Moving Forward in Reverse

FHA/HECM Reverse Mortgage Loan Limit Increased To $625,500

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Sun, 15 Mar 2009 13:13:51 -0500

It wasn't too long ago that the lending limit on the reverse mortgage (HECM) was increased to one national limit of $417,000 instead of lower limits that varied by county. The increase was part of HR3221, the FHA Modernization Act, passed in July, 2008. It wasn't until November, 2008, that HUD allowed implementation of the new limit. The increase allowed seniors (over 62) with home values above the old county lending limit to access more of their equity.

The limit has been raised again, this time to $625,500 which will allow access to even more equity on higher valued homes.

I find this ironic in a time when most homeowners' values have fallen. However, for those seniors with higher valued homes, the increase fills the void left when jumbo reverse mortgages went away. Since the jumbo reverse mortgage is not available in these current market conditions, the higher limit HECM essentially steps in for the defunct jumbo, but at much better interest rates and with the FHA insurance.

It is a shame, though, that some seniors either refinanced their existing reverse mortgages or took out a reverse for the first time when the limit increased to $417,000. Now, those with even more equity in their homes, may want to refinance to take advantage of the latest increase. They will do it at a price, however, because they will be hit with closing fees once again. They do get a break on the MIP (Mortgage Insurance Premium) when they refinance an existing reverse mortgage. But, again, what a shame that our politicians and HUD were so short-sighted back in July of '08 when they limited the increase to $417,000.

The higher limit will be temporary and for the balance of 2009 only. Congress would have to act on it again before this year is out to extend it beyond '09.

Here we go again! HECM (reverse mortgage) limits will probably increase to $625,500!

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Sun, 15 Feb 2009 13:47:23 -0600

The increase allowed seniors (over 62) with home values above the old county lending limit to access more of their equity. Raising the limit even higher, to $625,500 will allow access to even more equity on higher valued homes. Since the Jumbo reverse mortgage is not available in these current market conditions, the higher limit HECM essentially steps in for the defunct jumbo, but at much better interest rates and with the FHA insurance.

If the new limit takes effect, it will be temporary and for the balance of 2009 only. Congress would have to act on it again before this year is out to extend it beyond '09. The increase in the limit must still be voted on separately by the House and the Senate, so it is not yet entirely final.

Once both houses of Congress approve it, President Obama has to sign. After the President signs the bill, HUD will have to issue a Mortgagee Letter to implement the change.

The last time the limit was raised, it took HUD nearly 5 months to interpret the bill and issue the Mortgagee Letter. This puts seniors into another "lending limit limbo". Let's hope they move faster this time!

New Reverse Mortgage Program -- HECM for Purchase

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Mon, 05 Jan 2009 17:28:31 -0600

A HECM for Purchase is the FHA insured reverse mortgage that allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from the reverse mortgage. This is a new program that became effective January 1, 2009.

Previously, if a senior wanted to use a reverse mortgage to purchase a new principal residence, they had to secure financing for the home and then turn around and pay off that mortgage with a reverse mortgage. The disadvantage was that it required two closings and the borrower incurred two sets of fees for the transactions. The new program - HECM for purchase - allows seniors to purchase a new principal residence and obtain a reverse mortgage with a single transaction and one closing.

Here is how it works: the reverse mortgage provides X dollars based on the borrower's age, appraised value, and a current interest rate (this is no different than a traditional HECM). The remaining balance MUST come from the borrower's own funds and must be enough to purchase the new property outright. In most cases, the funds will come from the sale of the borrower's existing home, although savings and retirement funds can be used. FHA is very strict on what is considered an acceptable source of funding. No gifts, no credit card advances, no seller concessions - only funds that the borrower has in savings, retirement accounts or proceeds from the sale of their home are acceptable. Seller financing is also not permitted and no subordinate financing is allowed.

An example: Let's say the Smiths, who live in a large two-story home, simply cannot maintain the home anymore and find that climbing the stairs is getting more and more difficult. They find a cute condo that is perfect for them with an asking price of $220,000. It is a one-story unit on the ground floor. The maintenance is mostly taken care of by the homeowners association. The Smiths refinanced their home a few years ago so they have a lien of $120,000 to pay off from the sales proceeds leaving them with $180,000 which is not enough to purchase the condo outright. The reverse mortgage will provide them with $141,000, so they need to put down $79,000 to equal the sales price of $220,000. That leaves them with a $101,000 nest egg and no house payments for as long as they live in the condo.

The HECM for purchase isn't necessarily for seniors who want to down-size. It can be for those who want to up-size! Here's another example: Let's say the Harpers live in a low-cost area and they want to move to a nicer neighborhood and to be near their children. Or they want to go to Arizona and live on a golf course. The new home is selling for $250,000. The sales proceeds from their home nets them $120,000. The reverse mortgage will provide them with $161,000 on the new home. They need to bring in a down payment of $89,000 which comes from the sale of their existing home. Now they have a nicer home with no mortgage (and a little cash for a rainy day)!

Here are some highlights of the HECM for purchase program:

Borrowers will still need HUD approved counseling, just as they would have with a traditional reverse mortgage.
Can be used to purchase an existing 1- to 4 unit property, FHA approved condo, and a manufactured home that meets HUD's guidelines (cooperatives are not allowed).
Property must serve as principal residence
Only HECM first and second liens against property
Must provide monetary investment at closing from allowable funding source
Must occupy property within 60 days
Just like a traditional HECM, the borrower is responsible for taxes & insurance and home maintenance costs
Unlike a traditional HECM, there is no three day right of rescission

The HECM for purchase won't meet the needs of all seniors - a hefty down payment is required. However, for those who have an existing home to sell or have funds in savings or investments, the HECM for purchase can be another financing option for the purchase of a new home. The real advantage of the program is that senior homeowners can purchase a home (and sell their old one) with no income or credit qualification and live in that home with no monthly mortgage payments for the rest of their lives.

Appraised Value for Reverse Mortgage in Declining Market

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Fri, 05 Dec 2008 16:25:20 -0600

Has anyone had the experience of submitting a loan with one appraised value and then the underwriter reduces the value???

I am in shock at what happened to one of my loans. We submitted an appraisal with a value of $300K which actually seemed low to me (and the borrower). The property is in California.

This borrower would have been short to close by about $5K at $300,000. At the last minute, the underwriter stated that they could only loan on $270,000 because the property is in a declining market. (Isn't all of CA a declining market??)

At $270,000, this borrower cannot do the loan and will lose his home. He cannot make the mortgage payments.

Does anyone have a similar experience and more importantly, does anyone know of any recourse to help this borrower? I have submitted the loan to another lender with hopes that they will accept the appraisal at face value. Let's pray that they don't do the same thing as the first lender!

Should I Wait to do a Reverse Mortgage?

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Sat, 18 Oct 2008 17:07:30 -0500

"Should I wait to do a reverse mortgage"? I get this question all the time from senior homeowners considering a reverse mortgage. The answer is: "It depends..."

I then ask the borrower, do you need it now? If the answer is "yes", then waiting may not be to your advantage. Yet convincing these folks that it is in their best interest to move forward NOW is a very difficult task. Of course, I realize that I have a built-in bias - I make my living originating reverse mortgages. However, I have a responsibility to help these folks understand that they may not have a better opportunity in their lifetime.

Before we address why it may not benefit a borrower to wait, let's talk about why folks are taking a wait and see attitude about reverse mortgages. Partly it is because we just came through a lending limit limbo while we all anxiously awaited HUD's decision on the new national lending limit that was signed into law with HR 3221, the housing bill. Even when the legislation passed, the interpretation as to the new limit was vague at best and it took weeks before HUD finally announced on October 2^nd that there will be one national lending limit of $417,000. So anyone with a higher valued home wanted to make sure they got the most from their reverse mortgage. I don't blame them. They were wise to wait.

