Bureau warns about reverse mortgages' risks - Minneapolis Star Tribune

WASHINGTON - As some older Americans try to improve their finances by tapping home equity through reverse mortgages, many are at risk of ending up in a worse situation because of confusion over the loans' complex terms, according to a new government report.

There is a growing tendency for seniors to obtain the money at a younger age and in a lump sum instead of annual installments designed to spread the dollars through their retirement, problems that could accelerate as the baby boom generation goes gray, according to the report released by the Consumer Financial Protection Bureau.

With about 10 percent of reverse mortgages in default because the homeowners failed to keep up with required property tax and insurance payments, the bureau said it was worried about the increased use of the product over the past decade and was looking into new regulations. In addition, the complexity of reverse mortgages makes some senior citizens prime targets for scammers, the report said.

"There may be circumstances where the reverse mortgage is appropriate, but the seniors I've talked to really are a bit confused about what it is all about," said Hubert Humphrey III, head of the bureau's Office of Older Americans and former Minnesota attorney general.

"They're told there's money out there that they can get, but there isn't always a description of the cost associated with the product. And the interest rates and other parts of this product are often confusing," Humphrey said.

The consumer bureau is considering requiring better disclosure of reverse mortgage terms and stricter monitoring, including limits on misleading advertising.

Consumers Union has been warning that reverse mortgages are ripe for abuse and that people should use "significant caution" in exploring the option. The group recently urged tougher federal scrutiny of the loans and published tips for consumers considering reverse mortgages.

"It is an expensive way to borrow," said Norma Garcia, a senior attorney with the organization. "It's not for everyone."

Reverse mortgages allow people at least 62 years old to take out loans based on the equity built up in their homes. But unlike a traditional home equity loan, a reverse mortgage does not require any monthly payments. The loan, which is easier to qualify for than a home equity line of credit, doesn't come due until the home is sold or the person moves out or dies.

It's an attractive option for people who want to enhance their retirement income without selling their home -- as long as they're aware of the risks, said Richard Cordray, the consumer bureau's director. The report found that "though many older Americans are aware of reverse mortgages, they struggle greatly to understand this complicated product and the trade-offs involved," he said.

For example, because the interest is added to the loan amount each month, the size of the loan can grow to exceed the home's value. Under federal rules, borrowers or their heirs generally aren't required to repay more than the home's value. But that can mean there's no equity left in the home to pass down to the borrower's children.

Taxes and insurance

Borrowers also can face foreclosure if they don't stay current on property taxes and insurance premiums. As of the end of February, 9.4 percent of reverse mortgages were in default on taxes or insurance payments, up from 8.1 percent in July 2011, the report said.

Peter Bell, president of the National Reverse Mortgage Lenders Association, an industry trade group, said that the report "raises valid questions" and that the association would work with the consumer bureau to find the answers.

"All of us want seniors and their children to have a better and more in-depth understanding of reverse mortgages," Bell said. Last week, the group launched a consumer education effort called "Borrow With Confidence."

With the potential for rapid growth in the use of reverse mortgages, Cordray said, the consumer bureau is worried about some of the report's findings. The average age of people getting reverse mortgages has been dropping -- it was 72 as of May 31, down from 76 in 2000, according to HUD -- and the most common age for successful applicants now is 62, the report said.

Younger homeowners must make the reverse mortgage money last longer. Compounding the consumer bureau's concern is that more people are taking the money in a lump sum, or close to it, instead of an annuity-like payment.

Gov't watchdog: Reverse mortgages confuse elderly - Boston.com

June 28, 2012|Associated Press

The government's consumer finance watchdog says the growing market for reverse mortgages is getting confusing, and that could cost some seniors extra cash or even their homes.

The Consumer Financial Protection Bureau said in a report released Thursday that reverse mortgages are not being used as Congress intended.

Reverse mortgages allow elderly homeowners to withdraw equity from their homes. The CFPB says the purpose was to provide income for borrowers during retirement.

The agency's study found that consumers are getting reverse mortgages at younger ages, increasing the risk that they will go broke later in life.

It says 70 percent of reverse mortgage borrowers receive lump-sum payments, which can be squandered quickly. Borrowers are more likely to face foreclosure because they run out of money to pay property taxes.

Consumer agency warns of risks to reverse mortgages - Great Falls Tribune

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Consumer bureau warns of risks of reverse mortgages - The Seattle Times

WASHINGTON — As some older Americans try to improve their finances by tapping home equity through reverse mortgages, many are at risk of ending up in a worse situation because of confusion over the complex terms of the loans, according to a new government report.

There is a growing tendency for seniors to obtain the money at a younger age and in a lump sum instead of annual installments designed to spread the dollars through their retirement — problems that could accelerate as the baby-boom generation goes gray, according to the report released Thursday by the Consumer Financial Protection Bureau.

With about 10 percent of reverse mortgages in default because the homeowners failed to keep up with required property-tax and insurance payments, the bureau said it was worried about the increased use of the product over the last decade and was looking into new regulations. In addition, the complexity of reverse mortgages makes some senior citizens prime targets for scammers, the report said.

"There may be circumstances where the reverse mortgage is appropriate. But the seniors I've talked to really are a bit confused about what it is all about," said Hubert "Skip" Humphrey III, head of the bureau's Office of Older Americans.

"They're told there's money out there that they can get, but there isn't always a description of the cost associated with the product. And the interest rates and other parts of this product are often confusing," Humphrey said.

The consumer bureau is considering requiring better disclosure of reverse-mortgage terms and stricter oversight, including limits on misleading advertising.

Consumers Union has been warning that reverse mortgages are ripe for abuse and that people should use "significant caution" in exploring the option. This past week, the group urged tougher federal oversight of the loans and published tips for consumers considering reverse mortgages.

"It is an expensive way to borrow," said Norma Garcia, a senior attorney with the organization. "It's not for everyone."

Reverse mortgages allow people at least 62 years old to take out loans based on the equity built up in their homes. But unlike a traditional home-equity loan, a reverse mortgage does not require any monthly payments.

The loan, which is easier to qualify for than a home equity line of credit, doesn't come due until the home is sold or the person moves out or dies.

It's an attractive option for people who want to enhance their retirement income without selling their home — as long as they're aware of the risks, said Richard Cordray, the consumer bureau's director.

The report found that "though many older Americans are aware of reverse mortgages, they struggle greatly to understand this complicated product and the trade-offs involved," he said.

For example, because the interest is added to the loan amount each month, the size of the loan can grow to exceed the home's value.

Under federal rules, borrowers or their heirs generally aren't required to repay more than the home's value. But that can mean there's no equity left in the home to pass down to the borrower's children.

Borrowers also can face foreclosure if they don't stay current on property taxes and insurance premiums.

As of the end of February, 9.4 percent of reverse mortgages were in default on taxes or insurance payments, up from 8.1 percent in July 2011, the report said.

Peter Bell, president of the National Reverse Mortgage Lenders Association, an industry trade group, said that the report "raises valid questions" and that the association would work with the consumer bureau to find the answers.

Recently the group launched a consumer-education effort called "Borrow With Confidence."

No surprise: Advisers agree that reverse mortgages are confusing - InvestmentNews

Most financial advisers still shun reverse mortgages and aren't surprised that many older Americans who tap their home for income this way are confused.

A Consumer Financial Protection Bureau study released Thursday reported a jump in the number of people taking out reverse mortgages at age 62, the youngest they can do so under the law. It also said the complex products are hard for people to understand, especially the falling equity nature of reverse mortgages.

"Reverse mortgages can be very complicated for seniors to understand," said financial adviser Dennis Suckstorf, director of financial planning at Financial Advantage Inc. "If it wasn't for the economy being down and people not having any money left, we don't think that they would be used as much."

He considers it "a last resort," perhaps applicable to someone down to their last $5,000 but who still owns their home.

A reverse mortgage is a loan against home equity that doesn't have to be repaid until the owner dies or sells the home. When the owner dies, the estate repays the loan, typically by selling the home, and pays interest and fees.

The CFPB report said 2% to 3% of eligible homeowners have a reverse mortgage, with about 70,000 new originations a year. It's expected that the number of reverse mortgages will increase as baby boomers who haven't saved enough for retirement seek income.

"Reverse mortgages are complex and have the potential to become a much more pervasive product in the coming years as the baby boomer generation enters retirement," said Richard Cordray, director of the CFPB. "With one in 10 reverse mortgages already in default, it is important that consumers understand what they are signing up for and that it is the right product for them."

The financial advisers at Abacus Planning Group Inc. have never recommended a reverse mortgage to a client, though some clients have asked about them.

"It would be most appealing for those who know they are going to age in place and may have a house where that value is one of their largest assets," said Alex Chastain, an adviser with Abacus Planning.

Even then, the homeowner has to weigh the options and consider his or her life expectancy and health, "two things that are pretty hard to plan for," Ms. Chastain said.

Some financial advisers in recent years have become more open to using reverse mortgages, not just as a last resort but as a tool for retirees during a down market. The products themselves also have improved.

