Is it wise to go with reverse mortgage? - Chicago Tribune

Q: My mother is 75 (widowed) and in reasonably good health with the attendant financial issues of living on a fixed income. She lives in Michigan and I am in North Carolina.

My sister (age 54) lives with her and is disabled due to multiple sclerosis. She is still functional — able to drive a car, etc. — but unable to handle any sort of home upkeep more than housekeeping. She is divorced and her only income is Social Security disability.

I would love for my mother to take advantage of a reverse mortgage, but what are the options when she passes? What options would I have for my sister? Is there is any way for her to stay in the home?

A: Typically, reverse mortgages are restricted to people who are 62 years of age and older. Additionally, most reverse mortgages become due and payable on the death of the borrower or when the borrower moves out and sells the house.

Your sister is 54; if your mother lives for another eight years, then I suspect that your sister will be able to get her own reverse mortgage.

But, will your sister be the sole inheritor of the house? Or will your mother leave it to both of you?

Furthermore, when your mother passes, will it be wise for your sister to live in the house by herself even if she can afford to do so?

There are many questions that you should start asking and getting answers to as soon as possible. Your mother should consult with an estate planning attorney in Michigan. She should have a last will and testament, a durable power of attorney and a living will — and some people also want to have a durable power of attorney for health.

AARP has a lot of valuable information about reverse mortgages at aarp.org.

Q: My mother has a reverse mortgage on her home, taken out after my father died, with her name alone on the title. The usual terms of the reverse mortgage apply, including the acceleration clause upon death or removal from the home. If anyone else is added to the title via a quitclaim deed in a tenancy in common, what impact does that have on the loan terms?

A: The reverse mortgage was recorded on land records in the jurisdiction of the property. If anyone else is added to title, they are second in line. Thus, when the reverse mortgage becomes due and payable, that lender can foreclose on the property and the new parties are out of luck. They were on notice — based on the recorded information — that they were behind the reverse mortgage.

Q: In May 2008, I signed a land contract on my home, thinking I had done a short sale and was no longer on the mortgage or on the deed or title to the home. However, a few months after signing the contract, I discovered that my name was still on the mortgage and on the title to the home. When I found out, I tried to find an attorney that would be able to help me, but I was unable to afford a lawyer. Help!

A: Years ago, when the farmhands who worked for ranchers out West wanted to buy an acre or two, they made a deal with the landowner/rancher. "I will buy the land for $100, and pay you $5 a month. You will put the deed to the property in escrow with a third party (a bank, an attorney, a title company). When I am able to pay the full $100, you will instruct that third party to release the deed and record it in my name."

This is called a "land installment sales contract," or a "land contract" or "contract for deed." So, where is the party who is on that contract with you? I assume the mortgage is being paid by someone, as there has been no foreclosure over the past four years.

Do you have a copy of that contract? Read it carefully; you may not be in trouble at all.

But you really should get an attorney to review your documentation. If you cannot afford legal counsel, most cities have a bar association that can provide "pro bono" (free) legal services.

More Homeowners Seek Reverse Mortgages at Earlier Age - New York Times (blog)

Reverse mortgages have always been viewed as a last resort — something that older retirees could turn to when they desperately needed to supplement their dwindling incomes. But in the wake of the housing market's collapse and high unemployment, a new study has found that people are using reverse mortgages to alleviate more urgent financial pressures, like paying off debt. And homeowners are applying for these loans at much younger ages than they have in the past.

Reverse mortgages allow people age 62 and older to tap what may be their biggest asset, the equity in their home, without having to make any payments. Instead, the bank pays the borrowers, though they continue to be responsible for paying property taxes and homeowner's insurance. When borrowers are ready to sell (or when they die), the bank takes its share of the proceeds from the sale, and borrowers (or their heirs) receive whatever is left.

The study, conducted by the MetLife Mature Market Institute and the National Council on Aging, analyzed data collected from reverse mortgage applicants who went through mandatory counseling sessions with government-approved counselors. The study covers 21,240 sessions from September through November 2010.

"Consumer attitudes about reverse mortgages are changing because the recession has eroded confidence about retirement security, and Americans will rely more and more on these measures," said Sandra Timmermann, director of the MetLife Mature Market Institute. "As reverse mortgages do not have income requirements and since other forms of credit have become less accessible, these loans will become more attractive."

The research found that about 21 percent of homeowners who went through counseling were 62 to 64 years old — even though you can pull less money out the younger you are. That's a sharp rise from the 6 percent of borrowers in that age group who applied for reverse mortgages in 1999.  Those findings are also consistent with a recent industry analysis that found a dramatic shift toward younger borrowers in the past few years.

And while the average age of the borrower is 73 years old, as the chart above shows, the average age of homeowners who went through the counseling was 71.5 years old. That is consistent, the study said, with the housing department's findings. "As we look more closely at the age distribution of recent counseling clients, it appears that this broad trend may conceal the start of a major generational shift in the use of reverse mortgage loans," the study said.

Of homeowners who are considering a reverse mortgage, nearly 46 percent are under the age of 70, according to the study.

The vast majority of counseling clients in 2010, or 67 percent, were seeking the reverse mortgage to lower their household debt. Only 27 percent were considering it to improve their quality of life. Most recent counseling clients (67 percent) said they had a conventional mortgage that needed to be repaid if they decided to take out the mortgage, whereas 27 percent reported having both housing and nonhousing debt. Naturally, using their equity to repay the debt means they will have less left should they need to access it in the future.

For nearly one-third of counseling clients, the existing mortgage may exceed half the value of their home, the study said. That means they may not have enough equity to qualify for the mortgage, or they have to wait several years until they can qualify for a loan that's large enough to satisfy their financial needs.

Most reverse mortgages originate through the Department of Housing's Home Equity Conversion Mortgages program — known as HECM (pronounced HECK-um) — which has become more popular over the past 10 years. There have also been many changes to the program, including a new loan option known as the "HECM Saver," which requires lower upfront fees. That version came out in October of 2010, so the study noted that its results may reflect the fact that more homeowners considered those loans, though it's unlikely that it had a major effect.

The study's authors also point out that more homeowners are likely to incorporate home equity into their retirement plans, instead of tapping it for emergencies only. "It is likely the reverse mortgage option will be considered alongside some of the more traditional methods of saving and investment," said Barbara Stucki, vice president for home equity initiatives at the National Council on Aging.

The study also included a consumer guide to reverse mortgages.

At what point would you consider a reverse mortgage?