  They were very frustrated with the difficulty they had in getting a hold of anyone at FF.  While sitting in their kitchen, I pulled out my cell phone, put it on speaker and dialed my company's main number.  An actual live person answered within one ring.  That's company policy.  You don't get stuck in an automated maze of recordings and menus.  For the couple, it gave new meaning to, "you had me at hello".

As a correspondent for Bank of America, Bank of New York, Countrywide and Financial Freedom, I will tell you that the products offered by B of A and BNY typically provide greater benefit than those of FF right now.  Additionally, these companies are much easier to work with when it comes to the "human" element.

Now, that is not to say that FF is a bad company or anything else.  They simply have been passed up by the hungry and innovative competition.  Perhaps FF will turn it around and re-take their familiar spot at the top.  But for now, there are better options.  When Financial Freedom is the best way to go for someone, you better believe I'll be happy to offer it to my clients.  I just let them know up front that they may experience some frustration if they actually need to speak to someone in Servicing or Processing.  I'm just happy to be in a position to objectively offer and provide what is truly in the client's best interest.

Posted by Corey Matelli (Reverse Mortgage Company) over 12 years ago

Lanre -   are you a realtor or a mortgage buy?

Do you do most of your business in Md?

You sound like a person I should network with......    give me the scoop

 

Lewis 

Posted by Lewis Poretz, Business Development Manager (Apex Home Loans) over 12 years ago

Lewis - I am only a realtor. I am licensed in DC for now but plan on getting licensed in MD and VA by the end of the year. I definitely want to network with you as well. I am always looking to expand my business contact database.

Posted by Lanre-"THE REAL ESTATE FARMER" Folayan, I don't make promises.I deliver results.SOLD HOMES (Keller Williams Select Realtors-Buy a home in Washington DC. Sell a home in Washington DC) over 12 years ago
Corey - great post on the reverse mortgages.  Have you done much targeted marketing for this type of loan?  I would imagine that there are plenty of sources in each community to reach out and contact that age group that may qualify.  However, I certainly don't want to be known as the guy who raided the Senior's Center Shuffle Board game to do them harm.  It has to be the right client for such a product.
Posted by Kevin McLaughlin (S&P Mortgage (Alumni)) over 12 years ago

Thanks for your kind words, Kevin.

You've hit the nail on the head.  Seniors are a savvy bunch.  They're vulnerable, yet shrewd.  For me, I simply want to build relationships with people and let them see for themselves that I am only interested in their best interest.  The very lady I shared about who worked at Costco...she was debating between selling her home and the reverse mortgage.  I looked her in the eye and told her that if she decided to sell and move, I would help her pack.  I meant every word of it, and she knew it.

I haven't yet figured out how to put that on a flyer, postcard or newspaper ad.  So for now, I just get out there and meet people in their everyday lives.  I'm not comfortable with trying to lure people in with the promise of a free meal.  Shoot, I remember sitting through a timeshare presentation just for the free stereo they offered me.  I had no intention of buying what they were selling, and I knew I was blood in the water to them.  I refuse to make seniors feel like that.

On the other hand, there are a great many people out there who are uninformed, or worse, misinformed.  So I come to places like this, Active Rain, in my pursuit to spread the truth, and to present myself as not only knowledgeable, but sincere, passionate and compassionate.   I also come here to learn from others.  I'm open to suggestions.  If I'm successful in my pursuit, then I am helping people in need.  And to me, that's what it's all about.

Thanks again for your post.  Have a tremendous Friday! 

Posted by Corey Matelli (Reverse Mortgage Company) over 12 years ago
I hope people will explain the process to seniors and not take unfair advantage of them. It is not for everyone.
Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) over 12 years ago

Hello Gita.

Your wish is granted.  It serves absolutely no purpose for a Reverse Mortgage lender to withhold any information.  Why?  Each borrower is required to complete independent counseling before the lender may take even the first step in processing the loan.  This counseling is performed by an agency with absolutely no interest in whether or not the senior gets the loan.  During the counseling, all of the elements of a reverse mortgage which make it unique from conventional loans are covered.  And of course, the borrower is allowed every opportunity to ask questions.

When I meet with prospective clients, I often do so in the presence of a trusted family member, friend or financial advisor.  Even when such people are not there, I always encourage my clients to have whomever they trust to call me and ask me their own questions. 

You're absolutely right.  Reverse Mortgages are not for everyone.  Anyone who says so should be avoided.  

Rest assured, reverse mortgages come with checks and balances to protect and fully inform would be borrowers. 

Thanks for your post, and thanks for your concern. 

~Corey 

 

Posted by Corey Matelli (Reverse Mortgage Company) over 12 years ago

Corey,

Are there any types of pre-pay penalties on these loans?  For example, 6 mos after doing a reverse mortgage, Mr Smith becomes ill and decides to sell his home and move to assisted living.  Is there anything that prevents him from doing so?

Posted by Kevin over 12 years ago

Hi Kevin.

Great question.  In most cases, no, there are no prepayment penalties.  The most common reverse mortgage is the HECM (Home Equity Conversion Mortgage).  These loans have no prepayment penalties.  These are the loans which are insured by FHA.  

However, most lenders have developed proprietary jumbo loans for higher valued homes.  In certain conditions, such as where the borrower gets reduced or waived closing costs in exchange for cashing out all or most of their loan at funding, there will likely be some kind of penalty if the loan is paid off within the first 5 years.  In the event where the borrower opts for the line of credit and/or receives a monthly payment from their loan, there would be no penalty.  

Thanks for your question.  If you have more, please feel free to contact me, or ask me right here.  I'll be happy to help! 

~Corey 

Posted by Corey Matelli (Reverse Mortgage Company) over 12 years ago

Kevin - I definitely didn't write this post to target senior citizens. I just wrote it to help people who might have family members thinking of doing a reverse mortgage. Matter of fact,someone called me this week and said that his father might be doing a reverse mortgage. So I guess it came on time.

Corey - Thank you sir for all of the comments on my post. I have learned a lot from you. Thank you very much sir.

Gita - You are absolutely right. IT IS NOT FOR EVERYBODY. Great post.

Posted by Lanre-"THE REAL ESTATE FARMER" Folayan, I don't make promises.I deliver results.SOLD HOMES (Keller Williams Select Realtors-Buy a home in Washington DC. Sell a home in Washington DC) over 12 years ago
Hi are the risks the interest..so you basically get paid..and interest accrues on what you are paid..you pay it off when you sell the house..
Posted by Konnie Mac McCarthy, Broker/Owner - VA & MD "Time To Get A Move On!" (MacNificent Properties, LLC) over 12 years ago

Hey Lanre,

I didn't mean to offend when I used the word 'target'  I was just trying to emphasize that a loan officer should use a great deal of tact if he/she chose to advertise to this particular group.  It could certainly come with bad publicity and ruin a good, rock solid reputation.

Posted by Kevin McLaughlin (S&P Mortgage (Alumni)) over 12 years ago

Kevin - I understand that you definitely mean to offend when you used the word target. Please let me know whenever you decide to do the open house hotline. Great post.

Konnie -Absolutely. Thank you for commenting on my post.

Posted by Lanre-"THE REAL ESTATE FARMER" Folayan, I don't make promises.I deliver results.SOLD HOMES (Keller Williams Select Realtors-Buy a home in Washington DC. Sell a home in Washington DC) over 12 years ago

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