The fees on reverse mortgages are lower today, and some have a built-in guarantee to make sure the homeowner doesn't end up owing more than whatever the home sells for at death, said financial adviser Rachel Sanborn. There also are no income or credit score requirements, she said.

Her firm, Financial Focus Inc., is starting to consider using reverse mortgages in certain circumstances, such as using it as a line of credit in lieu of having to sell investments.

"We are looking at how it can be used as a backup plan in a down market," she said. The firm hasn't yet recommended one to a client.

Of course, it's not for anyone who wants to leave their house to their children, Ms. Sanborn said.

Comments

Mortgage Bankers Push For HUD Budget, Reverse Mortgage Counseling Funds - Reverse Mortgage Daily

The Mortgage Bankers Association urged U.S. House representatives this week to approve the Department of Housing and Urban Development budget, which passed last week through the House Appropriations Committee. 

Calling for funding of Ginnie Mae and the Federal Housing Administration (FHA), the MBA wrote a letter to members of Congress stressing the need to approve and boost specific provisions including housing counseling. 

"Given FHA and Ginnie Mae's key roles in providing a backstop to the housing finance market during these troubling economic times, this funding is critical to providing these entities the resources they need to effectively handle their increased loan volume in the single-family and multifamily mortgage markets," wrote MBA Senior Vice President of Legislative and Political Affairs Bill Killmer.

The overall proposed budget, at $51.6 billion for HUD and the Department of Transportation is $3.9 billion below its allocation last year and is $1.9 billion below the Obama Administration's budget request. Certain programs need additional funding, MBA wrote, including an increase in housing and homeownership counseling funding of $10 million to meet the administration's request for at least $55 million overall. 

"These funds are critical to assisting homeowners facing foreclosure, helping first-time homebuyers navigate the challenges of the purchase process and counseling for reverse mortgages (a program requirement) for seniors, a traditionally high-risk group for financial fraud," the letter states.

Last year, housing counseling funds were zeroed out, leaving counseling agencies unfunded during an interim period of time. 

View the letter. 

Written by Elizabeth Ecker

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Reverse Mortgage Mistakes Too Common: Government - TheStreet.com

NEW YORK (BankingMyWay) -- For all its expenses and confusing terms, a reverse mortgage can be a godsend for an older homeowner, allowing one to tap home equity without having to make loan payments or move out. But a new study from a government consumer watchdog finds that typical borrowers do exactly what the experts say they shouldn't -- tapping too much equity too soon.

The study, released this week by the Consumer Financial Protection Bureau, found that the most common age for taking out a reverse mortgage is 62, the first year a homeowner is eligible. Two out of three homeowners using reverse mortgages take lump sums rather than steady income or a line of credit. In other words, these borrowers have ignored, or are unaware of, the best advice: to take a reverse mortgage as late in life as possible, and to borrow a little rather than a lot. To back up for a second, a reverse mortgage is a federally backed loan against the equity in the home, which is the difference between the home's value and any debt remaining on a mortgage or home equity loan. Unlike a regular mortgage or home equity loan, a reverse mortgage requires no monthly payments. Instead, the debt and interest charges are paid when the home is sold, the owner moves or dies. This total can never exceed the proceeds from selling the home, so the borrower's other assets are not as risk. Because there are no payments, the homeowner does not need an income to qualify for one of these loans. These features obviously pose a risk for lenders, who compensate by limiting these loans to less than the home's value at the time the deal is closed. The older you are, the more you can borrow on a home of a given worth, since there is less risk you'll live long enough for the debt to grow larger than the property's value. If the home eventually sells for more than the debt, the difference goes to the owner or owner's heirs. Owners who take loans when they are younger can borrow less and are less likely to have any equity left 10, 20 or 30 years later, when all their other financial assets are more likely to be gone. Borrowing at 62 increases the chances you will run short of money at 85.

Reverse Mortgages Worry Regulator - Wall Street Journal

By MAYA JACKSON RANDALL

WASHINGTON—A U.S. financial regulator warned that new rules may be needed to address hidden dangers in reverse mortgages, the special loans that enable cash-strapped seniors to borrow against the equity in their homes.

Deceptive marketing practices, complicated loan terms and misleading marketing materials are some of the problems the Consumer Financial Protection Bureau highlighted in the $90 billion industry, which is expected to grow in popularity as tens of millions of baby-boomer homeowners grow older and struggle to pay for retirement.

Any new regulations would affect industry leaders such as Quicken Loans and Wall Street financial firms like Guggenheim Partners and Knight Capital Group Inc., which own companies that make reverse mortgages. Large banks such as Bank of America Corp. and Wells Fargo & Co. have left the market amid rising defaults and declining home prices.

Nearly 10% of reverse-mortgage borrowers are at risk of foreclosure because they have failed to pay taxes and insurance, according to the CFPB's study, mandated by the 2010 Dodd-Frank financial overhaul.

Reverse mortgages, targeted at homeowners over 61 years old, are similar to home-equity lines of credit. But instead of a monthly payment, repayment is deferred until the homeowner leaves the home, dies or fails to maintain the property, pay homeowners' insurance or property taxes.

The upfront fees, interest and closing costs can be much higher than on home-equity loans. While there are no required monthly payments on a reverse mortgage, the interest is added to the loan balance each month, and so the rising loan balance can grow to exceed the value of the home.

The loans represent a small corner of the national mortgage market, with only about 2% to 3% of eligible households using them, according to the CFPB. But studies show demand is growing, expanding the pool of 580,000 currently outstanding, according to Reverse Market Insight, a data provider and newsletter on the industry.

Peter Bell, head of the National Reverse Mortgage Lenders Association, said better consumer education is necessary, and he shares concerns about misleading advertising and scams, adding that most consumers who have the loans are satisfied.

Seventy percent of borrowers are taking out the proceeds as a lump sum, as opposed to a line of credit or stream of payments, according to the bureau's study. Such a move could result in borrowers having trouble paying taxes and insurance on their homes, which could put them at risk of default.

Monica Newton, a 68-year-old resident of Chireno, Texas, said she has had troubles with unexpected bank fees and charges on her reverse mortgage, but she said in general the product is "really good for old folks" who aren't concerned about leaving their homes to their kids or other family members.

Ms. Newton used cash to purchase her home for about $140,000 and decided to take out a reverse mortgage about five years ago when she needed extra money to cover retirement expenses. She said she is worried about being able to keep her house maintained to her lender's standards.

Write to Maya Jackson Randall at Maya.Jackson-Randall@dowjones.com

A version of this article appeared June 28, 2012, on page C3 in the U.S. edition of The Wall Street Journal, with the headline: Consumer Watchdog May Order New Disclosures for Reverse Mortgages.

Reverse mortgages confuse elderly, report finds - msnbc.com

By Herb Weisbaum, The ConsumerMan

More Americans are getting reverse mortgages — and that's not a good thing, according the government's consumer finance watchdog.

The Consumer Financial Protection Bureau said in a report released Thursday that reverse mortgages are not being used as Congress intended. It also warned that the program could cost some seniors extra cash or even their homes.

Reverse mortgages sound fairly simple: They allow for homeowners 62 and older to borrow against the equity they've built up in their home without selling it. But the CFPB calls these loans "inherently complicated products" that are not easy for the average consumer to understand. 

Based on its study of the marketplace, the CFPB concludes that people who consider taking out these loans are "ill-equipped" to understand the costs and risks involved. 

"People are quite confused about reverse mortgages," said Hubert Humphrey III, who heads the CFPB's Office of Older Americans. "People need to better understand reverse mortgages. What is the best way to use them? What are the risks and what are the costs associated with it?" 

It's called a "reverse" mortgage because rather than pay the lender, the lender pays you. You don't have to pay back the loan as long as you live in the house, maintain it and pay the insurance and property taxes. The loan must be paid off in full if you move or when you die. That usually means selling the house. 

Here's the part that sometimes gets missed: A reverse mortgage is still a loan – with monthly interest charges, fees and other costs. The borrower does not make interest payments. They are simply added to the loan balance. 

Over time, the home equity decreases while the loan balance increases. If the value of that loan exceeds the value of the home, the borrower (or his/her estate) will not receive any money when the house is sold. 

Right now, only 2 to 3 percent of the eligible homeowners have a reverse mortgage. But the CFPB predicts these loans could become much more common in the coming decades as baby boomers retire. 

Since the 1990s, the proportion of borrowers in their 60s has more than doubled to 47 percent.

Congress directed the CFPB to study the reverse mortgage market as part of the 2010 Dodd-Frank financial oversight law that also established the still-controversial watchdog agency. The study could eventually lead to new federal regulations for the reverse mortgage market.

Drastic changes in the marketplace
The CFPB report points out that the reverse mortgage market has changed dramatically in the last three years. These loans were designed as a way for seniors to get some cash out of their homes to meet retirement expenses. Today, the type of loans offered and the way they are structured are quite different. 

Before 2009, most reverse mortgages were adjustable-rate loans. The borrower could choose monthly payments for everyday expenses, a line of credit for major expenses (home repair or medical bills) or a combination of the two. 