What is ironic is that the folks who have home values that would not benefit from the increase in the limit were also sitting on the sidelines waiting to see what the new limit would be. Why was that? I think it is partly because they didn't understand that the new limit would not impact the amount of equity they could access. Or perhaps they were waiting for lower fees. Although, unless they have a home valued over $300,000, the new law that reduces the origination fee won't affect them either. But, these folks just didn't understand all that, nor should they. They aren't reverse mortgages specialists.

But now that HUD announced the lending limit and is tentatively shooting for a November 1^st effective date, many folks are still putting off taking out the reverse mortgage that they need so badly.

Perhaps they think that by waiting they will get more money down the road? I hate to disabuse them of that notion, but the fact is that by waiting they are risking further declines in the value of their home and an increase in the interest rates that affect the reverse mortgage.

To understand how this works, consider that there is a formula for calculating the amount of equity that can be considered for a reverse mortgage. The formula includes three very important variables: 1) The age of the younger borrower, 2) the value of the home up to the lending limit, and 3) an interest rate that we reverse mortgage specialists call the expected rate which is based on the 10-yr. T bill or the Libor as an index. When any one of these variables changes, the amount of proceeds can be impacted. For example, if the home value drops, the amount of money the borrower gets is less. If the expected interest rate increases, the borrower will get less money.

Let's say a borrower has a home valued at $300,000 and this borrower is 72 yrs. old. At the time the borrower signs the loan application, the expected interest rate, which is based on the 10-yr. T-Bill is 5.4%. Once the calculations are performed, this borrower is eligible for $195,500.

What if this borrower waits and the expected interest rate rises to 5.59%? If the value of the home is still $300,000, the borrower is now eligible for $192,000, $3000 less. Maybe that is no big deal, but what if the borrower has a mortgage of $194,000? By waiting, he is now $2000 "short" and will have to bring in that money to close the loan (all liens, mortgages, etc. MUST be paid off with the reverse mortgage proceeds). So waiting, especially for a borrower who needs the entire reverse mortgage proceeds to pay off their existing mortgage, can leave that borrower short-to-close.

Now, what if while this borrower was waiting, the home value fell to $290,000? If the expected interest rate stayed at 5.4%, this borrower is now eligible for only $188,000! This is a huge risk to take, especially if there is an existing mortgage to pay off. Home values are predicted to continue declining throughout 2009.

What is most likely to happen is that this borrower will be hit with a double whammy - the home value will fall AND the expected rate will rise. What if the home value falls to $290,000 and the expected rate rises to 5.59%? Now the borrower is only eligible for $185,400, almost $10,000 less than he would have gotten had he not waited.

Of course, again, it depends on what the borrower's needs are. If they don't have a pressing need such as paying off an existing mortgage or a need for income to make ends meet, then maybe the loss of access to the extra $10,000 won't make a difference to them and there is no need for urgency.

But there is another argument for not waiting to do a reverse mortgage that is often overlooked and that is quality of life and the time we have left on this earth. I call this "lost life opportunity". What if because of a lack of money the borrowers miss out on the opportunity to visit family in another state, to eat out more often, to take all the grandkids to the movies, and just simply be able to pay all the monthly bills without robbing Peter to pay Paul - how do you put a price on that? Reverse mortgages aren't always about numbers and dollars and cents - they are about what the money will DO for us. No amount of waiting will ever make up for these lost opportunities.

So back to my original question: Why do people put off doing something what is in their best interest, other than a lack of understanding of how the reverse mortgage works, as explained above?

I believe it is simply fear. Fear of making a decision because it may be the WRONG decision. And this fear comes out in spades when society in general is in turmoil and the only thing that is certain is uncertainty itself. Fear creates paralysis. Even though rationally it may be in a person's best interest to make a decision and move forward, inaction tends to be the human response to fear. When there are perceived threats, our biology tells us to sit quietly, don't draw attention to yourself, and don't move in any direction (thus the "deer in the headlights" syndrome).

And there is plenty of fear to go around. Credit crunches, Wall Street woes, bank failures, declining markets, foreclosures on every corner - it is enough to make a person want to go to bed and stay there until everything is normal again (which is an illusion!).

My advice to my senior clients is that we have to overcome this emotional paralysis and try to make decisions based on logic and reason. The reverse mortgage program is just as safe as it was a year ago or twenty years ago when it first became insured by the FHA. The program is still highly regulated, has built-in guarantees, and is insured by the full weight of the government. None of that has changed. What has changed are our economic situations, our home values, and an increase in the climate of fear.

Another question I get from seniors is "What if I need the equity in later years and I have used it all up with a reverse mortgage?" My response to them is this:

First of all, what are "later years"? The average reverse mortgage borrower is 72 yrs. old. That seems late enough for me. How much longer should they live a life of sacrifice waiting for some unknown need for equity in the future? Now seems to be a good time to start living life. Life is short.

As for "using up" all the equity, if the distribution of funds is set up correctly, there should be money left on a growing line of credit. In fact, many of my clients use the reverse to "lock in" some equity and preserve it for future years. That way, if home values plummet, they are guaranteed the equity in their line of credit.

Also consider that many borrowers use some of their reverse mortgage proceeds to pay off existing liens, as we discussed earlier, thereby freeing up cash flow. The house payment they no longer have to make could be saved or invested for a "rainy day" if that is a concern for them.

Equity is really an illusion. As we have so painfully seen in recent months, equity can come and it can go based on market conditions. Who's to say that the senior will even have a substantial amount of equity in their home in the future? Even if they did, we are back to how are they going to access it. Short of selling the home, they will most likely get a reverse mortgage.

This concern, that there may not be equity in future years "when they need it", is based, I think, on fears that they may need funds for long term care or need to sell and move into assisted living.

Let's think about this: Even if they did not do a reverse mortgage, there isn't enough equity in the average person's home to cover very many years of paying for assisted living or other long-term care facilities anyway! Once their funds run out, if they don't have a long-term care insurance policy, they will have to apply for Medicaid to pick up the slack. So the equity they could have used a few years ago, to make life more enjoyable, is used up anyway!

So, why not use the equity now, set up a line of credit, pay off existing mortgages, and use some of the proceeds to purchase a long-term care insurance policy? (I realize this is not always realistic based on health and age, but a person in their 60's and perhaps early 70's, should consider this as an option).

The unused balance on a reverse mortgage line of credit grows each month and can literally double in 10 years. Many reverse mortgage borrowers are setting these up to use for in-home care when and if they should need it.

Every borrower's situation is different. Anyone considering a reverse mortgage must get all the facts and rely on the advice of not only a reverse mortgage specialist like myself, but also get unbiased professional advice from someone who also understands reverse mortgages. While waiting sometimes make sense in certain cases, for the most part, very little will be gained by waiting. And remember, there is nothing to fear but fear itself.

Announcing Reverse Mortgage Training Solutions!

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Wed, 20 Aug 2008 14:55:32 -0500

Announcing Reverse Mortgage Training Solutions

I am thrilled to announce that my new company, Reverse Mortgage Training Solutions (RMTS) is now available to train anyone who wants to become a reverse mortgage originator. Good quality training is sorely lacking and RMTS will fill that void.

Reverse mortgages are a high-demand niche market that is growing exponentially with the aging of America. Older adults are facing financial hardships that the reverse mortgage could help solve. RMTS training programs equip new and existing loan officers transitioning into reverse mortgages with the tools and resources to position themselves as the local expert on reverse mortgages.

http://www.reversemortgagetrainingsolutions.com

RMTS offers four distinct training products and services for new & experienced reverse mortgage originators and for companies who need to train their loan officers. The RMTS suite of products includes:

RMTS COMPLETE! Coming soon! This is a comprehensive online course for loan officers, mortgage brokers and anyone who wants a career as a reverse mortgage loan consultant. The course is self-paced so that the very busy loan officer can fit it into their schedule. It consists of 4 modules with approximately ten hours of interactive, engaging instruction in everything needed to be successful in the reverse mortgage industry including product knowledge, marketing strategies, and sales training. Sylvia has layered the course with an ethical approach to working with seniors as well as sharing her real-world experience, having originated over 375 reverse mortgages herself.

