Last week I had an appointment with a gentleman who was interested in a reverse mortgage. In fact, all indications were that he was going to take very little convincing. His wife had a debilitating stroke 7 months ago, and has been hospitalized ever since. She is unable to speak and her hands are permanently clenched. There is no hope for recovery. In essence, he's waiting for her to pass, which may literally happen any time.

There is no question that he can benefit from tapping into the equity in his home, which he owns outright. However, when talking with him, he said that when his wife dies, he is going to sell the home and move to Tahiti where he owns property. He has very poor eyesight, and must depend on someone else to even drive him to the grocery store...or anywhere else. He said in Tahiti, he can get around by boat or taxi without any problems.

To be perfectly honest, I could have written a loan that day with little effort. However, I felt duty-bound to inform him that if he did not intend to live in the home for at least 4 or 5 years and he had no urgent need for the money, I would recommend holding off. He would have had about $13,000 in closing costs which would begin accruing interest from the day the loan funded. He may be selling the home within the year and not even use the money available to him within that time. I advised him that it may not make sense to pay $13,000 for something he didn't truly need, which would only reduce how much money he would get when he sells the home in the not-too-distant future.

He agreed.

Once we moved off the topic of reverse mortgage, in a moment of transparency, he admitted he was lonely. This was the point that I knew it was time to take off the "business" hat and be his friend. He showed me around his home, telling me the stories of his travels across the United States and Europe. He shared stories from his days in the U.S. Navy during World War II. He also shared touching memories of his wife of nearly 60 years.

In parting, I told him that I hope his future works out exactly as he has planned. I mean, who wouldn't want to live in Tahiti? But I also told him that if his circumstances change, a reverse mortgage will always be available to him. He told me of his friends who cautioned him to be wary that I might try to push him into getting a reverse mortgage and not educate him on what he would be signing. The look on his face and peace in his voice as he reached out and shook my hand and told me how much he appreciated my honesty and integrity in advising him to wait was more meaningful to me than a paycheck. It was then that I realized that I didn't become his friend when the business portion of our conversation was over. I had become his friend during the business discussion.

The media and those with an ax to grind like to warn people of the "dangers" of reverse mortgages and unscrupulous, greedy professionals. I hope this story proves to you that there are many of us who sincerely put the senior first. This story is not about me. It's about a man who has been grieving for 7 very long months. Nobody wants him to become a statistic and more fuel to the media fire of negativity.

Over the weekend, I received the following question from a reader in Illinois:

Corey - do you have any thoughts on the REX Agreement? They have been advertising a lot here in Chicago and I’d like to understand how it works better. They are extremely complicated and seem rife with potential pitfalls.

Real Estate Equity Exchange, or REX, is not technically a loan. Unlike reverse mortgages, which are available in all 50 states, REX agreements are only available in California, Colorado, Illinois, Florida, New Jersey, North Carolina, Virginia and Washington state. The homeowner and real estate investment company establish an agreement into which the investment company receives as much as 50% of the earned equity from the point of the agreement to the point of sale, or 50 years (40 in Illinois, 30 in North Carolina), whichever comes first. It is very complicated, but just about any financing tied to your home will be. But this is particularly complicated. I have heard commercials positioning REX Agreements as an alternative to reverse mortgage, but it is in no way designed for the same market as reverse mortgages.

REX agreements typically do not pay out as much money as a reverse mortgage, and are not designed specifically for seniors. In fact, homeowners of any age may qualify for REX agreements. Reverse mortgages can pay out more than 60% of the home's value, while REX agreements typically only pay 10% to 15%. The amount the homeowner gets is directly linked to what percent of the future change in value of the home they agree to sign over. With the REX, the investment company agrees to make 2 payments to the homeowner. The first payment, the "advance", is paid to the homeowner right away once the agreement is entered. The second, or "remaining" payment, is made at the end of the REX agreement. The agreement ends when the homeowner sells the home, or the aforementioned time limits are reached.

Like reverse mortgages, annual income is not an issue. However, unlike reverse mortgage where it's irrelevant, a REX agreement requires the homeowner have a FICO score of at least 680. And remember, REX agreements are not loans, so it cannot be assured that the proceeds will be tax free, as they are in a reverse mortgage. The following quote is taken directly from the REX & Co. website, saying that to their understanding, "under current tax law a homeowner entering into a REX Agreement should be able to defer the tax impact of receiving the Advance Payment".