Now the majority of these loans (70 percent) are fixed-rate, with a lump-sum payment. 

"You take out that loan and get all of the money instantly," Humphrey said. "And yet you have all of your life left to live and you may not have the resources you need when you really need it." 

Other troubling findings

• A large proportion of reverse mortgage borrowers (nearly 10 percent) are at risk of foreclosure because they are not paying taxes and insurance. The CFPB says the percentage is increasing.  
• Those taking out reverse mortgages are younger than in the past. About half the borrowers are under the age of 70. As the report notes, "Taking out a reverse mortgage early in retirement, or even before reaching retirement, increases risks to consumers." By tapping the home equity early, these homeowners could find themselves without the money needed to make a move in the future. 
• The study found that "misleading advertising" remains a problem in the industry and "increases risks to consumers." The report says these ads contribute to people's misconceptions about the loans which increases the likelihood of poor decision-making. 
• Many people who receive counseling when applying for a home equity loan do not understand the risks. The report says counselors need to do a better job and borrowers need to take the counseling sessions more seriously. The report also says counseling may not be sufficient to "counter the effects of misleading advertising, aggressive sales tactics, or questionable business practices.

The study concludes that stronger regulation and supervision of reverse mortgage companies as well as enforcement of existing laws may also be necessary. It notes that existing disclosures are "quite difficult" for people to understand. And it points out that there are no specific federal rules prohibiting deceptive advertising of reverse mortgages. 

The Consumer Financial Protection Bureau is asking for public commentsbefore deciding what, if anything, needs to be done. CFPB is accepting reverse mortgage complaintsonline or through the mail. 

This week, Consumers Union (the advocacy arm of Consumer Reports) called for stricter federal oversight of the reverse mortgage market. 

Want more information? The CFPB has questions and answers about reverse mortgages on its ASK CFPB database. There's also a fact sheet and consumer guide with key facts on these loans. 

"There may be situations where a reverse mortgage is the appropriate route to take," Hubert Humphrey III said, "but there are many things that need to be considered before you get to that stage."

The Associated Press and Reuters contributed to this report.

More money and business news:

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Consumer watchdog boosts scrutiny of reverse mortgages - Reuters

Thu Jun 28, 2012 12:11am EDT

(Reuters) - The U.S. consumer watchdog will boost oversight of the reverse mortgage market as borrowers with limited information take out complex loans earlier in life, according to a report released on Thursday from the Consumer Financial Protection Bureau.

The market for reverse mortgages, in which people age 62 and older borrow against the value of their homes without having to make payments while they live in the home, remains small. Only 2 to 3 percent of eligible homeowners have a reverse mortgage.

But the consumer agency said the loans could grow in popularity as more baby-boomers retire, and changing trends in borrowers' use of the loans are making them riskier.

Since the 1990s, the proportion of borrowers in their sixties has more than doubled to 47 percent.

"Because reverse mortgages can help older homeowners ease the strain of retirement, this product can be beneficial if seniors choose it based on a solid understanding of how it works," said Richard Cordray, the consumer agency's director.

"But in some situations, the product can be misused in ways that harm borrowers," he said.

Congress directed the Consumer Financial Protection Bureau to study the reverse mortgage market as part of the 2010 Dodd-Frank financial oversight law that also established the still-controversial watchdog agency.

The study could eventually lead to new federal regulations for the reverse mortgage market.

The loans can provide a source of income to help older people remain in their homes, Cordray said. Borrowers are responsible for property taxes and homeowners insurance but can defer loan payments while they still live in the house.

But the report found that almost half of reverse mortgage borrowers in fiscal year 2011 were younger than 70 and that more than 70 percent of people withdrew all the available funds at once rather than receive regular payments or use the funds as a line of credit.

These trends boost the likelihood that borrowers will run out of money or face foreclosure later in life, the agency said. Almost 10 percent of reverse mortgage borrowers as of February 2012 were at risk of losing their homes to foreclosure.

Misleading advertising about the products and inadequate counseling for potential borrowers also could lead people to unknowingly enter into risky loans, the agency said.

"In order to protect people against the misuse of reverse mortgages, we need to educate and inform not only older Americans but also the caretaker generation," Cordray said.

The agency has established an interactive tool on its website to answer questions about financial products including reverse mortgages, and it will look into further regulations and enforcement actions to prevent false advertising and other problems, the report said.

The Federal Reserve in 2010 proposed rules that would have regulated advertising and improved disclosures consumers receive for reverse mortgages. The Dodd-Frank law shifted responsibility for regulating reverse mortgages to the CFPB as of July 2011.

(Reporting By Emily Stephenson; Editing by Andrew Hay)

Consumer bureau report raises concerns about reverse mortgages - Los Angeles Times

WASHINGTON — As some older Americans try to improve their finances by tapping home equity through reverse mortgages, many are at risk of ending up in a worse situation because of confusion over the complex terms of the loans, according to a new government report.

There is a growing tendency for seniors to obtain the money at a younger age and in a lump sum instead of annual installments designed to spread the dollars through their retirement — problems that could accelerate as the baby boom generation goes gray, according to the report to be released Thursday by the Consumer Financial Protection Bureau.

With about 10% of reverse mortgages in default because the homeowners failed to keep up with required property tax and insurance payments, the bureau said it was worried about the increased use of the product over the last decade and was looking into new regulations. In addition, the complexity of reverse mortgages makes some senior citizens prime targets for scammers, the report said.

"There may be circumstances where the reverse mortgage is appropriate … but the seniors I've talked to really are a bit confused about what it is all about," said Hubert H. "Skip" Humphrey III, head of the bureau's Office of Older Americans. "They're told there's money out there that they can get, but there isn't always a description of the cost associated with the product. And the interest rates and other parts of this product are often confusing."

The consumer bureau is considering requiring better disclosure of reverse mortgage terms and stricter oversight, including limits on misleading advertising. The agency had planned to hold a hearing on reverse mortgages in Tampa, Fla., this week, but canceled it because of Tropical Storm Debby.

Consumers Union has been warning that reverse mortgages are ripe for abuse and that people should use "significant caution" in exploring the option. This week, the group urged tougher federal oversight of the loans and published tips for consumers considering reverse mortgages.

"It is an expensive way to borrow," said Norma Garcia, a senior attorney with the organization. "It's not for everyone."

Reverse mortgages allow people at least 62 years old to take out loans based on the equity built up in their homes. But unlike a traditional home equity loan, a reverse mortgage does not require any monthly payments. The loan, which is easier to qualify for than a home equity line of credit, doesn't come due until the home is sold or the person moves out or dies.

It's an attractive option for people who want to enhance their retirement income without selling their home — as long as they're aware of the risks, said Richard Cordray, the consumer bureau's director. The report found that "though many older Americans are aware of reverse mortgages, they struggle greatly to understand this complicated product and the trade-offs involved," he said.

For example, because the interest is added to the loan amount each month, the size of the loan can grow to exceed the home's value. Under federal rules, borrowers or their heirs generally aren't required to repay more than the home's value. But that can mean there's no equity left in the home to pass down to the borrower's children.

Borrowers also can face foreclosure if they don't stay current on property taxes and insurance premiums. As of the end of February, 9.4% of reverse mortgages were in default on taxes or insurance payments, up from 8.1% in July 2011, the report said.

Peter Bell, president of the National Reverse Mortgage Lenders Assn., an industry trade group, said that the report "raises valid questions" and that the association would work with the consumer bureau to find the answers.

"All of us want seniors and their children to have a better and more in-depth understanding of reverse mortgages," Bell said. Last week, the group launched a consumer education effort called "Borrow With Confidence."

Reverse mortgages began in 1961 and have been insured by the Federal Housing Administration since 1988. The number of reverse mortgages swelled with the housing boom, rising from 6,637 in 2000 to a peak of 114,639 in 2009, according to the Department of Housing and Urban Development. Last year the total was 73,093.

Falling home values have probably made reverse mortgages less attractive over the last few years. Two of the biggest lenders, Bank of America and Wells Fargo, stopped issuing new reverse mortgages in 2011.

"We just saw better growth opportunities in other places," said Terry Francisco, a spokesman for Bank of America, who said the company also wanted to shift its reverse mortgage staff to deal with homeowners struggling with first mortgages.

The overall market is small, with less than 3% of eligible homeowners taking out reverse mortgages, the consumer bureau report said. But that could change with the aging of the baby boom generation, which includes 32 million homeowners.

With the potential for rapid growth in the use of reverse mortgages, Cordray said the consumer bureau is worried about some of the report's findings. The average age of people getting reverse mortgages has been dropping — it was 72 as of May 31, down from 76 in 2000, according to HUD — and the most common age for successful applicants now is 62, the report said.

