Beware of Reverse Mortgages

Well that is the headline used by Parade magazine this morning. It was delivered first by our news carrier, then frantically by my wife as she cried out, "Look at this article in the Parade magazine."


First of all I was surprised to discover that our local newspaper had finally given up on that lower cost magazine that they have been providing us for years, and finally went back to Parade - a publication, up until now, I have enjoyed reading.

After reading the article my first thought was that we need to Beware of False Headlines that are devised to attract our attention no matter how misleading they are. The irony in the article is not that reverse mortgages are bad. In fact the article documents that they have experienced an increase in popularity as they address the financial shortfalls senior home owners are experiencing these days. The bottom-line, as I read the article, is that potential borrowers need to know all of the facts and be guarded about the person making the presentation. Kind of like don't trust the headline, take an in-depth look at the article.

Being cautious in anything we do is good advice. Especially today when embellishments and out right lies seem to surface more often now in order to attract attention and take advantage.

In Parade's statement that "... a host of unscrupulous loan officers, mortgage companies and loan counselors are defrauding the desperate Americans," my response is that a significant majority of loan officers, mortgage companies and loan counselors are making every heart-felt effort to fully disclose the details of a reverse mortgage, including the obligations the borrowers have, in order to pave a road of complete understanding about the product so that a borrower can move forward with the loan, if it is the proper option for them, in an effort to improve the quality of life for the senior home owner.

Finally, with regard to the statement, "Other options-like taking a home equity line of credit or even moving to a smaller place." That statement is exactly true, but with many reverse mortgage borrowers, they do not have the financial ability, or it would create a hardship to take a loan that requires monthly installments and that is why congress legislated the FHA insured Home Equity Conversion Mortgage, a.k.a. reverse mortgage.

With regard to moving into a smaller place, if that is a possibility than yes, sell and move. But reverse mortgage candidates DON'T WANT TO MOVE and want to stay in their home. Again that is why congress passed the legislation for the HECM to facilitate the ability to stay in the home they so love.

The best advice I can give is you should find out about a reverse mortgage if:

• You are financially struggling and do not see a way to meet your financial goals, if.

• You want to stay in your home for the foreseeable future. Then

• Talk to your regional Agency on Aging office and discover if you have other options.

• If you enter into a conversation with a Reverse Mortgage officer, do so with someone you can trust.

• When you have your fact verification counseling session, don't be afraid to ask all of the questions that you have.

• Make sure your future financial recourses will be able to meet the required obligations you will have under the reverse mortgage.

        - Pay your property taxes.

        - Maintain your homeowner's insurance.

        - Have cash resources available to maintain your home.

• Finally, if someone initiates a conversation about how they can be involved with the money you can access via a Reverse Mortgage, let that suggestion be an alarm reminding you to be careful. It would not hurt to return to the regional Agency on Aging office to discuss your plans for your line-of-credit.

There are a lot of good, honest people out there ready to help you. Don't let the headline "Beware of Reverse Mortgages" frighten you away from impoving your life through the resources available to you.





 

Fed Reduces Home Equity Benefits to Seniors

Well here is some good news (he said sarcastically). HUD just announced that the loan amounts being guaranteed (thus given) to senior homeowners via a Reverse Mortgage will be reduced by 10%. So as I read the release, if someone has a $200,000 value placed on their home and today would receive, after expenses, a $134,000 line of credit, that available funds limit will be reduced by 10% to slightly under $121,000.


In all fairness there was another option and that was to increase the Mortgage Insurance Premium rate, which is already at a level that causes most people to pull hair out of their head. Which if you are like me, something that can be ill afforded.


It seems that there have been a lot of insurance claims made on promises made by the FHA within the insured Reverse Mortgage agreement. Promises like if your home sale value decreases below your mortgage obligation, FHA will will pay the difference. A promise many people wish they had within their conventional mortgage note.


So to protect the FHA Mortgage Insurance Fund, HUD announced that the insurance agreement will be compromised as of October 1, 2009, as contempory legislation dictates.

FHA Sinkhole is Coming and Condominium Owners, Property Managers, and Association Presidents Don’t Have a Clue!

A process known as the FHA Spot Approval process will be null and void as of November 1st, 2009.

If you are a condominium unit owner, or live in an FHA unapproved association complex, this could have a significant impact on you selling your unit, or refinancing, particularly for a reverse mortgage home equity loan.

In the past there has been a process available to a FHA lenders to “spot approve” a loan on a condominium unit, by attesting that the association and its legal status fulfill the approval requirements of the FHA. This internal lender process is being withdrawn and a formal approval requirement procedure by FHA is being implanted in its place.