The pre-payment fees mentioned above can be steep. If you sell the home or otherwise want out of the agreement within the first year, the penalty is 25%. This penalty is reduced by 5% per year for 5 years.

Because reverse mortgages are designed for and exclusively available to senior homeowners, there are a few things to consider. First, many seniors still face monthly mortgage payments. In fact, a recent survey shows that 40% of seniors between 62 and 75 expect to retire with mortgage debt, with many expecting to never pay it off. As such, reverse mortgages are designed to help seniors retire their mortgage payments, and in most cases, also provide them with financial resources available to them in monthly installments, a line of credit, a lump sum, or any combination of the three. REX agreements do not require that your current mortgage to be paid off, so it is possible that you will still have to pay the mortgage balance in addition to what you'll owe the investment company at the end of the agreement.

As you might assume, the homeowner's responsibilities to the agreement include keeping up on homeowners insurance, property taxes and keeping the home in a decent state of repair. But what is also cause for default is if the homeowner exceeds the agreed upon principal amounts secured by the home. In other words, if you end up in a financial pinch where you need to tap into the equity of your home, you likely will not be able to do so without having to end your REX agreement and pay them. This means you will probably have to sell the home, or get a reverse mortgage in order to do so.

One other significant difference is that townhomes and condos do not qualify for REX agreements, while they do qualify for reverse mortgages, in most cases.

This is just a summary and does not include all the ins and outs of REX agreements or reverse mortgages. I will not say that REX agreements are not valid or a good option for some. I will say that it is not designed for the best interests of the same people for whom a reverse mortgage is designed.

Thank you to Mark for asking this very good question. If you have a question you'd like me to answer, please feel free to email me anytime at corey@forwardbyreverse.com.

I was speaking with a friend of mine yesterday about the piece I wrote the other day on my main blog site regarding the other reverse mortgage guy who was trying to convince my client to not meet with me. During the conversation with my friend, who is also in the reverse mortgage business, I came up with, what I thought, was a pretty good analogy. So with that, I offer you this...

ANALOGY ALERT!

I like to golf. Not because I'm good at it, because I'm not. But because it's just a great game, and golf courses are typically beautiful places. Trees, water...and often times, wildlife can all be found during a round of golf. And I suppose I should also mention that I will spend part of my day playing in the sand, as well. <Sigh>

I digress.

The point I was making is that in golf, you may be competing against others to get a better score, but more accurately, your real competition is the course, itself. As much as I may want to beat my golf partners, I really have no control over their game. You see, you don't play defense in golf. I can't go stand in front of the hole while they're putting and swat away a good shot as if I were a goalie. All I can do is play my game as best I can, and that's really about it.

This is my attitude about my business, as well. I am going to do the very best I can in educating people about reverse mortgage, and if it's right for them or their loved ones, terrific. If they feel I'm right for them, terrific. I am not going to stand at their front door and swat away another reverse mortgage professional they may want to talk to. My goal is to educate the people I meet with as best I can. In the process, I do hope that they will consider me knowledgeable and personable. Thankfully, when discussing reverse mortgage, I'm much better at keeping things in the fairway and out of the trees, sand and water.

Like golf courses, no two people are the same. They all contain their own set of challenges. In golf, you may find two holes with the exact same yardage from the tee to the pin. However, there may be many variables which keep them from being identical. One could dog leg left, while another may bend to the right. One may be uphill, the other downhill. One may have water, another may have heavy trees. You get the idea. In reverse mortgage, you may find people in a situation which, on the surface, looks just like something else you've experienced. But when you spend time with them, you realize there are some significant differences and challenges. On the surface, two families I met with last week seem the same. However, their family and financial situations are very different. One has children who are very well off, financially, and very independent. In another case, the parents want to help their child get out of some credit problems. One family's home is in great shape with only some cosmetic issues they want to address. The other's roof has dry rot and is endangering their homeowners insurance coverage.

There is no defense in golf, and no two courses are the same. The same is true in reverse mortgage. Play your game to the best of your ability, keep getting better at it, and you'll find success. The difference is, when you improve in business, the client wins.

How sweet is that?

In some of my daily reading yesterday, I came across an interesting fact I had wondered about, but never really researched. I found that the average senior between the age of 65 and 74 spends 92% of their income. This is startling, but not to be outdone, seniors 75 and older spend 98% of their income.

 

 

On Tuesday, the House approved a plan by a margin of 385 to 35 which excludes a great many seniors because they do not have sufficient income. However, there is some noise being made which would allow seniors to include their Social Security payments as income, thus helping them benefit from this plan.