Younger homeowners must make the reverse mortgage money last longer. Compounding the consumer bureau's concern is that more people are taking the money in a lump sum, or close to it, instead of an annuity-like payment. Three-fourths of borrowers in 2010 took at least 90% of the money at closing, compared with 43% in 2008, the report said.

jim.puzzanghera@latimes.com

Think Twice Before Getting Reverse Mortgage - Memphis Daily News

VOL. 127 | NO. 126 | Thursday, June 28, 2012

Rays of Wisdom

Dana and Ray Brandon

By Ray and Dana Brandon

Updated 1:47PM

Ray's Take Anytime you see celebrities promoting a financial product on television, it should give you pause. The past few years everyone from James Garner to the Fonz has hyped the advantages of a reverse mortgage, so take warning.

A reverse mortgage can be helpful to retired people with few resources, but should only be considered as a last resort; and it is definitely not a good option for younger retirees.

A reverse mortgage is a special type of home loan that lets qualifying individuals over age 62 turn home equity into cash received either as monthly payments, a line of credit, or a combination of the two. Unlike regular loans, there are no monthly payments toward principal or interest. However, both principal and interest do come due in full when you sell or no longer live in your home. That's the catch.

The amount you owe on a reverse mortgage grows over time, with interest charged on the outstanding balance. Debt increases with every payment you receive. Plus, there can be substantial costs up front and sometimes monthly fees. It all adds up to more debt.

While most reverse mortgages are structured to prevent you from eventually owing more for your home than it is worth, a housing bust like the one we've recently experienced could change that. Then add to all this the fact that you still have to pay property tax, utilities, and home insurance, including hazard and flood.

These loans were designed for house-rich but cash-strapped older people who have no other options. However, 20 percent of these reverse mortgages are now being taken out by seniors aged 62 to 64; and nearly half of all the borrowers seriously thinking about a reverse mortgage are under 70.

Most of these loans require counseling before signing on. That's a good thing, because with a reverse mortgage you could run out of money and be left with nothing.

Dana's Take Reverse mortgages sound too good to be true. After all, how can something with the word "mortgage" in it be a good thing financially? Let's hope Bernie Madoff and Stanford Financial have taught us caution.

Retirees have suffered a financial one-two punch in the last decade, with shrinking investment income and declining home values. Many members of "The Greatest Generation" enjoy the security of owning their homes outright. Giving a financial institution claim to that entire asset sounds risky.

Consult an independent financial adviser to make a balanced financial plan before signing away your largest asset. The guy on the commercial may not be around to pick up the pieces if things don't turn out as advertised. Your brick and mortar today may be worth more than their promises for tomorrow.

Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor's degree in finance and is a licensed clinical social worker. Contact Ray Brandon at raybrandon@brandonplanning.com.

Fitch Downgrades 7 Classes from 6 HECM Reverse Mortgage ... - MarketWatch (press release)

NEW YORK, Jun 27, 2012 (BUSINESS WIRE) -- Fitch Ratings has downgraded seven classes from six HECM Reverse Mortgage Transactions reflecting an increased risk of uninsured loss.

Fitch has downgraded the following ratings:

Mortgage Equity Conversion Asset Corporation 2006-SFG1

--Class A (61910RAA9) to 'Asf' from 'AAAsf'; Outlook Stable.

Mortgage Equity Conversion Asset Corporation 2006-SFG2

--Class A (61910YAA4) to 'Asf' from 'AAAsf'; Outlook Stable.

Mortgage Equity Conversion Asset Corporation 2006-SFG3

--Class A (61911AAA5) to 'Asf' from 'AAAsf'; Outlook Stable.

Mortgage Equity Conversion Asset Corporation 2007-FF1

--Class A (61910AAA6) to 'Asf' from 'AAAsf'; Outlook Stable.

Mortgage Equity Conversion Asset Corporation 2007-FF3

--Class A (61911GAA2) to 'Asf' from 'AAAsf'; Outlook Stable;

--Class IO (61911GAB0) to 'Asf' from 'AAAsf'; Outlook Stable.

RiverView HECM Trust 2007-1

--Class A (769422AA4) to 'BBBsf' from 'AAAsf'; Outlook revised to Negative from Stable.

Home equity conversion mortgages (HECM) are Federal Housing Administration (FHA) reverse-mortgage loans insured by the U.S. Department of Housing and Urban Development (HUD) and secured by one-to-four-family, first lien, residential properties. Unlike most forward mortgages, reverse mortgage loan balances can increase due to draws, accrued interest or incurred expenses. Servicers can assign the loan to HUD for repayment once the loan balance has increased to 98% of a maximum claim amount determined at origination.

The loans can experience a maturity event requiring repayment in full upon vacating the property or death. If a maturity event occurs prior to the servicer assigning the loan to HUD and the borrower or the borrower's estate is unable to repay the loan in full, the servicer may initiate foreclosure on the property.

If the foreclosed property becomes Real-Estate-Owned (REO) and remains in REO over six months, the insurance proceeds will be determined by the FHA based on a full appraisal of the property. If the property ultimately is sold for less than the appraised amount, the trust could experience unexpected uninsured losses.

The negative rating actions reflect an increased risk of uninsured losses occurring when a HECM property becomes REO.

Due to the stress experienced in the housing market over the past several years, an increased number of HECM loans are maturing in a negative equity position resulting in an increased number of foreclosures. The weak housing market has also resulted in an increased number of foreclosures ultimately becoming REO and taking longer than six months to liquidate. Historically, roughly 25% of non-agency loans which entered foreclosure ultimately liquidated after more than six months in REO. This percentage approached 50% as home prices fell and REO inventory swelled.

To estimate the likelihood of uninsured losses from REO liquidations, Fitch assumed all loans in a negative equity position at the time of a maturity event would enter into foreclosure.

To determine a borrower's current equity position, Fitch used the original appraisal, adjusted to today's value with the Case-Shiller index and Fitch's proprietary sustainable home value model. Consistent with Fitch's RMBS rating methodology, Fitch assumed increasingly higher market-value-declines in the rating stress scenarios when estimating the borrower's equity position. In the 'AAAsf' rating scenario, Fitch assumes market value declines of 35% below a sustainable level.

Fitch also assumed in the rating-stress scenarios an increasingly higher-than-expected percentage of foreclosure loans would liquidate from REO in over six months. Fitch assumed 25% of initiated foreclosed loans in the base-case and 60% of initiated foreclosure loans in the 'AAAsf' scenario would both become REO and liquidate from REO in over six months.

To estimate the amount of the loss due to an extended REO liquidation, Fitch assumed the difference between the liquidation value and the FHA appraised value will be 5% in the base-case and increasingly higher in the rating stress scenarios. In the 'AAAsf' scenario, Fitch assumed the difference will be 30%. These discounts to the appraised values are notably less than typical quick-sale-adjustments applied to distressed sale valuations since the discount in this instance is applied to a full appraisal after the property has been acquired by the servicer, rather than an external appraisal or broker-price-opinion performed at the time of foreclosure initiation.

Fitch predicts the timing and likelihood of maturity events using actuarial tables. While slower-than-expected maturity events can put liquidity pressure on the trust's cashflow, faster-than-expected maturity events can increase the likelihood of uninsured losses since an increasing percentage of maturity events would occur prior to the loan being assigned to HUD due to reaching 98% of the maximum claim. To stress the timing and amount of uninsured losses, Fitch assumed faster-than-expected maturity events. In the 'AAAsf' scenario, Fitch assumed maturity events occurred five years faster-than-expected.

Based on the assumptions described below, Fitch assumed an average uninsured loss of less than 5 bps in the base-case and up to approximately 300 basis points in the 'AAAsf' scenario. Based on current credit enhancement and excess spread, Fitch estimates the bonds are protected against approximately 140 basis points of uninsured mortgage loss on average.

The credit enhancement provided for the rated class in the Riverview HECM 2007-1 was determined to be less than that provided in the other transactions. The 2007-1 required funding account amount has resulted to-date in a weaker assets-to-liabilities relationship. Consequently, the class was assigned a lower rating than those in the other transactions.

In addition to the relationship between the expected losses and credit enhancement, the rating committee also considered the limited amount of available data for the loan-level performance of reverse mortgages when determining credit ratings for the bonds.

Additional information is available at ' www.fitchratings.com '. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Global Structured Finance Rating Criteria' (June. 6, 2012);

--'U.S. RMBS Surveillance Criteria' (July 8, 2011);

--'Counterparty Criteria for Structured Finance Transactions' (May 30, 2012);

--'Fitch Revises Practice for Rating IO & Pre-Payment Related Structured Finance Securities' (June 23, 2010).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679923

U.S. RMBS Surveillance Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=640869

Counterparty Criteria for Structured Finance Transactions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678938

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS . IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE ' WWW.FITCHRATINGS.COM '. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

SOURCE: Fitch Ratings

                        Fitch Ratings           Performance Analyst           Susan Hosterman, +1-212-908-0670           Director           Fitch Inc.           One State Street Plaza           New York, NY 10004           or           Committee Chairperson           Grant Bailey, +1-212-908-0554           Managing Director           or           Media Relations           Sandro Scenga, New York, +1-212-908-0278           sandro.scenga@fitchratings.com                

Copyright Business Wire 2012

All Reverse Mortgage Launches Proprietary Online Calculator - Virtual-Strategy Magazine

All Reverse Mortgage launches proprietary online calculator to assist seniors researching reverse mortgage options.