RMTS DIRECT! Available now! RMTS offers cost-effective, onsite, customized workshops for small to mid-sized lenders who do not have the resources or expertise to train their loan officers in reverse mortgages. RMTS workshops are interactive, challenging - and downright fun! Pick and choose from three core subject areas. Take each workshop as is, or create your own by mixing and matching topics based on your team's needs.

RMTS LIVE! Available now! Join us for focused webinars aimed at providing reverse mortgage consultants real-world training and information on specific topics that cover sales & marketing, product knowledge, and how to successfully work with seniors. All of the RMTS LIVE! webinar events will be hosted and conducted by reverse mortgage industry expert, Dr. Sylvia Williams, CSA.

RMTS CLUB!is a ‘members only' website that will be available for a low annual fee. The club will offer a variety of benefits to include the first module of the RMTS LIVE! course for free, industry updates, monthly newsletter filled with sales and marketing tips, discounts on webinars, marketing materials, a job board, and much, much more!

If you want more information, please contact me at: Sylvia@reversemortgagetrainingsolutions.com

More feedback about my comments in my post on One National Lending Limit - HR3221

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Tue, 29 Jul 2008 18:24:37 -0500

My, My. I guess I stirred things up a bit. I made a comment in my Blog Post Breaking News! One National HECM (Reverse Mortgage) Lending Limit passed by the Senate! about the cross selling of financial products to seniors.

Here is what I said in regards to a provision in the legislation HR3221: "It is about time that someone restricted the cross selling of financial products and annuities to seniors. These are for the most part inappropriate products and have given reverse mortgages a bad name. It was not so much the reverse mortgage itself, but the inappropriate use of the proceeds that created the bad press."

Here is an email I got:

Dear Dr.: I am curious why you feel that cross selling is incorrect? If you had an eighty year old Aunt Alice living in a $100,000 home and no real savings and barely making it, why would you not want her to get a RM with the housefixed up, purchase a $10,000 Medicaid Approved Pre-Need Funeral Plan for her and Uncle Henry who has early stages of a serious illness with no more than five years to live? Let's together respectfully analyze this situation and see what are the best options for them.

Here is how I responded:

Dear___,

Are you a reverse mortgage consultant? I sure don't have any issues with the Aunt Alice in your scenario getting a reverse mortgage to fix up her home and perhaps have some extra to live on. And, if the $10,000 Pre-Need plan makes sense, I don't have a problem with that, either.

However, I do have a problem with selling seniors unneeded financial products just to make an extra commission. I find that annuities - in most cases - are not appropriate in that they tie up the senior's money, create taxable income, and sometimes provide less income than the tenure option. But it sure does create a nice commission for the insurance agent! (And by the way, I am a CA licensed life agent).

However, I might have been hasty in my blanket statement and should have taken more time to explain what I meant. My real point was that selling annuities to seniors has created some major bad press over the years and that it was not the reverse mortgage per se that was the culprit, but the inappropriate use of the proceeds. I do recognize that not all investments are bad. But I do believe the senior should get unbiased financial advice. Thanks for writing to me!

Sylvia

Correction on my last Blog about the One National HECM Lending Limit

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Tue, 29 Jul 2008 18:12:19 -0500

I really goofed on my calculations in my last Blog, Breaking News! One National HECM (Reverse Mortgage) Lending Limit passed by the Senate!, and a couple of brokers pointed out my mistake (thanks, guys!).

I commented on how my client would benefit from the increase in the lending limit to $417,000. I explained that with the current lending limit of $372,790, they would be $50,000 short of being able to pay off their existing mortgage and that with the new limit, they could access enough equity to just cover the mortgage. I was so looking forward to telling them!

Well, I didn't calculate correctly. Because our reverse mortgage calculators do not yet reflect the new lending limit (HUD has yet to give their blessings with a Mortgagee Letter), I did a quick calculation but failed to take into account that not all of the increase will flow to the bottom line.

It appears that my borrower will only have access to an additional$35,000 of that increase, not the entire increase, leaving them still short by $25,000. That is much better, but if you don't have $25,000 it might as well be $50,000!

Here is my new calculation: With the current limit, the Principal limit is approximately $242,000 which is 66% of the limit of $362,790. Applying that same percentage to $417,000, I get a principal limit of $275,000. Then of course, the service set-aside of approximately $5000 (this is not a fee, but it is an equity reserve) is deducted plus approximately $15,000 in fees, leaving the borrower with a net principal limit of $255,000. With a mortgage of $275,000 to pay off, they are still short. Sigh....

I always own up to my mistakes and I really appreciate those of you who pointed this out to me. That's what I get for being in a hurry!

Breaking News! One National HECM (Reverse Mortgage) Lending Limit passed by the Senate!

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Sat, 26 Jul 2008 16:39:03 -0500

Today, July 26^th, the Senate passed HR 3221, Foreclosure Prevention Act of 2008, also known as the "FHA Modernization Act" and the President is expected to sign it immediately.

This bill provides for needed housing reform in general but has direct impact on the HECM (Home Equity Conversion Mortgage) specifically.

The bill will establish one national FHA lending limit for HECM's at $417,000. (The limit will be increased for high cost areas to $625,500 on January 1^st, 2009). Currently the highest FHA lending limit is $362,790. What this legislation means for senior borrowers is that they can now access more of their equity. For example, I have 69 yr. old clients who can barely make their house payment. Their mortgage balance is $275,000. Their home is worth approximately $450,000. With the current county lending limit of $362,790, they are only eligible for $224,500 which won't cover their mortgage. They are what we call in the industry "short-to-close" by about $50,000.

Now, with the increased lending limit of $417,000 they have access to an extra $54,000 of their equity which will be enough to pay off their mortgage. They are going to be thrilled!

The increase in the lending limit is a real blessing for some folks. However, it won't make a bit of difference if the value of the home is under the current lending limit. For example, if a borrower has a home value of $350,000 in a county with a lending limit of $362,790, no extra equity is available. However, if that same home is in a county with a county lending limit of $206,000, the increase in the lending limit will free up $144,000 more that they can access! This legislation is a HUGE benefit in counties with lower lending limits but higher priced homes.

The other benefits to seniors are:

HECM for home purchase
Co-op product provisions
Origination fees of 2% on the initial $200,000 in maximum claim amount and 1% on the balance thereafter with a cap of $6,000
Prohibitions on requiring the purchase of annuities and other financial products.
Restrictions around cross selling financial products.
Requirements on counseling protocols, funding and practices that promote independence and quality in counseling.

It is about time that someone restricted the cross selling of financial products and annuities to seniors. These are for the most part inappropriate products and have given reverse mortgages a bad name. It was not so much the reverse mortgage itself, but the inappropriate use of the proceeds that created the bad press.

The reduction in fees has been a long time coming! The origination fee is now capped at $6000. Prior to this bill, the maximum origination fee was $7255. Now seniors can access more equity at a lower cost. We are making progress!

So You Want to be a Reverse Mortgage Loan Consultant?

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Wed, 14 May 2008 17:50:38 -0500

The reverse mortgage industry is sizzling. Each year there is an increase in the number of reverse mortgages originated. A bulge of some 80 million baby boomers is currently moving through the population heading toward the retirement years. The vast majority of baby boomers are homeowners, many of them with substantial equity. Many will consider tapping into the equity in their homes to help pay for retirement. It is predicted that one in five mortgage loans by 2015 will be a reverse mortgage.