Senator Max Baucus, Chairman of the Senate Finance Committee, is pushing this proposal because the House plan excludes a huge segment of the population who need it most. Seniors.

“America’s seniors have worked hard all their lives, and are major contributors to our economy. So my proposal will give America’s seniors the same rebate as any wage earner. Rebates for seniors and payroll taxpayers, extended unemployment insurance, and tax relief for struggling businesses will put more cash into the American economy right away."

Senator Baucus then released the following statement:

“Statistics show that American seniors are a prime demographic for an economic stimulus package. But more than 20 million seniors could be left out of the planned Federal tax rebate unless Congress acts – just because they don’t have at least $3000 in earned income, or enough taxable income to get the full proposed credit.

“The Finance Committee plan would allow almost all seniors to receive a $500 rebate by showing at least $3000 of Social Security income on a 2007 tax return. America’s seniors have worked hard all their lives. Many live on fixed incomes, and struggle to pay their medical and heating bills. Seniors deserve to be included in any rebate program. And a rebate to seniors works for America’s economy – here’s how:1

“Seniors are significant contributors to American economic activity.

“Economists agree that consumer spending, fueled by tax rebates, can boost America’s economy. Americans over 65 are responsible for 14 percent of all consumer spending.

“Seniors spend – exactly what America’s economy needs now.

“Americans over age 65 spend 92 percent of their incomes within a given year – that’s higher than any other demographic group over the age of 25. Households headed by a person over age 75 spent an even higher percentage of their income – 98 percent.

I have seen many critics of reverse mortgage view these statistics as, "you made your bed, now you have to lie in it." They figure that if you didn't plan sufficiently, that's your fault. They tend to look at these statistics as irresponsible spending. I see it differently. In order to keep up with the demands of the cost of living, seniors have to spend a nearly all of their significantly reduced income in order to survive!

While I applaud the efforts of those who want to help seniors benefit from this stimulus package, I don't think a $500 annual check is going to be enough. I would just like you to think about these statistics, and then consider how reverse mortgages have given seniors more margin. If a reverse mortgage can broaden that margin from 92-98% down to 62-68%, that's pretty significant, right? What about dropping it to 32-38%? You'd be crazy not to, wouldn't you?

If you, or someone you know is in the category of spending virtually all of your income just to survive, you have to consider a reverse mortgage.

Lastly, I've believed this all along, but didn't have the data to prove it until now. Reverse mortgages are good for the economy by enabling seniors to be more financially viable.

Over the weekend, I was alerted and alarmed by an article with this headline, "Ensure Your Old Age Is Trouble Free With A (name deleted) Reverse Mortgage".

Folks, no one and nothing can ensure a trouble free life. Be wary of anyone who does. Even if it's just to get your attention about something good, like a reverse mortgage.

Since the inception of my blog, I have been very outspoken against critics of reverse mortgage because of their misrepresentations, either out of ignorance or just plain closed-mindedness. Let the record show that I am equally outspoken when someone tries to promise something which is impossible to deliver by a reverse mortgage.

I do not know the person or entity who wrote this article or headline, or the company behind it. I can't say they are crooks or irresponsible or any such thing. I will say that this claim is irresponsible. In addition to it being way off base, it also gives substance to critics' arguments.

Reverse mortgage is a wonderful tool for senior homeowners to tap into the equity in their homes to gain tax-free income, whether by monthly installments, lump sum, or leaving it in a reservoir line of credit...or any combination of the three. Seniors have used reverse mortgages to simply rid themselves of their existing mortgage payments, to take care of long overdue home repairs or improvements, to enable them to purchase necessary medical care, to help their children and/or grandchildren with their pursuits...the list is endless. You can use the funds for anything you want.

What a reverse mortgage can't do is promise you a "trouble free" life. The infusion of money can liberate you from a great many things, but it can't do that. Nothing can. There is no room for hyperbole and promises which cannot be delivered when working with seniors. Well, when working with anyone, for that matter. But I am passionate about seniors, and I get very concerned when people and businesses make irresponsible claims in order to elevate themselves.

I debated in my head whether or not I would write this article and start the week with this tone. I thought, "people are smarter than to be swayed by comments like that". But then I remembered all the recent news of people, smart people, good people who are crying to the media because they trusted people who made them promises they couldn't deliver.