Garden Grove, CA (PRWEB) June 27, 2012

All Reverse Mortgage Company is pleased to announce the launch of brand-new, cutting-edge reverse mortgage calculator to anyone seeking information on how a reverse mortgage can help people ages 62-plus tap into their home equity.

Unlike other calculators available, All Reverse Mortgage Company provides free real-time estimates showing the amount borrowers can receive and accurate closing costs by utilizing live data supplied by third-party vendors.

"We use all of the essential information that the other calculators use, but we also ping third-party vendors to get accurate closing costs," says Cliff Auerswald, All Reverse Mortgage Company President. "That way we can provide the most current rates and fees. There's nothing else out there like this."

Whether a borrower is interested in using the Home Equity Conversion Mortgage (HECM) Standard or the HECM Saver, which allows for a lower-fee, credit-line option, All Reverse Mortgage Company's calculator provides you the most accurate quote in the marketplace.

The company is also announcing the release of a new loan amortization schedule calculator to show how borrowers can benefit from making payments on their reverse mortgages.

As the economy has worsened, lenders have implemented additional restrictions that have made it more difficult for seniors on a fixed income to qualify for traditional "forward" loans.

As a result, a growing number of seniors are turning to reverse mortgages as a way of receiving a loan without income or credit requirements, Auerswald says, while still maintaining equity in the home.

"We base all of our calculators on demand," Auerswald says. "We are seeing a significant number of seniors take reverse mortgages, especially on the Saver plan, as more of a temporary solution, that they can pay back in part or in full."

Whether you're looking to remain in your home or purchase a new residence, check out ALLRMC.COM to get the most accurate reverse mortgage quote today.

All Reverse Mortgage is a family owned reverse mortgage company with 100 years of combined experience in mortgage banking. We have been instrumental in educating some of the largest banks on the nuances of the reverse mortgage products, and their benefits to senior homeowners.

We maintain an A+ exemplary rating by the Better Business Bureau and are proud members of the National Reverse Mortgage Lenders Association. As a NRMLA member, we abide by a Code of Ethics & Professional Responsibility in which we pledge to serve all borrowers with integrity.

For the original version on PRWeb visit: http://www.prweb.com/releases/prweball-reverse-mortgage/calculator/prweb9639291.htm

National Public Education Campaign on Reverse Mortgages - LoanSafe

(Source: NRMLA) – Washington, D.C. – June 21, 2012 – The National Reverse Mortgage Lenders Association (NRMLA) today announced a new national public education campaign called Borrow with Confidence designed to provide consumers with a set of tools to guide them through the reverse mortgage borrowing process and establish an enhanced level of product transparency.

These tools – available at www.ReverseMortgage.org – should be every senior's first step towards a reverse mortgage. They explain the product, application process, fees, qualification criteria and the potential risks. Once seniors review the tools, they will be able to make a more informed decision about whether a reverse mortgage is the right choice for them and their families and they will be prepared to begin the reverse mortgage exploration process.

The Borrow with Confidence tools include:
•       ReverseMortgage.org, a newly designed consumer information website which contains all the tools and intends to be the most complete and easily navigable guide to reverse mortgages available.
•       Your Roadmap to Reverse Mortgages, which walks a borrower step-by-step through the reverse mortgage process; and
•       A Pledge to America's Seniors that explains and confirms the high level of service and integrity a borrower can expect from NRMLA members.

For seniors without access to a computer or the internet, Your Road Map to Reverse Mortgages, A Pledge to America's Seniors and a list of NRMLA member lenders is available by request. Simply call our Toll Free number 866-264-4466.

"Our members have sat across the kitchen table from seniors and their families and discussed reverse mortgages for 20 years now and this program is a response to the borrowers' questions, concerns and needs," said Peter Bell, CEO and President of the National Reverse Mortgage Lenders Association. "These Borrow with Confidence tools will provide seniors with knowledge and comfort that will enrich their conversation when they sit down with a lender or counselor." NRMLA members are responsible for 90% of the reverse mortgage transactions in America.

Other helpful tools available at ReverseMortgage.org include:
•       Personal stories of reverse mortgage borrowers all across the country;
•       A guide for adult children of reverse mortgage borrowers;
•       A list of reverse mortgage borrowers ongoing responsibilities and obligations;
•       Frequently Asked Questions and a Glossary of common reverse mortgage terminology

"Purchasing a reverse mortgage is a significant financial and emotional decision," Bell said.  "We recognize that it is not easy.  Our number one priority is to provide consumers with all the information they need to make an informed and deliberate decision as well as to assure them of a safe and secure borrowing experience. Borrow with Confidence is a great new first step for interested seniors and their families."

About Reverse Mortgages:
Reverse Mortgages are available to seniors 62 years-old and older with significant home equity. They are designed to enable elderly homeowners to borrow against the equity in their homes without having to make monthly payments as is required with a traditional "forward" mortgage or home equity loan. Under a reverse mortgage, funds are advanced to the borrower and interest accrues, but the outstanding balance is not due until the last borrower leaves the home, sells or passes away. Borrowers may draw down funds as a lump sum at loan origination, establish a line of credit or request fixed monthly payments for as long as they continue to live in the home.  To date, more than 750,000 senior households have utilized an FHA-insured reverse mortgage.

About the National Reverse Mortgage Lenders Association:
The National Reverse Mortgage Lenders Association (NRMLA) is a membership organization comprised of more than 300 companies and more than 1,000 people participating in the reverse mortgage industry.  NRMLA serves as the national voice for the reverse mortgage industry.  It serves as an educational resource, policy advocate and public affairs center for lenders and related professionals. NRMLA was established in 1997 to enhance the professionalism of the reverse mortgage business.  All NRMLA member companies commit themselves to our Code of Ethics & Professional Responsibility.

Evan Bedard has worked with various law firms since 2007 as a top Countrywide Home Loan modification processor. Evan has been instrumental in helping the various law firms and homeowners save over 800 homes. He is also a mortgage guide in the LoanSafe forum and is helping homeowners daily.

Reverse Mortgage Ponzi Schemer Gets 10 Years in Prison - National Mortgage Professional Magazine

The Mortgage News Ticker is a collection of news articles, magazine stories and blog posts from around the web. The opinion expressed are those of the news sources and do not reflect that of National Mortgage Professional Magazine, NationalMortgageProfessional.com, NMP Media Corp. or its affiliates. 

Consumers Union Renews Call for Stricter Oversight of Reverse ... - MarketWatch (press release)

SAN FRANCISCO, June 25, 2012 /PRNewswire via COMTEX/ -- Consumer Group Promotes Reverse Mortgage Reforms As Lenders Mount PR Campaign And The CFPB Holds Hearing This Week

Consumers Union, the policy and advocacy division of Consumer Reports, called on the CFPB today to protect vulnerable seniors from reverse mortgage abuses. The consumer group is renewing its call for stricter oversight of reverse mortgages just as the industry launches a public relations campaign to repair its image and the CFPB prepares to hold a field hearing on the topic on Wednesday, June 27, in Tampa.

"Reverse mortgages should only be used as a last resort because they can carry huge costs that can quickly drain a homeowners equity," said Norma Garcia, senior attorney and manager of Consumers Union's financial services program. "The reverse mortgage industry insists that it can police itself but it's clear we need common sense oversight by the CFPB to protect seniors."

Reverse mortgages enable borrowers who are 62 or older to obtain income through cash payment or lines of credit by tapping the equity in their home. The reverse mortgage loan becomes due when the borrower dies, leaves the home for 12 consecutive months or more, or fails to maintain the property or pay homeowners insurance or property taxes. Borrowers must pay a loan origination fee, closing costs, and compounding interests on the loan principal, which can be significant.

Consumers Union's December 2010 report on reverse mortgages documented a number of concerns that underscore the need for stronger oversight by the CFPB. The report was co-authored by California Advocates for Nursing Home reform and the Council On Aging Silicon Valley.

The report highlighted how borrowers can be duped by misleading marketing claims and that required counseling provided by the Department of Housing and Urban Development (HUD) was inadequate. It also noted that seniors are sometimes targeted with aggressive cross promotion of other financial products like long term care insurance or annuities that may not be suitable for them. Finally, the report cited recent HUD statistics finding that an increasing number of borrowers had defaulted because they were unable to pay their property taxes or homeowner insurance premiums as required.

Consumers Union called on the CFPB to take a number of steps to protect seniors, including:

Ensure loans are suitable for borrowers: Lenders and brokers should be required to consider whether the loans put borrowers at risk of losing their homes, if the borrower understands the complex nature of the contract, and if there are more viable alternatives available to the borrower.

Establish a fiduciary responsibility for the loan: Lenders and brokers must be required to act in the best interests of the borrower and should be held liable for violating this fiduciary duty.

Outlaw deceptive marketing: All reverse mortgages should be required to include information to help borrowers determine whether the loans are suitable for them.