Perhaps you are considering a career change and think you want to be a reverse mortgage consultant. Before you jump into it, please take the time to consider what it takes. If you are transitioning from the "forward" mortgage side to reverses, you will have to completely change your mindset and how you do business. Working with seniors is a totally different experience than what you might be used to. (I will give you one hint as to the main trait you will need to work on and that is ‘patience".)

In other words, do you have the right stuff? There are some basic skills and traits that you must have in order to succeed in reverse mortgages.

Successful reverse mortgage consultants have these traits in common:

*Personal integrity
*Patience
*Genuine caring and interest in others
*Good old-fashioned Likeability

You will also have to become an expert in your field. You must have a complete understanding of reverse mortgage products and how they can help your clients. Anything less and you will be crushed by the competition. Anything less, and you will not be serving the best interests of seniors who so badly need your guidance, advice, and expertise.

You must always, always, always put the senior's interests before your own. Because reverse mortgages are so popular, I fear that many will see this as an opportunity to make a quick buck rather than as the long-term career opportunity it is. With that opportunity comes a moral and ethical responsibility to serve our senior clients well. We also have the responsibility to protect our industry by always following the rules and never cutting corners. Our industry is being scrutinized like no other industry, as it should.

In addition to the above traits, you will need these skills:

You must be detail-oriented. You will be working with numbers, documents, and lots of information. If you are sloppy with the details you may impede the progress of the loan. Your borrower will be unhappy, your processor will be unhappy, and YOU will be unhappy. If you are not the detail type, then seriously consider hiring someone to help you with administrative details.

You must be organized. You will need systems in place. Again, you may need to hire someone if you cannot stay organized yourself.

You must build referral networks This means involvement in your community, meeting and greeting people, joining networking groups and other community organizations. Successful reverse mortgage consultants are "out there".

You must be an educator. More than any other loan product, the reverse mortgage requires that your senior borrower deeply understand the loan and how it works. Forget that you are "selling" - you are providing a solution to a senior. Seniors do not want to be "sold". Your job is to teach, to educate, and to explain.

Take time to reflect and do some self-assessment. Ask yourself; do I really have what it takes to be good at this? Do I want it bad enough to make improvements in my personality and in my habits? Be honest with yourself. If your motivation for doing reverse mortgages is the money only, you will soon find that you are not happy in your new career.

Reverse Mortgages and FHA County Lending Limits

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Thu, 27 Mar 2008 11:39:44 -0500

There is some confusion regarding the status of the county lending limit increases for HECMs (Home Equity Conversion Mortgages), also know as reverse mortgages.

The recent FHA temporary loan limit increases are NOT applicable to HECM's. The Economic Stimulus bill only created temporary higher limits through the end of this year for "forward" mortgages, not reverse mortgages. The Economic Stimulus package specifically excluded HECM from all of its provisions

The House of Representatives passed its version of the FHA Modernization bill in July 2007 and the Senate passed its version in December. The two versions differ in a few areas (other than HECM issues) and the differences must be resolved in a House-Senate "conference committee." Once a bill is formally adopted by the Conference Committee, it will be sent to both chambers of Congress for approval before it is sent to the President for his signature. The bill includes these provisions:

A single national loan limit at the conventional limit (currently $417,000);
HECM for home purchase;
HECM for coops;
A limitation on HECM origination fees at 1.5% of the maximum claim amount;
Broader provisions regarding manufactured homes, that would, in essence, allow HECMs on manufactured homes where the lots are held as condominiums.

Increasing the national limit will allow many reverse mortgage borrowers the ability to access more of their equity. Currently the highest national lending limit for HECMs is $362,790. When I am speaking to a prospective borrower who has a home value above the county lending limit, I inform them that if they wait a while longer, they may be able to access more equity.

Until the FHA Modernization bill is finalized, it is very misleading for lenders to send out marketing letters telling consumers that Congress has raised the HECM loan limits to $417,000 and promoting refinancing of existing loans. Congress has not yet enacted the higher limit. It is false and misleading to state the higher limits as something that has been done. I have seen a couple of marketing pieces that are touting the higher limits as if they are already in place. That simply is not true.

No one knows for sure exactly when Congress will complete this bill -- and what the final version will actually include. It could be next week, next month or three months from now. Stay tuned....

Reverse Mortgage Q & A

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Wed, 26 Mar 2008 15:51:56 -0500

I pride myself on staying in touch with my reverse mortgage clients. Even years after the loan has closed, clients have ongoing questions and I am always available for them. They often comment that it is so refreshing to call the same phone number knowing I will be there!

My clients also send their friends to me for information. I started writing down some of the questions I get. Because of the declining values we have been experiencing, a lot of questions revolve around equity and how values impact the reverse mortgage.

So here are some typical questions (with my answers) that my clients and prospective clients have been asking:

Q: I am 69 yrs. old and behind in my mortgage payments. My loan balance is higher than the value of my home. My son is telling me to do a short sale. I don't want to move. Would a reverse mortgage help me? Help!

A: Using reverse mortgage proceeds to "settle" with a lender is becoming more and more common. Rather than a short "sale" it is a short "refinance". The lender has to be willing to accept less than the amount owed. But in many cases, it is to the lenders advantage to take the settlement rather than incur the costs of foreclosing on the home. If they are willing to do this, you will no longer have any mortgage payments at all. It can be a win-win.

Q: My mother is 72 and has an Option Arm loan that is resetting soon. She will not be able to afford the payments. Can a reverse mortgage help her?

A: Paying off existing mortgages, especially risky adjustable loans, is one of the very best uses for a reverse mortgage. Your Mom's loan balance and home value are two variables used to calculate how much reverse mortgage money she can get. If the loan balance is not too high and there is still some equity in the home, a reverse mortgage may be the solution.

Q: I have had a reverse mortgage for two years and love not making a house payment anymore. However, my home is too big for me and I am considering selling it. Will I be able to get another reverse mortgage on my next house?

A: If the figures make sense, you are absolutely entitled to another reverse mortgage. Very soon there will be a reverse mortgage that can actually be used to purchase a home. It is part of the FHA Modernization Bill which we expect to pass any time now.

Q: My value has decreased dramatically. How will that impact the reverse mortgage I took out last year?

A: It will not affect your reverse mortgage one iota. The terms that you entered into when you signed your loan documents are in force and nothing can change them. Even if you were to lose ALL equity, you can remain in your home the rest of your life and never have to make a payment to the lender.

Q: We are having a tough time making our mortgage payments, but I was told that we could not qualify for a reverse mortgage because our mortgage balance is too high. Is there anything we can do?

A: You may be in a situation that we call "short to close", meaning that the reverse mortgage proceeds are not enough to cover your existing mortgage balance. If that is the case, we need to determine how "short" you are. If you have funds in another account like a retirement account or a CD, you could use those funds to pay the shortfall and eliminate your mortgage. Another solution is to see if one of your adult children has any equity in their home and can take out an equity line of credit to help you make up the difference. Then you would make the payment for your son or daughter. That payment would be substantially less than the mortgage payment you are making now.

Q: I have a line of credit with my reverse mortgage that is guaranteed to grow each year. Now that values have fallen, will that line of credit be reduced?

A. No, again you have a contract that states the amount of your line of credit and the growth rate attributed to it. Even if your home value falls below your line of credit, you are guaranteed the line of credit amount plus growth. Smart borrowers took out their reverse mortgages when they had lots of equity and have essentially "locked" in their equity with a reverse mortgage.

Q: I keep hearing that "County lending limits" are going up. What does that mean for me with a reverse mortgage?

A: FHA HECMs (Home Equity Conversion Mortgage) limit the amount considered for a reverse mortgage based on the FHA County Lending limits, which vary by county. Currently the highest anywhere is $362,790. The FHA Modernization Bill will raise limits, possibly to one national standard of $417,000. What that means for new reverse mortgage borrowers is that if their home is valued above the current limit in their county, the ceiling is raised on the limit for them, freeing up more equity to borrow. For existing reverse mortgage borrowers, it means that they could possibly refinance their reverse mortgage to access more equity.

