Kevin's Corner

Safe and Sound

Wow, if you believe everything you read, you would think the real estate market was in the tank! Foreclosures, delinquent mortgages, bankrupt sub-prime lenders! Is it really that bad?

One thing I know for sure, if you have a reverse mortgage you would say, “who cares, can’t happen to me!” What’s better than a mortgage without payments? Unfortunately, I have seen too many seniors fall for the gimmick mortgage like an option ARM with low payment rates such as 1% or 1.25%. These loans with low payments can really hurt the borrower when the amount of money that can be deferred ends and the monthly payment is adjusted to the correct payment. Some payments can increase by as much as 75%! Now, that is how you end up in foreclosure or in a mortgage delinquency.

Nothing will keep you safer and sounder than a mortgage without payments. No fear of foreclosure or mortgage delinquency, no payments are required. That way you can read the paper or watch TV and hear about those poor souls that did not take advantage of a reverse mortgage and got suckered into a loan program that is not appropriate for them and say “I’m not one of them”.

It is interesting that the most popular reverse mortgage program remains the FHA insured Home Equity Conversion Mortgage. In 2006 this program represented over 90% of the reverse mortgages issued. The fact these loans are insured by a branch of the US Government makes their appeal undeniable. Nobody wants to risk their home, particularly in the later stages of their life, and the HECM program provides this safety. The set up expenses of this loan program are higher but the combination of US Government safety and lower interest rates make it worth it.

Also, in order to get a HECM loan, the homeowner has to have consumer counseling from a HUD approved counseling agency. This consumer protection also adds to the overall safety of the HECM program. The counseling is an opportunity to review how the program works, what it costs and what the risks and rewards are for getting into it with an independent professional who does not have a stake in the outcome. Counselors also review possible alternatives to reverse mortgages such as selling the home and renting. All this done to protect you!

Unfortunately, there are lenders out there today that sell loan programs that either do not require counseling or they have their own loan officers conduct the counseling. If you encounter anyone offering a program like that say: NO THANK YOU. Even the National Reverse Mortgage Lenders Association is on record saying that reverse loan programs that do not offer independent counseling are in conflict with their industry code of ethics. So if you have choices, why would you choose to do business with someone that doesn’t have your interest in mind?  In fact, California passed a law requiring all reverse mortgage lenders to offer independent consumer counseling. The good ‘ole boys in Trenton should also consider it.

Safety, peace of mind, no fear of foreclosure or delinquency, no mortgage payments, tax free cash, lifetime occupancy guaranteed, what is there not to like about a reverse mortgage? As I have been writing about for the last couple of weeks and talked about on Bob and Marianne’s radio program, we also now have choice. The days of only one version of the FHA program is over, we now offer multiple interest rate options including fixed rate options. If haven’t updated yourself about the available programs in the last 60 days, then you don’t know what you’re missing. Some of the programs also offer higher equity releases so if you did not have enough cash release to pay off a current mortgage before, you should check in to see if anything has changed.