Adopt stronger prohibitions on cross promotions: Prohibitions against cross promotions of other financial products by lenders and brokers should extend to non-HECM loans. Insurance agents and brokers should be held liable for selling an annuity when it is purchased with reverse mortgage funds.

Strengthen the quality and content of counseling: HUD counselors should be required to hold an in-person session with prospective borrowers to determine whether a reverse mortgage is suitable for the borrower. The counselor should deny a counseling certificate to the borrower if the loan is not in the best interest of the senior.

Protect non-borrowing spouses and tenants: Spouses and tenants whose names are not on the reverse mortgage loan should be notified about their limited rights to remain in the home after the borrower dies or permanently moves out of the home.

SOURCE Consumers Union

Copyright (C) 2012 PR Newswire. All rights reserved

Is a reverse equity mortgage for you? - Stuff.co.nz

Once upon a time, two starving waifs lost in the woods stumbled upon a fantastic sight- an edible gingerbread house.

Yes, it's a made-up story for children, but you too can eat your own home.

The product that makes it all possible is called a reverse equity mortgage. The idea is, you draw down cash against the value of your house, with not a penny payable until you sell up or die.

It was a ''great famine across the land'' that sent Hansel and Gretel wandering in the first place; perhaps ye-olde Germanic equivalent of our own rather glum economic situation.

The low-interest environment means investment returns may not be enough to top up superannuation, leaving the home itself the only nest egg for some retirees.

''When they have no other means of accessing cash, our senior customers are telling us they want the ability to release some of the equity in their home rather than trading down or lowering their standard of living,'' says ASB's general manager of retail products and strategy Shaun Drylie.

If you're over a certain age, usually 60-65, and own most or all of your own home, you can draw down a percentage of its value as a lump sum or in instalments.

''The older you are, the more you can borrow,'' says SBS Bank's Invercargill branch manager Neil Bramley.

At SBS for example, you can borrow up to 10 per cent at age 60, and 15 per cent once you hit 65. From then on, it's one extra per cent for each year thereafter, maxing out at 50 per cent for venerable centenarians (Bramley: ''We've done a couple!'').

The interest adds on to the loan account each year, with no requirement to make repayments while you still live in the house.

Members of the industry body SHERPA (Safe Home Equity Release Plans Association) and the non-member banks promise that even if you nibble your house down past the foundations, a) they won't kick you out, and b) they will carry the loss.

All in all, it sounds like a fairy-tale arrangement.

But the Brothers Grimm story would be incomplete without the sinister presence of the cannibalistic hag. An uncharitable comparison, perhaps, but the lenders have to get their pound of flesh.

The Cons:
1.Interest rate. The lenders we surveyed ranged between 6.6 and 7.7 per cent, 1-2 per cent higher than the standard floating mortgage rate to account for longer-term funding costs.
2.High fees. ASB's products, for example, costs $850. Then there's $500 for a registered valuation and legal expenses, which are typically around $1000.
3.Compounding interest. With no repayments to keep interest at bay, even a modest $40,000 loan will have snowballed into $77,000 in a decade, or $150,000 in 20 years.

The Pros:
1.Very few reverse mortgages are fixed, so there's no break fee or disincentive for paying the loan back early.
2.Rising property prices can partially offset the cost of accumulating interest.
3.Cash is freed up for people who might otherwise be unable to access it.

Suitablity:
''If this product is well-placed and transparent, it can be very useful to some people,'' says Retirement Commissioner Diana Crossan. ''But it's only a small group.''

It's a niche product, after all. SHERPA figures show the market was worth just under half a billion in 2010, a tiny fraction of the $165 billion in residential mortgages at the time.

''The perfect person for a reverse mortgage- because it's certainly not for everybody- is a little later in age, in their 70s and intends to stay in their own home,'' says Vaughan Underwood, chief executive of reverse mortgage specialists Sentinel.

The industry gets a tick for ensuring that most are in the right demographic, with the average age of new borrowers 72 in 2010.

But that doesn't mean everyone should live their golden years out with an equally golden high-roller lifestyle.

''We absolutely discourage anything that's frivolous,'' says Underwood.

The SHERPA stats for 2010 indicate most house-proud retirees are using the loans for  more sensible purposes.

Twenty-seven per cent needed the cash for home improvement: property repairs and maintenance. In that respect, they're probably winning, says Crossan. Maintaining their last major asset means they're effectively investing in it.

The next most popular use was debt repayment, at 17 per cent. SHERPA executive director Rob Dowler says that would be either paying off the last of an existing mortgage, or getting rid of high interest-bearing debt.

From there, 15 per cent went toward travel, 10 per cent to cars, 8 per cent to aged care and the remainder unassigned.

Where people go wrong, says Dowler, is when their money ends up where it shouldn't. Borrowing to invest has caused a few horror stories, he warns, as has funding a family member's business venture.

Once you've been eating away at your equity for a decade or two, your children may end up with rather scanty crumbs to squabble over.

''It is a risk that family members may feel aggrieved that what they perceive to be their inheritance has been whittled away'', says Dowler.

It's really important to talk to your family, Crossan advises- perhaps they'll even front up the cash: ''That has led to family saying, 'Goodness me! I'll buy it off you, mum.'''

Of course, Dowler points out that at the end of the day the house belongs to the individual or couple. ''It is their right to make their own decision.''

Alternatives
For those who are cash poor and asset rich but don't like gingerbread, there are plenty of less sticky alternatives on offer.

Crossan suggests considering renting part of your home, taking in a boarder, moving to a cheaper house, sub-dividing or selling to family.

To their credit, all the lenders make it clear that an alternative might be more suitable. ASB, for example, takes clients through three meetings to ensure the loan is right for them.

''We've also guided several customers through the three-stage application process and they have ultimately decided on alternative financial options'', says Drylie.
SBS' Bramley says the bank offers a range of products, and tries to help customers find the most suitable one.

In that respect, the banks are probably better than the specialist reverse mortgage companies. But the banks are also more or less your only option, for now:

Revival
The global financial crisis all but squashed the reverse mortgage market flat.

Lack of accessibility to funding curtailed everybody's loans, said Underwood, particularly in the longer term.

Sentinel is the only one of the three reverse mortgage-specific firms still taking on new loans, and even then it has reduced to a trickle.

Nevertheless, the spiderwebs may be brushed off the loan books soon. Credit markets will never return to where they were pre-GFC, says Underwood, but they will improve.

And the banks don't even have that problem, with ASB, TSB and SBS all open for business. ''There's no difficulty with funding,'' says Bramley. ''If we saw an increase in this type of business that would be fine.''

But as he says, they're not exactly shouting it from the rooftops. Things may pick up once the specialists -who tend to advertise more aggressively- are back in the market.

''With people basically cash-strapped and asset rich, this type of facility could come back in vogue'', says TSB's manager of lending services Phil Gerrard.

''People in that sector [65+], obviously their income stream is not what it has been- generally not at the same level. As time goes by, and with the cost of living increasing, there could be a resurgence in that sector.''

Dowler reckons any increase will be driven by the aging population and the damage to wealth levels caused by the GFC.

Clearly we haven't seen the last of reverse mortgages yet. The decision has big consequences, so it pays to remember that you can't have your cake and eat it too.

- (Live Matches)

AAG Launches Wholesale Reverse Mortgage Division, Hires ... - Reverse Mortgage Daily

American Advisors Group (AAG) announced this week that it is getting into the wholesale reverse mortgage business. With a large retail operation and brand powered by spokesman and former Senator Fred Thompson, the company plans to build from that momentum and provide the industry with another stable liquidity source.

"We have built one of the most successful retail businesses and brands, and now we plan on rolling that same customer focus and mentality into a wholesale division," said Reza Jahangiri, CEO of AAG during an interview with RMD. 

AAG's new division will be lead by Michael Berkley, who will serve as the vice president of its wholesale business. While relatively new to the reverse mortgage business, Berkley brings almost 30 years of experience mortgage experience in different channels including wholesale to the table.

"I'm excited about joining the AAG team and I can tell it's going to be an exciting place to help grow [AAG's business]," Berkley said. 

In addition to Berkley, AAG has brought on former Arizona-based MetLife wholesale fulfillment center including nine people and one of its top account executives, Sheryl Chargin. While at MetLife, Chargrin was one of the the company's top producers and has more than 10 years of experience in the reverse mortgage business. 

At this time, Chargrin is the only AE on the team, but during her tenure with MetLife, she was doing roughly $30 million a month of business, Berkley said. AAG plans to bring on additional AEs, but is planning the moves carefully. 

"We're looking for controlled growth out of the gate because we will not allow the customer service of our partners to be impacted," Berkley said. 

With so many different exits in the reverse mortgage business over the last year, now is the perfect time for AAG to step into the market, said Jahangiri. 

"We feel the timing is very good considering the recent departures of major lenders from the industry," he said. "Within the next 18 months, we expect to be one of the top 2 or 3 wholesale players in the market."

AAG will have plenty of competition, several new wholesale lenders have opened up but none have as large of a brand. 