Q: I have been thinking about a reverse mortgage, but now that my home value is less, won't I get a lot less money on the reverse?

A. The amount of equity you are eligible for is based on a calculation that includes the age of the younger borrower (if there are two borrowers), current interest rates (based on the 10 yr. T Bill plus a margin) and the value of the home or the county lending limit, whichever is lower. Because values are down, yes, you are right - you will have access to less equity. But does that mean you should wait? It depends.... how badly do you need the money now? What are you using it for? How old are you and how important is it to use the funds for a better quality of life now? Only you can make that decision. However, if you do choose to get a reverse mortgage now, it is possible that as your home value increases, you will be able to refinance your reverse mortgage into another reverse mortgage and access more equity down the road.

Q: I already have a reverse mortgage, which I used to pay off my forward mortgage. I also set up a small line of credit but it is now depleted. I need more money. Can I refinance my reverse mortgage?

A: That depends on the value of your home and how big your reverse mortgage loan balance is that must be paid off. If your home value has flattened or fallen since you took out the reverse, it is possible that you simply don't have enough equity to refinance. You may have to wait a year or two. Check with a good reverse mortgage consultant to see if refinancing makes sense for you.

Q: I have had my reverse mortgage for 3 years now, but I have no equity in my home. Will I lose my home?

A: No way! The FHA insures reverse mortgages. Your home is yours until you leave it permanently, even if you are "upside down", meaning you owe more than the home is worth. When you finally leave the home, the FHA insurance will pay the difference if the value is less than the loan balance.

Q: How will my heirs pay back the reverse mortgage?

A: When the last borrower either moves out or "moves up" (dies), the loan is due. Your heirs have some choices. They can sell the home and pay the reverse loan balance out of the proceeds. Any remaining equity is theirs. Or, if they want to keep the home, they can secure regular financing and pay off the loan. In the event that the loan balance is higher than the value of the home, the heirs can simply walk away and let the FHA and lender take care of it. All reverse mortgages are non-recourse loans which means that only the value of the home can be used to satisfy the loan. If the loan balance is more than the home is worth, and even if your heirs had millions in the bank, they will never be asked to pay back the lender.

Q: How long will my kids have to settle the loan when I am gone?

A: Most lenders will work with your heirs and give them up to one year to sell the home. The lender does not want to take the home back.

Q: When we took out our reverse mortgage, we weren't too concerned about leaving the home to our daughter. But now, circumstances have changed and our daughter lives with us. She is going to want to keep the home, but the loan balance is growing bigger and bigger. She is making good money now, but what if she is not working and cannot refinance the home when we die? What can we do?

A: First off, a lot of things can change between now and the time you leave the home permanently. Your daughter may be in a different "place" in life entirely. However, if you want to limit the growth of the reverse mortgage balance, and your daughter has income, why not have her pay the interest on the loan each month? That would be like her buying the house now. It is perfectly OK to pay down a reverse mortgage.

Q; I was told that I am stuck in my home when I take out a reverse mortgage and that I cannot sell it. Is that true?

A: Nothing could be farther from the truth! You have total control over your home and you retain title. You can sell anytime you wish. However, when you do sell, the loan balance must be paid back, usually from the sale proceeds. Any remaining equity is yours to keep. This is no different than if you had a forward mortgage and sold your home.

Q: I am getting a monthly payment from my reverse mortgage. If my equity runs out, will the payment stop?

A: No, it will not stop, even if you have zero equity in your home. The monthly payment, called tenure, is a lifetime guaranteed monthly payment. It is one of the payment options of a reverse mortgage. You will receive it as long as you live in your home.

Q: What if I take out a reverse mortgage now and need my equity in future years?

A: This is not a simple question to answer without knowing all of your circumstances. However, you must weigh the benefit to you now versus possible future benefits. What do you need the money for now? If you are experiencing hardship and stress, the equity could be used now to ease your life. Also, ask yourself, what could I possibly need the equity for in the future? Is it to buy another home? If so, you might want to consider moving now. Is it to pay for long-term care? If so, the only way to tap into your equity would be to sell your home. How much would you get on the sale? Would it be enough to pay for assisted living? In most situations there simply isn't enough equity available to sustain a long-term care event. So, you would probably go on Medicaid. But, before doing that, you would have to "spend-down" your assets including your home equity (if you are single). So by "holding onto" your equity, what have you gained? Again, this requires very careful analysis of YOUR situation.

Q: I want to take all of my reverse mortgage proceeds as a lump sum and put it in the bank. I have been advised not to do that. But why?

A: The reason this is not a good financial move is that once you draw out all proceeds, interest starts accruing on the balance. Unless you can put that money where it earns more than the interest charged on it, it does not make good financial sense. You have the option of leaving it on a line of credit with the lender and drawing from it any time you need it. And, the balance on the line of credit grows bigger over time.

Q: I have been approached by an insurance agent who is trying to sell me an annuity. I have approximately $90,000 coming to me from my reverse mortgage (after paying off a small mortgage I took out to refinance several years ago). He says that I will make more money by investing the $90,000 into an annuity. I am 83 years old.

A: RUN!!! Do NOT under any circumstances use your reverse mortgage proceeds to purchase any investment, especially an annuity, without solid, impartial, unbiased financial advice. This insurance salesman is going to make a BIG commission on selling you the annuity. You do NOT need an annuity at your age. Your money will be tied up for years and years. What if you need it? The whole point of doing the reverse mortgage was to secure some funds for a "rainy day". Please do not even consider this. If you need monthly cash flow, look into structuring you reverse mortgage so that it pays you a monthly income.

Q: Aren't reverse mortgages extremely expensive?

A: I would ask you "compared to what?" Selling your home is expensive also. Making house payments is expensive. Yes, the upfront closing fees can run $15,000 to $16,000, but a good portion of those fees pays for the FHA mortgage insurance premium. If you were to remove that part, the remaining cost is not too different than regular loan refinance costs.

Q: Reverse mortgages sound too good to be true. Is there a catch?

A: No catch. They truly are a wonderful financial tool in the right circumstances. However, they are not appropriate for everyone and you need to do your homework before getting one.

Lenders more willing to accept reverse mortgage in lieu of foreclosure

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Wed, 26 Dec 2007 17:06:41 -0600

Here's an interesting article in today's Wall Street Journal about how a reverse mortgage can help seniors who are facing foreclosure to keep their homes. This is not news to me -- I have pulled many seniors from foreclosure with a reverse mortgage. But what is new is that with the glut of bank-owned homes on the market, more lenders may be willing to entertain reverse mortgage payoffs even though the reverse mortgage proceeds do not cover the existing lien.

"If there's a way to settle the debt that nets the investor more than it would get if there was a foreclosure and a sale, then the servicer would look at it," says Thomas Kelly, a spokesman for J.P. Morgan Chase & Co.

To read the article, go to: http://online.wsj.com/article/SB119862780200649751.html?mod=googlenews_wsj

A Response to a misleading headline in the Modesto Bee about reverse mortgages...

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Mon, 24 Dec 2007 11:53:17 -0600

I just read an article in the Modesto Bee titled "Reverse mortgages a new threat to seniors"

By TONY PUGH
McCLATCHY NEWSPAPERS - last updated: December 22, 2007 http://www.modbee.com/business/story/160490.html

The headline is a bit misleading. The author is basically talking about how unscrupulous loan originators are advising their borrowers to use the proceeds from a reverse mortgage to buy a deferred annuity. I agree with the author that that is a deplorable practice which, in most cases, does not benefit the senior. However, a cursory reading of the headline may scare some seniors away from reverse mortgages. Perhaps the headline should have read: "Using a Reverse Mortgage to purchase an annuity is a threat to seniors".