What does that mean to you? Well, as a unit owner, a sale or refinance approval process involving FHA that probably would be going on without your knowledge, will now be abruptly repositioned to the forefront of your unit sale or refinancing agenda.  No FHA approval, no FHA backed mortgage.

Also, association presidents and property managers who in the past addressed the unapproved status effortlessly will now face a major sinkhole in their workweek.

Can anything be done to bridge this gap in the mortgage process, not to mention a major hassle to all concerned?

Yes I would be happy to help as much as I can. If you contact me by way of email - john@MortgageByJGK.com - or telephone me at 1-866-933-0225, ext. 314, I will provide you with the steps that can be taken now to avoid a procedural gap in the future.

Can Paying Points Mean a Less Expensive Mortgage?

Some mortgage applicants have the impression that if they get a mortgage loan with no points charged, that offer is better than one that has points attached to it.

I personally like to charge points because I can make up a reasonable and fair income that is taken away from me by the lender because I am creating a lower interest rate loan for the bank.

Let me give you an example.

First you should understand that rates do jump up and down all day long and if you are serious about getting a mortgage, you should pre-apply so that you are ready to give your loan officer the order to “lock it in” when the rate conditions meet your approval.

With that said, at the time I looked at the existing rates on July 24, 2009 a good “no points” rate on a 30 years, fixed rate note, for someone with reasonably good credit was 5.875%.

The principal and interest monthly payment would be $1,183. The total amount of interest paid over the life of the loan would be $225,907.

At the same time I could also obtain, under similar circumstances, a loan at a 5.125% rate with 2.125 points. So that there is no out of pocket expense, let’s put the loan at $205,000.

Even with the extra $5,000 added to the note value, the total interest paid over the life of the loan would be $196,831, or a savings of $29,076. Your monthly payment is lower also. Principal and interest payments per month would be $1,116, or a $67 reduction.

I am not inferring that all loans with points charged are going to be less expensive than loans without points since your loan officer has control over what is going to be charged. But generally speaking if you are dealing with a loan officer who is pricing your mortgage offers at a consistent, fair and reasonable income level, you are probably going to be better off working points into the loan agreement in order to buy down your rate. It is best if you get an amortization comparison – points vs. no points on all offers.

If this discussion generates some questions for you, feel free to call me, toll free, at 866-933-0225. Ext 314.

Like your diet, a little bit extra can mean a lot.

Did you know that by paying a little extra on your mortgage principal balance, when you pay your monthly installment you can save a substantial amount of money over the term of the mortgage as well as shorten the length of time it will take to reach a zero balance?

For instance, if you have a $180,000, 30 year mortgage, at current interest rates you can save almost $24,000 in interest payments over the life of the loan; and shorten the period required to payoff your mortgage by 2 ½ years by paying just an extra $50 each month.

That is $24,000 you can use for something else.

If you would like to discover how much money you can save by paying more on your principal balance, call me at 866-933-0225, ext. 314.

Also, if your current mortgage rate is 6% or more, call me to find out how much you can save by refinancing now.

Buy a Single or Multi-Family Home with a Reverse Mortgage

Over the last few days I have added to my “Help” page at www.jkaravas.com some examples of how a senior can purchase a home using a reverse mortgage. One is a video and the other is a copy of an article that came to me about how a couple strengthened their retirement income by buying a multi-unit home with a reverse mortgage.

I think that both of these items are great views/reads for a senior looking to make a housing change, and all real estate agents looking to expand their sales resources.

It might be the forest and the trees thing

It has been my experience that some folks who can be helped by a reverse mortgage, get so caught up on the mortgage insurance premium attached to the financial guarantees within the FHA insured product that they lose sight of the festering costs that they are incurring because of their current financial circumstances.

For instance many people who can be helped by the reverse mortgage have lien attachments on their home. Each month the value of those liens grow with interest and penalty assessments.

Secondly many people who can be helped by way of an insured reverse mortgage have high priority home repairs that are being ignored. As each month passes the cost to do those repairs grows, eating away at the home’s existing equity value.

Individually, or combined, the negative costs generated by the growth of lien(s) and repair cost can far exceed any insurance guarantees expense accompanying a reverse mortgage.

I can not explain the rationale of allowing the growth of the lien values, or the condoning of a home falling into ill-repair, but that old saying “Can’t see the forest because of the trees” might be appropriate.

So if you are one of those people who fixates on the mortgage insurance premium costs, and you have turned your back on the circumstances that are actually eroding your equity value, I would strongly urge you to sit with someone, grab a pencil and paper, and compare the positive costs of the mortgage insurance premium to the cancerous cost of your eroding equity value.