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The scoop on reverse mortgages - STLtoday.com

Reverse mortgages have been getting a lot of attention lately, perhaps because they seem like a great deal: You convert some of the equity in your home into cash, and you don't have to pay it back until you sell the home.

This type of loan can be beneficial, but first, do a lot of research, look at all of your options and know exactly what it will cost you.

Reverse mortgages can provide you with extra monthly income, or they can help cover large expenses like medical bills. Reverse mortgages are available only to people who are 62 or older, and only to people who have all of most of their mortgage paid off.

Most reverse mortgages are what are known as Home Equity Conversion Mortgages, backed by the U.S. Department of Housing and Urban Development.

"We definitely encourage someone to seek out the federally insured reverse mortgages, because they're called nonrecourse loans," said Bill Nass, vice president of Gershman Mortgage. In other words, if a couple takes out a reverse mortgage that, with principal and interest, grows to $150,000, but they receive only $125,000 when they eventually decide to sell their home, the couple is not on the hook for the extra $25,000. This would also be the case if the couple's heirs are selling the home.

"The federal guarantee is that they only pay back what the home appraises for," Nass said. "So they can't end up upside-down on the mortgage."

There are several ways the loan can be paid out. Borrowers can choose a lump-sum disbursement, in which they receive a check for the full amount of the loan. They can receive a set amount of money on a monthly basis. A third option is to treat the loan as a line of credit.

Nass said one of the biggest misconceptions about reverse mortgages is that they require borrowers to sign their home over to the lender. In fact, borrowers still retain the title to their home.

But remember, if you have a reverse mortgage, you will be required to keep up with property taxes and insurance payments, and you will be required to keep the home in good condition. The lender can foreclose on your home if you fail to adhere to these conditions.

Another condition of a reverse mortgage is that your home must be your primary residence. If you're out of your home more than a year, the reverse mortgage will come due, so it isn't a good option unless you plan to stay in your home for a long time.

There's some of other factors you should consider:

• Interest will be charged on the loan on a monthly basis, so the total amount you owe is going to grow over time.

• There will be additional costs associated with the loan, including closing costs and servicing fees.

• Unless the value of your home increases, there likely will be less equity for your heirs to inherit.

• Interest charges and other fees may vary widely from lender to lender. Do some comparison shopping before you settle on one.

Before you can go through with a reverse mortgage, you will be required to first undergo housing counseling with an independent, government-approved housing agency.

Economist: Reverse Mortages Unfair - Trinidad Guardian

Reverse mortgages may not be popular in T&T, but they are on the rise. Director for the Division of Ageing Dr Jennifer Rouse has confirmed that more of the country's seniors are latching on to the reverse mortgage. However, economist Dr Dhanayshar Mahabir insists that the reverse mortgage is heavily skewed in favour of mortgage companies and banks.

His advice to the elderly—sell your house and avoid getting roped into pitfalls. After a person has built-up equity in their home over the years, a reverse mortgage allows you to convert that equity into cash or a line of credit from a financial institution.

The lender pays the homeowner, and the reverse mortgage balance rises as a result, accruing interest and fees. The lenders get repaid when the owner either moves or dies, and the home is sold. The amount someone borrows depends on their age and the amount of equity in their home.

Three payments options are offered, a fixed monthly payment, lump sum or a combination of both. The reverse mortgage was first introduced in Trinidad and Tobago in 2002 by Home Mortgage Bank (HMB), the only institution locally that offers this programme.

A giant piggy bank
However, reverse mortgages have gone mainstream across the world, mainly in the US, and is no longer sold as something for seniors who are house rich and cash poor and need money to make ends meet. Today, they are marketed as a way for homeowners 62 or older to crack open a giant piggy bank.

A 2010 report from mnbc.com headlined Reverse Mortgage Can Lead To Trouble stated that the market for reverse mortgages had more than doubled from 2005 to 2008. In 2009, more than 100,000 seniors took out these loans. Likewise in T&T, Rouse admitted that the reverse mortgage "is catching on."

Rouse said the reverse mortgage has been gaining momentum as more senior citizens, in particular women, are gravitating toward the service. "It is the elderly's fundamental right. It is not to say that the bank has a gun to your head. It is you who called or approached them." What has been attracting the interest of senior citizens was the widespread advertising on cable television, Rouse said.

"The advertisements tell you let your home pay for your care." Rouse explained that the reverse mortgage first targeted single homeowners who had no dependents, but now elderly couples are getting roped into the trend. Any bank that offers a reverse mortgage, Mahabir said, should have some links with the insurance industry to calculate the expected life of the homeowner.

The government, Mahabir said, was duty-bound to look at the practice in order to regulate how institutions operate. "They must have the insurance companies fair accrual values. They must be able to have clauses where someone can revise the value of their house on a periodic basis."

Mahabir said while the banks revise their interest rates at which they lend, people should be able to revise the house values periodically also for equity and fairness. The best thing for the homeowner to do was sell their property on the open market, Mahabir said.

The money collected should be invested in an institution. "When an individual has no one to leave his/her home to, they do not have to worry about capital preservation, so they can live off the interest earning, together with some of the earnings they got from their home."

At the end of his life, Mahabir said, the homeowner would stand a better chance of having a surplus if he dies a year after he gets into an agreement. "With reverse mortgage, once you are locked in on the day of retirement you are locked for life. The people who are giving you the cash for your house benefits not the property owner." Mahabir said while some of the monthly payments might look attractive, the better thing to do was sell your property.

If the market is depressed, he suggested that the homeowner rent out a portion of his house, keep their title and wait until the market improves. "I don't like the reverse mortgage at all. I think they are unfair." Mahabir said when the pensioner dies, the banks ends up holding a stock of homes in their portfolio, which they will sell. "So they are able to get $3 million for a $1 million house. So they make profits on the house and the financing."

Benn—It's attractive to the unsuspecting
Former UTT chairman Clarry Benn, who is now a private financial adviser, said people apply for a reverse mortgage because of circumstances. He said while it has been recommended to participate in such a service, in other instances, it was not necessary. "Each case will be judged on its own merit." Benn said a reverse mortgage appears to be particularly attractive to the unsuspecting.

"It would be attractive due to the huge amount of instant cash available." Benn said if someone owns a property and was in urgent need of cash, a reverse mortgage can be useful. "But by and large, whoever is providing the facility will condition it typically in such a way, that whatever the eventuality that may occur in the future, they certainly will not lose." Benn said anyone who engages in a reverse mortgage ought to be careful because the person can lose their property.

Ali—A financial instrument
Managing director of Bankers Insurance Billy Ali said any bank offering reverse mortgage must have financial, tax, legal and actuarial inputs. Ali said the only way one can calculate the life expectancy of someone was based on a actuarial life expectancy table.

Ali agreed with Mahabir that government should look at the practice of institutions to regulate how they operate. "It should be regulated by the Central Bank." A reverse mortgage, Ali said, is just another financial instrument that anyone can access based on one's personal situation.

"Not all financial instruments will fit the needs of everybody. A reverse mortgage will be good  for the person who finds themselves in a financial bind and has no other option but to go for that." Several attempts for an interview with acting CEO of HMB Rawle Ramlogan proved futile.

Reverse Mortgage Lenders Seek To Improve Image - Banker & Tradesman

Friday, June 22, 2012, 11:41am

The National Reverse Mortgage Lenders Association is launching a new marketing campaign aimed at battling misconceptions about the reverse mortgage industry.

The centerpiece of the campaign is a redesigned consumer website hosted at reversemortgage.org. The site contains a "Roadmap to a reverse mortgage," a frequently asked questions section, a reverse mortgage calculator which customers can use to estimate their potential monthly income from a reverse, and a glossary of terms used in the industry.

The site is designed to provide the facts on "basically every aspect of obtaining a reverse mortgage from soup to nuts," said Peter Bell, president of NRMLA, in a statement.

The group will also be focusing on government outreach at both the state and federal levels. "We feel it's important for policymakers both here in Washington ... and people working at the statehouses around the country, to fully understand the utility of reverse mortgage product, the record this industry has had of self-regulation and our strong commitment to consumer protection," Bell explained.

Reverse Mortgage Public Campaign Launches with CFPB Study ... - Reverse Mortgage Daily

With the deadline for a Consumer Financial Protection Bureau study on reverse mortgages exactly one month away, a new reverse mortgage public education campaign launched this week as an effort by the National Reverse Mortgage Lenders Association (NRMLA) to raise awareness and generate conversation about the industry.

A component of NRMLA's "Borrow with Confidence" campaign, which first went through a soft launch for industry participants in late 2011, the public education and awareness efforts now involve generating a conversation with mainstream media, trade press and social media outlets. Now with a widespread reach, it aims to engage Americans about the reverse mortgage product and raise awareness about the industry around it.

"This is another step in our industry's effort in self regulation, and making products more transparent and consumer-friendly," said NRMLA President and CEO Peter Bell during a call with press members Thursday.