Anyway, here is my response to the article in the Modesto Bee:

Although I agree with a lot of the content of this article, I feel that the subject line is misleading. Reverse mortgages in and of themselves are neither good nor bad. The better question to ask is: Is this an appropriate financial tool for MY situation? In many cases, it is. A borrower needs to understand that the reverse mortgage will consume equity. Is that important? It depends. If the borrower has a mortgage and is using every dime to make their house payment, the reverse mortgage will pay that off and provide them financial relief. That is a good use for a reverse mortgage. Or, consider the borrower whose spouse has died and his/her income has been reduced. Why not tap into the equity of the home to make life easier and to have some financial peace of mind? For the borrower who is planning to stay in their home, realizes they won't be leaving all the equity to the kids, and has a real financial need, the reverse mortgage can be a Godsend.

As for lumping the sale of a reverse mortgage with an annuity...I totally agree that RARELY will that benefit the borrower and is a practice that needs to be highly scrutinized and regulated. I originate reverse mortgages and I warn my clients to stay away from annuities. They are a bad deal. If the borrower needs a monthly income stream, the reverse mortgage can provide that in many cases and no annuity is needed. I deplore the practice of getting a senior into a reverse mortgage, then turning around and selling them an annuity. Shame on those greedy salespeople!

So, buyer beware. Look for reverse mortgage professionals who have been in the business for at least two years and who do NOT try to sell you an annuity or get their insurance buddies to contact you. Look for a professional who will sit and talk to you about the suitability of the reverse mortgage for YOUR situation. They should ask you questions like: How long do you plan to stay in your home? How do you feel about not leaving equity to your heirs? What is your monthly income and why do you need this money? Can you find it elsewhere? A good professional consultant will not put you into a reverse mortgage if it is not right for you. I know -- I am such a consultant!

Property taxes in a declining market............

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Thu, 06 Dec 2007 17:47:09 -0600

It's that time of the year again (and I don't mean Christmas!). It's time to pay the first installment of Property Taxes.

I got to thinking that, since my property has declined in value, will I have to pay the full assessed tax? I found out that there is a process for having property reassessed based on value, but it is too late for this year.

However the process below can be started right after the new year and maybe lead to a lower tax bill next year.

This is straight from the Sacramento County Assessor's website. I am sure each county has a similar process. Here is the link to the website where I found the information: http://www.assessor.saccounty.net

"Proposition 8, passed in November 1978, amended Proposition 13 to recognize declines in value for property tax purposes. As a result, Revenue & Taxation Code Section 51 requires the Assessor to annually enroll either a property's Proposition 13 base year value factored for inflation, or its market value as of January 1st, whichever is less.

Decline in market value, Prop 8 assessments, are TEMPORARY reductions that recognize the fact that the current market value of a property has fallen below its current Prop 13 factored value. Once a Prop 8 reduced value has been enrolled, that property's value must be reviewed each year as of January 1st, to determine whether its' current market value is less than its Prop 13 factored value. Prop 8 values can change from year to year as the market fluctuates. When the market value of the Prop 8 property increases above its Prop 13 factored value, the Assessor will once again enroll its Prop 13 factored value, but in no case may a value higher than a property's Prop 13 factored value be enrolled.

Properties enrolled under Prop 8 provisions are not subject to the 2% annual increase limitation that applies to those enrolled under Prop 13 provisions.

The Process is as follows:

Property owner provides Assessor with facts they feel justify a reduction in value and requests a review of the property's value. (The Assessor may initiate the review if the problem is discovered independently*.)

Appraisal staff reviews market data, estimates the property's market value as of January 1st and then compares this market value to the property's current Prop 13 factored base year value.

If current market value is below factored Prop 13 value, then:

Assessed value is lowered to market value for next fiscal year.
Owner is notified of reduced value by July 1st.
New tax bill is based on lower value for next fiscal year.
The following year, Assessor repeats process and enrolls current market value at that time or Prop 13 factored value, whichever is lower
If current market value is higher than factored Prop 13 value, then:

No change in assessed value is made, and
Owner is notified that value will not be reduced.
If owner still feels value should be reduced, then owner may file an assessment appeal with the Assessment Appeals Board, from July 2nd - Nov 30th each year.
Appeals Board hears evidence from owner and Assessor; the Board then determines proper assessed value
*The Assessor may also initiate the Prop 8 process without a request from an owner.

The office constantly monitors market conditions and, when practical, lowers assessed values on a mass basis. Owners are notified and may file an Assessment Appeal if they feel the value was not lowered sufficiently. Read more about the Assessment Appeals process and deadlines.

Although the market values of all properties may suffer a significant decline during a recession, not all will qualify for a Prop 8 reduction. The current market value must fall below the factored base year value (assessed value), before the Assessor can recognize the decline. Following are examples of how the Assessor processes declines in value."

Reverse Mortgage: Why Wait?

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Sun, 02 Dec 2007 15:45:52 -0600

When I talk with seniors about the reverse mortgage, many of them say they are going to "wait" awhile.

When I ask them WHY?, they say "What if I need the equity in later years and I have used it all up with a reverse mortgage?"

There are many arguments to be made for not waiting to take out a reverse mortgage: The home value may decline, the property may need repairs and this deferred maintenance could lead to bigger issues with time. But, for me, the most important reason of all is what I call "lost life opportunity". What if because of a lack of money they miss out on time spent with their grandchildren and loved ones, miss out on travel, eat out less often, and miss the opportunity to just plain enjoy life more? No amount of waiting will ever make up for these lost opportunities.

As for "using up" all the equity in their home, if the distribution of funds is set up correctly, there could be money left on a growing line of credit. In fact, many of my clients use the reverse to "lock in" some equity and preserve it for future years. That way, if home values plummet, they are guaranteed the equity in their line of credit.

Also consider that many seniors use some of their reverse mortgage proceeds to pay off existing liens (this is required) and thereby freeing up cash flow. They could invest or save a portion of the cash for future years, if that is a concern for them. At least, they will never have to worry about missing a house payment. That peace of mind is priceless.

Because equity can come and go based on market conditions, who's to say that the senior will even have a substantial amount of equity in their home in the future? Even if they did, we are back to how are they going to access it. Most likely they will get a reverse mortgage.

Where does this concern come from? This concern, that there may not be equity in future years "when they need it", is based, I think, on fears that they may need funds for long term care or need to sell and move into assisted living.

Why not access the equity now, set up a line of credit, pay off existing mortgages, and use some of the proceeds to purchase a long-term care insurance policy? (I realize this is not always realistic based on health and age, but a person in their 60's and perhaps early 70's, should consider this as an option).

And, there is is always the possibility of refinancing the reverse mortgage to access even more equity down the road (assuming the property has appreciated enough for it to make sense).

While waiting sometimes make sense in certain cases, for the most part, very little will be gained by waiting.

" It is better to live richly than to die rich."

Reverse Mortgage: Issues to consider before signing on the dotted line.......

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Sat, 01 Dec 2007 11:45:10 -0600

I am often asked if a reverse mortgage is safe and is it a good program? I always answer that, yes, it is very safe and it is a wonderful program. However, I don't think that is necessarily the right question to be asking. The question anyone who is considering a reverse mortgage should ask is this: "Is the reverse mortgage right for ME?". It is an issue of "appropriateness".

Let's look at some issues that must be considered before "signing on the dotted line"....But first a quick review of the reverse mortgage.....

A reverse mortgage is a home equity loan that you do not repay as long as you live in the home. You must be at least 62 and the house must be debt free or you must be able to pay off the debt with the proceeds from the reverse mortgage. In other words, the reverse mortgage can eliminate your house payment and free up cash flow for retirement. In addition to paying off the existing mortgage, you may be entitled to a monthly income or a line of credit to be used whenever you need extra money.

As wonderful as this sounds, a reverse mortgage is not for everyone. This is what I tell my potential borrowers...............

Do you plan on staying in your home?

It is crucial that you plan on staying in your home for at least 3 to maybe 5 years for the loan to make financial sense. The upfront fees are high and the longer you stay in your home, the more likely the fees will be offset by the increased value in your home. If you were to sell a year after doing a reverse mortgage, you would lose a substantial amount of your equity to fees. So, if you are planning to sell in the near future, do not even consider a reverse mortgage.

Most of us want to stay put. An AARP study done in 2000 showed that more than 90% of seniors wanted to stay in their homes for as long as possible. Almost 82% still wanted to stay even if they needed care.

However, as we age, the upkeep of the home may become overwhelming. The lawn still needs cutting, bushes trimmed, weeds pulled, and gutters cleaned. The inside needs dusting; the carpet needs vacuuming and the windows need washing. Perhaps we can't get around as well as we used to. Eventually, in many people's minds, these become reasons to sell.

But are they really? Leaving the home you have lived in for many years can be a gut-wrenching experience. We are used to our community, our neighbors, our church, and the store where we buy our groceries. Our homes hold a lifetime of memories. Weigh all of your options carefully before taking this drastic, final step. Would you have enough money from the sale to buy something else? Where would you go?

Consider what it would cost to stay put. Write down what it would cost on a monthly basis to get someone to help with the house. Look at hiring someone to come in and clean. Hire a lawn maintenance company or the teen-ager down the street. You may find that paying for help is a lot less expensive than moving. The reverse mortgage could provide those funds.

What if the home is too big or if it has two stories and the stairs are getting harder to climb? You might want to consider making modifications to the home to meet your needs - install a lift on the stairs, or modify the bath to make it easier to use. If the home is too big, close some rooms off. If it costs too much to heat or cool, seal the vents in un-used rooms.

Sometimes it makes sense for one of the children to move in and serve as a caretaker, cook, lawn-cutter, etc. That can be a win-win situation for everyone concerned: the parent gets the help they need and the child has a place to live. (This is NOT a very popular solution!).

Another option to consider is selling the home to the children. The parents would continue to live in the home and pay rent to the children. When the parents pass on, the home belongs to the children as an investment. When structuring such an arrangement, be sure to get legal and tax advice.

Weigh the pros and cons of selling very carefully. Consider not only the financial "costs" of moving, but the emotional ones as well. Find the solution that is right for you. One solution is the reverse mortgage. It can provide the funds for "aging in place", maintaining the home, and the installation of modifications to the home.

Were you planning on leaving equity or the home to your heirs?

Another major issue to consider is this: Reverse mortgages can reduce or eliminate the children's inheritance. A reverse mortgage balance increases as the years go by because the amount you borrowed is accruing interest. Since there are no monthly payments, the interest will grow until the loan is due and payable at your death or when you sell the home. Whatever the loan balance is at that time, it must be satisfied.

If you have died, the heirs will most likely sell the home and pay off the lender. Any remaining equity belongs to them. If your kids want to keep the home, they can refinance into a regular mortgage and pay off the reverse mortgage. They don't have to sell the house.

If for some reason the home is valued less than the loan balance, the FHA insurance will pay the difference. In this situation, your kids will sell the home but they won't get a dime from the house. How important is that to you? A good reverse mortgage specialist can show you projections on just how much may be left at the end of 10, 20, or more years. The odds are that there will be something left to inherit, but you won't have the full selling price of your home to leave your loved ones. But if they're financially sound in their own right, do they really need a substantial inheritance? You have to weigh the benefits of the reverse mortgage to YOU while you are alive versus the benefits to heirs once you are gone.

One solution is to take funds from the reverse mortgage and give it to the kids while you are still alive to see the joy it brings. The money can be used to help adult children get into a home of their own, to start a business, or whatever is important to you and to them. Why wait until you are gone to share a legacy?

What if you have dependents who depend on keeping the home (this does not include your spouse)? Perhaps you have a disabled son or daughter who lives in your home. Where will they go after you are gone? Do they need the home to live in? At the same time, you have to consider if they are capable of living on their own without you. If not, it won't matter if the home is left to them or not. A better solution would be to create a trust fund for them. You could do that by drawing out the equity of the home with a reverse mortgage and setting up a fund for their care once you have passed on.

Only you can decide how important these issues are to you and the long-term effects on you and your family. You have to weigh the pros and cons, the benefits to you versus the benefits to heirs, and the consequences of your actions. This is a personal decision that requires some careful planning.

Did you know that a reverse mortgage can be used in a home purchase?

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Thu, 29 Nov 2007 16:35:01 -0600

It seems counter-intuitive that real estate professionals would need to know about reverse mortgages. After all, the purpose of a reverse mortgage is to help KEEP someone in his or her home, right? Actually, a reverse mortgage can INCREASE a Realtor's® business.

How?

You can double your business by listing the senior's home and helping them buy another one WITH a reverse mortgage. Of course, the transaction has to be structured correctly (I can tell you how). The important thing to know is that a reverse mortgage can be used in combination with the proceeds from the sale of a home or other funds that are to be used toward the purchase. The senior can move into a new home that might better meet their needs as they age and still have no mortgage payment.

Another reason to understand the reverse mortgage is so that you can help the senior who wants to buy a second home or an investment property. Unless you, the advisor, suggest this to them, they may not even realize they can get the money they need from their primary residence (and still make NO payments!) to use for the purchase.

Maybe the senior doesn't really want to leave their home of many years.... You can become a hero and win a client (and their family) for life by suggesting a reverse mortgage instead of selling. There is a difference between wanting to move and HAVING to move. If you sense that moving is not really the client's choice but they feel they have no choice because of finances, you will be a hero by letting them know there may be another solution.

As a Real Estate Professional, the more you know about the reverse mortgage, the more you will be seen as a trusted advisor. Incorporate some of these ideas into your conversations with senior clients. Your credibility will increase as will your business. You will also have the personal satisfaction of knowing that you are providing the highest level of service and putting the client's needs ahead of your own.

No surprises! Managing Client Expectations

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Sun, 25 Nov 2007 15:36:09 -0600

When working with senior clients (or any client for that matter), I find that they don't like surprises. Have you ever noticed how "grumpy" a client can get if just the slightest little thing goes wrong? Or the timetable has changed ever so slightly? To ourselves, we think, "Geez...they sure are unreasonable. It's not THAT big of a deal!" But to the client it IS a big deal. It isn't so much that the appraiser didn't call them yesterday like they expected and that they did get the call this morning, but it is the expectation that matters. People are VERY reasonable once they know what to expect. As professionals, our job is to manage expectatons.

How? I try to plan ahead and think of anything that could impede the process of the loan. Then I talk about it with my borrower. Of course, you don't want to overwhelm your client with too many details, nor do you want to scare them to death with visions of the process being a horrible ordeal. Simply think ahead to some common issues that COULD arise in their situation and talk about them.

I tell my clients that I don't like surprises and I bet they don't either. When I meet with them for the first time I say, "so let's recap what could happen just so you are prepared. It's not to say that these things WILL happen -- the odds are most won't -- but I don't want you to be mad at me if they do. OK?" Then I run down my surprise list with them which includes (these are for reverse mortgages, but you could do the same with a listing or with a regular loan situation):

Possibility of insurance increasing to cover replacement value
Repairs -- possibility that there will be some repairs (I try to head this off by by taking a tour of their home and discussing any potential repairs. If I cannot do this in person, I ask my referrer to check out the home for me).
Home Value -- this is CRITICAL in today's market. I always prepare my clients for a low value and I quote them figures based on several home values. Low appraised value is one of the major reasons some borrowers do not qualify for a reverse mortgage. I do everything I can to check comps and maybe get an opinion from an appraiser prior to starting the loan process. There is nothing worse than dashing the hopes of a senior borrower.
Manufactured homes: I know the guidelines and I let the borrower know in advance what will be needed and how realistic it would be to fix. For example, if they need a permanent foundation - what are the costs and how would it be paid for?
Other possible surprises: Trusts, title issues, etc. Especially if one spouse has died, I let them know that it is possible that part of their trust became irrevocable. Others on title -- I let them know the process for removing them, etc.