Informing media and policy makers is an initiative of the campaign, in addition to informing the public, Bell told RMD.

"The message we're trying to get out is we are an industry committed to to doing right by the customer. We take our responsibility seriously and have always had a self policing regime. Now we are trying to step that up a notch."

The CFPB, which is working on a required study on the industry due July 21, has also announced a reverse mortgage-specific field hearing to take place in Tampa, Florida June 27.

As reverse mortgages come into focus for the new regulator, NRMLA is engaging lenders and is encouraging their involvement.

Lenders can assist in informing borrowers through the Borrow With Confidence campaign, Bell says. NMRLA members listed on its lender directory have signed to a pledge to borrowers and they can help in the campaign as well.

"I hope lenders will not just subscribe to the pledge, but promote it and reproduce it for clients so they are showing the industry's commitment to being consumer-centric and putting the consumers' needs first," he said.

NRMLA will also utilize social media outlets including video input from borrowers in the near future.

Written by Elizabeth Ecker

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Reverse Mortgages - More myths than big foot! - Senior Advocate

When it comes to Reverse Mortgages (www.onereversemortgage.com/hecm/home-equity-reverse-mortgage?qls=LAF_laf00001.0040000001) and myths it seems like there are more myths with them than with Big Foot. The myths with Reverse Mortgages are exactly that, myths. So, let's set the story straight and get the facts in order. Below are some of the most common ones and the real facts.

Myth 1 - Your lender takes the title to your home.

Fact - Title on a Reverse Mortgage is no different than any other mortgages you've ever had - only the homeowners are on the title. When the house is sold or becomes vacant, the loan must be repaid, but the title is never negotiable.

Myth 2 - You need good credit for a Reverse Mortgage.

Fact - A Reverse Mortgage is only based on your home's equity and the borrower's age. Income and credit are not qualifying factors.

Myth 3 - Reverse Mortgage borrowers owe more than their home is worth

Fact - All of our Reverse Mortgage are "non-recourse" loans which means that the borrower can never owe more than the value of the home regardless of the loan balance.

Myth 4 - I can't get a Reverse Mortgage if I already have a mortgage on my home.

Fact - Your new Reverse Mortgage will pay off your current mortgage, eliminating any monthly mortgage payment you have now! In fact, that is one of the popular choices seniors decide to select with the funds from their Reverse Mortgage.

Myth 5 - There are limits on how you can spend the money from your Reverse Mortgage.

Fact - It's your home, it's your money! You can spend your tax-free money from your Reverse Mortgage any way you'd like.

Myth 6 - My children will be responsible for the repayment of the loan.

Fact - Reverse Mortgage are "non-recourse" loans. That means if the property is sold to pay off the loan when you pass away or decide to leave the home for other reasons, there will be no mortgage debt for your family or heirs to repay. The maximum amount owed is the current market value of the house. If your family or heirs wish to keep the home, they would pay the balance in full to the Reverse Mortgage lender.

Myth 7 - Only low-income seniors get Reverse Mortgages

Fact - Seniors from all different income levels decide a Reverse Mortgage is right for them every day. For some seniors it is a way to eliminate their monthly mortgage payment and have more financial freedom. For others it is a way to have a financial cushion for those unexpected bills. Some seniors are able to live their retirement more comfortably, and with little worry about how they will make ends meet. A Reverse Mortgage is not designed for one particular person; it's for any senior looking to make the most out of their retirement.

Myth 8 - Reverse Mortgage lenders take advantage of seniors

Fact - As a consumer, you should make sure you are dealing with businesses who are a member of the Better Business Bureau and the National Reverse Mortgage Lenders Association (NRMLA) One Reverse Mortgage is a member of both of these consumer watch dog groups. Our goal is to help you make the most out of your retirement. We will help you decide which Reverse Mortgage program will work best for your situation. We want you to be knowledgeable about the process and able to make the most of the Reverse Mortgage program.

Urban Hires 3 Former MetLife Managers for Reverse Mortgage ... - Reverse Mortgage Daily

Urban Financial this week announced three new managers, formerly of MetLife, as part of an effort to ramp up grown in its retail reverse mortgage channel.

Geoffrey Wallace, based in California, will lead Urban's western regional efforts, while Bill Cavanaugh will lead the Central region with Jim McMinn heading up the eastern efforts from his base in Connecticut.

Each area manager will manage a group of reverse mortgage consultants with plans to grow their respective teams, Urban CEO Steve McClellan told RMD.

The hires are part of a larger plan to grow the company's retail division, which comprises several different channels. The West Coast operation includes an outbound telemarketing center based on web technology to drive leads as well as boots-on-the ground originators. The company aims to have 20-25 people working for the three area managers with some hiring already under way.

The company has risen to the top wholesale spot in recent months following the exits of big bank players Bank of America and MetLife, and while retail currently comprises roughy 12%-15% of the company's business overall, Urban plans to target retail growth to an extent.

"We want to grow expeditiously," McLellan says. "We'll find the right balance over time."

Already licensed in most states, the company is targeting the entire continental U.S. with a concentration in areas of higher home values. MetLife's recent exit will position Urban to hire selectively, McLellan says.

"We're being extremely selective," he says. "[MetLife] has some excellent producers and within them quite a few that fit well with the types of qualities we are looking for and a similar view of how we are approaching this business."

As for the company's long term outlook on growth, MeClellan says the HECM Saver presents a new opportunity that has not yet been fully realized.

"We're beginning to see interest in the Saver program. The Saver appeals to a different client, so sourcing those customers is a little different. It's one of the reasons we are excited about this retail effort. We're beginning to get traction there and sooner or later home values will appreciate. That will be the 'nitroglycerine' in our fuel."

Written by Elizabeth Ecker

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Urban Financial Hires Three Former MetLife Managers, Targets ... - Reverse Mortgage Daily

Urban Financial this week announced three new managers, formerly of MetLife, as part of an effort to ramp up grown in its retail reverse mortgage channel.

Geoffrey Wallace, based in California, will lead Urban's western regional efforts, while Bill Cavanaugh will lead the Central region with Jim McMinn heading up the eastern efforts from his base in Connecticut.

Each area manager will manage a group of reverse mortgage consultants with plans to grow their respective teams, Urban CEO Steve McClellan told RMD.

The hires are part of a larger plan to grow the company's retail division, which comprises several different channels. The West Coast operation includes an outbound telemarketing center based on web technology to drive leads as well as boots-on-the ground originators. The company aims to have 20-25 people working for the three area managers with some hiring already under way.

The company has risen to the top wholesale spot in recent months following the exits of big bank players Bank of America and MetLife, and while retail currently comprises roughy 12%-15% of the company's business overall, Urban plans to target retail growth to an extent.

"We want to grow expeditiously," McLellan says. "We'll find the right balance over time."

Already licensed in most states, the company is targeting the entire continental U.S. with a concentration in areas of higher home values. MetLife's recent exit will position Urban to hire selectively, McLellan says.

"We're being extremely selective," he says. "[MetLife] has some excellent producers and within them quite a few that fit well with the types of qualities we are looking for and a similar view of how we are approaching this business."

As for the company's long term outlook on growth, MeClellan says the HECM Saver presents a new opportunity that has not yet been fully realized.

"We're beginning to see interest in the Saver program. The Saver appeals to a different client, so sourcing those customers is a little different. It's one of the reasons we are excited about this retail effort. We're beginning to get traction there and sooner or later home values will appreciate. That will be the 'nitroglycerine' in our fuel."

Written by Elizabeth Ecker

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Funds and Applications Fall, But Reverse Mortgage Counseling ... - Reverse Mortgage Daily

Housing counseling agencies large and small are sticking with reverse mortgage counseling despite the decline in applications from borrowers seen this year, and a decline in funding.

There were 448 Home Equity Conversion Mortgage counseling locations as of this month, according to data compiled by Ibis. That number compares with 416 agencies at the time when housing counseling funds dried up temporarily in November of 2011, and fewer than 400 agencies in late 2010, the Ibis data shows.

As they allocate funding through the end of the current fiscal year, some of the large intermediaries have seen wait times increase for HECM borrowers. Some have also implemented pre-counseling measures to make the process move along as effectively and efficiently as possible once the appointment is scheduled to take place.

But smaller, independent counseling agencies, even those that do not receive Department of Housing and Urban Development funding, are staying in the business of HECM counseling, and some say they are more positioned to meet the needs of borrowers when the larger agencies start to show a slow down.

"It's hard to get the word out when you are a smaller agency," says Jeremy Shadrick, president of Tulsa-based QuickCert. "There is concern in the market to be adding agencies to their lists, but it may make sense to have a [smaller agency] because we have the ability to staff according to volume as opposed to other factors. We are able to manage consistent growth and plan for it."

For QuickCert, the growth has been from the agency's launch in September to around 1,600 HECM counseling sessions quarterly, Shadrick says. The agency hopes to become a recipient of HUD funding ultimately. Remaining flexible is the strong suit a smaller agency brings, he says.

"It's a difference in philosophy," Shadrick says.

Written by Elizabeth Ecker

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