Do not be afraid to be very direct about these things. We are the advisors and our job is to advise. They will respect you and appreciate you for your forthrightness. Managing client's expectations upfront will make the process go smoother for everyone.

Here's my motto: Always under-promise and over-deliver!

Can any of you think of additional items to add to the "surpise list"?

Quick Guide to Eligibility

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Sat, 24 Nov 2007 19:12:46 -0600

Determining Eligibility:

All borrowers on title must be at least 62 years of age
No income or credit requirements
No health requirements
Property must be the borrowers' primary residence
Borrower should have some equity; approximately 50%

Borrower profile:

Seniors who:

Are looking for increase in monthly cash flow
Value independence and do not want to rely on others
Want to stay in their homes
Wish to modify their homes to "age in place"
Majority are single woman

Program Features:

Income is Tax Free
No monthly mortgage payments
Borrowers must continue to pay property taxes & hazard insurance (T&I)
The loan amount accrues interest as long as borrowers live in the house
Borrowers can take funds in the form of a lump sum, line of credit (LOC), monthly payments or any combination of these withdrawal options
Note rates are based on index plus a margin
Loan is due and repaid upon permanent move out of all borrowers on title to include: 1.Sale of property, 2. Consecutive period of 12 months away from the residence, and 3. Death of last borrower on title
Principal, interest and service fees are repaid upon loan maturity
Loan is "non-recourse", meaning borrower(s) or heirs can never owe more than the appraised market value at time of repayment

Reverse Mortgage Misconceptions

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Sat, 24 Nov 2007 15:46:04 -0600

I could lose my home. With a reverse mortgage you retain ownership of your home and control of the title. You can remain in your home as long as you wish and cannot be evicted or forced to sell.

The lender will own my home. The fact is that you retain title and ownership to your home, and can choose to sell your home anytime you wish. The lender cannot force you from your home or foreclose on you as long as you maintain your home and pay your property taxes and homeowners insurance.

My children or heirs will be responsible for the repayment of the loan. A reverse mortgage is a non-recourse loan, which means that your house stands alone for the debt. The lender can only derive repayment of the loan from the sale or refinance proceeds of the home. You or your estate can never owe more than the home's value at the time the loan is repaid.

I must own my home free and clear in order to qualify.Not true. If you have a balance on a mortgage or home equity loan, a portion of the proceeds from the reverse mortgage will be used to pay off your existing loan, thereby eliminating your current house payment. You are then free to do whatever you wish with the remaining funds available to you from the reverse mortgage.

I must have good credit and income to qualify for a reverse mortgage. Your credit or income is not even a consideration when applying for a reverse mortgage.

Only the "cash poor" or desperate seniors that failed to plan for retirement get reverse mortgages. Although some seniors may have a greater need than others for the cash or monthly income, reverse mortgages have become a popular financial planning and estate-planning tool. Long term health care insurance and in home health care are popular uses for reverse mortgage proceeds. A growing number of people who have no immediate need are taking out these loans so that they have a financial cushion for future expenses.

The reverse mortgage will increase my taxes. Not true. Proceeds from a reverse mortgage are tax-free.

When a reverse mortgage comes due, the bank sells my home. Not true. At the time the last borrower permanently leaves the home the loan must be repaid. At that time, you or your heirs can either pay the balance due on the reverse mortgage, through a traditional refinance or from other assets and keep the home, or sell the home and use the proceeds to pay off the reverse mortgage. Any remaining equity goes to the heirs.

The Reverse Mortgage will impact my Social Security or Medicare. Not true. Reverse mortgage proceeds do NOT affect any other benefits except perhaps MediCal. However, if the payout options are structured properly, even MediCal will not be affected.

A Reverse Mortgage is expensive. While a reverse mortgage generally costs more than a conventional loan, it is much less expensive than selling your home, relocating and assuming new monthly expenses.

People who are ignorant about reverse mortgages and don't know what they are talking about, should not be so quick to judge.....

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Sat, 24 Nov 2007 14:40:07 -0600

I just responded to a post where the blogger said that those of us who do reverse mortgages are "taking advantage" of senior citizens and that they are scams! My blood is still boilling! Having made reverse mortgages my MISSION in life and knowing in my heart that I have changed so many lives through the reverse mortgage, I had to post a comment. Here is what I said:

Scam, huh? Sorry, you are misinformed. Tell my 350+ clients that they should not have gotten into a reverse mortgage and they will tell you that it is the best thing that has happened to them. I get calls, notes, letters....I am in touch with my clients, some who took out the reverse 3 years ago. To a person, they tell me it was an answer to their prayers, a Godsend...... Most of them were making mortgage payments and they were so financially stressed that they had no joy in life. None of them wanted to sell their homes -- too many memories and the hassle was not worth it. They want to age in place. The reverse paid off their existing lien so that they no longer EVER have to make a house payment. Talk about financial security!

Tell Mrs. B that she should not have done this and she will say you are nuts. Her husband died, reducing her income. She could no longer afford her house payments. Yes, she could have sold, but there wasn't that much equity in her home. Where would she go? Where would she put her animals? Her home of 45 years is her haven, her sanctuary.. That is where she raised her kids and where she held the hand of her dying husband. Now, thanks to the reverse mortgage, she no longer has a house payment, she has some extra cash to spend, and she can stay in her home until she "moves up".

So what if they are expensive? The fees will eventually be paid out of the equity of the home. Who is hurt by that? The kids? Yes, the parents are spending their kids inheritance. But that is their decision. It is their money. As long as the senior has full knowledge of the consequences of ther reverse on their equity, they can make an informed decision. And 99% of the kids I talk to WANT Mom & Dad to live a happy life and spend their equity. They don't want anything from the home. Why should Mom & Dad leave all that equity and deny themselves some pleasure in their later years?

I am a responsible, ethical lender. I educate the senior, their families, and their advisors before I put them into a reverse mortgage. If the benefit is not there, I will be the first to tell them. They are NOT for everyone. But, for many of our seniors, the reverse mortgage is their BEST option and it gives them financial peace of mind in their later years.

I thank God that this program is available for Seniors and so do they. Please read my blog post about seniors who homes are being lost due to risky "forward loans". That would not happen with a reverse.

Troubled Senior Borrowers

Sylvia Williams, Ed.D/CSA (Watermark Capital, Inc.) — Sat, 24 Nov 2007 13:05:32 -0600

Many senior borrowers got caught up in risky loans such as Option Arms. Many had no idea what they were getting into. As their loans "reset" and their values fall, they are in a world of hurt. I talk to seniors every week who simply can no longer make their mortgage payments. Some I can help, some I can't. It is heart-breaking to tell a senior that their lien is so high that not even a reverse mortgage can help them.

However, there are some creative solutions that MIGHT help. I always ask the borrower if they have family members who might be able to refi their own home or take out a HELOC. Add those funds to the reverse mortgage funds and we are often able to pay off the risky loan the senior is in.

Here is an example: Let's say the senior has a loan balance of $220,000 but the reverse mortgage will only cover $200,000 of that amount. Where do they get the additional $20K to pay off their existing lien? If the family member can help in any way by refinancing THEIR home, the senior makes the monthly payment. This new payment will be a LOT smaller than the one they were having difficulty making. This one solution could save a senior's home!

Of course, not everyone has a family member willing and/or able to help in this way. Those are the sad cases....My goal is to find as many seniors as possible with risky loans that will reset on them and help them with a reverse mortgage BEFORE the loan balance is so high nothing can be done.

Let's get the word out!

Sylvia J. Williams

reversecoach@yahoo.com