Friend, I can't promise you that your future will be "trouble free". I can promise you that a reverse mortgage can and will do what it is designed to do. I can promise you what I can and will do for you. As humans, we have limitations. Be cautious of anyone who makes offers which extend beyond these limitations.

Don't be swayed by empty promises.  Instead, reverse mortgage helps you live a life OF promise.

You may recall a few weeks back that I wrote about Mr. and Mrs. M. Their reverse mortgage closed and was funded on New Year's Eve. They're a lovely couple in a beautiful home. We chat on average of about once a week just for fun. Once the weather clears up, Mr. M and I have a standing golf date at the course where he serves as a volunteer marshal.

Back while their loan was being processed, after they had completed the application, after they had gone through their mandatory independent counseling, I got a call from Mr. M. He sounded rather concerned. In fact, he sounded rather cryptic. They had a very important question, but he didn't want to ask it over the phone. He insisted that we meet in person. Normally, this wouldn't bother me at all. But they knew I lived 2 hours away, and demanding a face-to-face meeting would require a little doing on my part. But of course, that wouldn't be a problem. So I drove up to meet with them a couple days later.

During the entire drive, I just kept wondering what the problem might have been. They hadn't even given me a clue. So I just went over everything in my head that I had told them and given them in writing. I had given them and explained to them the amortization schedule, the Total Annual Loan Cost, they had a side-by-side comparison of several different reverse mortgage loans to help them determine which would fit them best. Let's see...ummm, the appraiser had already been to their home and gave a glowing report.

What could it be that is this important?

I got to their home to find they had my seat at the table all ready for me. Mrs. M. had her little notebook out, just as she did in our previous visits. I was prepared for them to ask me just about anything.  That is, anything but the question they actually had for me. I mean, I had prepared responses to legal questions, tax questions, estate planning questions...you name it. Then they laid it on me.

When do we start our monthly payments?

Within the blink of an eye, my mind began to process this question. They opted for a fixed rate reverse mortgage, which means they would receive their entire benefit in one lump sum. In other words, unlike other loans, they cannot receive monthly payments. Surely they don't mean when they start sending monthly payments.

We want to know when we start making our monthly payments.

At this point I'm both stunned and relieved. You called me and asked me to come up here for that question? There must be more than that! I'm quite certain I have explained to them the single most unique aspect about reverse mortgages which makes them so appealing and beneficial to seniors. The fact that you have no payment obligation as long as you remain in your home. I also know that this was explained to them during their counseling. I know it's in the documentation I gave them. They've been considering reverse mortgages for 4 years!

I learned in this moment a valuable lesson. You can go over every single detail about reverse mortgages. You can go over the complexities of them and how they work. You can give them documents, spreadsheets, booklets, DVDs. They can go through counseling, talk to advisors and family. But sometimes, just sometimes, it's the simplest fact that they want to make sure they understood correctly. It is not "too good to be true". Sometimes they have so much data rolling around in their heads that their eyes glaze over, and the simplest and most fundamental of facts somehow gets buried beneath it all.

Our meeting lasted all of about 20 minutes. We had a very nice time. When I answered their question and they looked at each other with a silent, "that's what I thought", their expressions changed to that of great relief. When it was time for me to leave, they each walked me to the door, then stood out on their front porch, arm in arm, and waved to me as I pulled away.

That is a picture I'll never forget. It was simple, but it meant so much.

There was an article in USA Today on Friday entitled Reverse mortgages aren't for everyone which has caused a bit of a stir. I participated in some of the online conversation which caused at least one individual to question my credibility because, in his mind, I was using "emotion" to sell reverse mortgages. This seems to be his comeback to anything anyone says which is pro-reverse mortgage.

This reminds me that many professionals are educated beyond their humanity. Everything is numbers. It's not about people and what they want, it's about how smart I am and you're stupid or a crook if you disagree with me.

If you are a senior, or someone you love is, one very important quality you should look for in anyone you might be looking to do business with is their humanity. When meeting with potential clients during the consultation stage, I make it a point to make myself as transparent as they are. I'm asking a lot of personal questions about them in determining their values. Knowing where they put a premium will help me learn how to serve them best. So I do my best to let them know what is important to me, as well. I will talk about my family, my friends, my interests so they know where my heart is. I have clients who ask me every time I talk to them how my parents are doing. I love that. We have personal relationships as well as a professional one.

As no two people are the same, no two situations are identical. These critics do not adapt to their clients, they expect everyone to adapt to them. This will not work when working with seniors. They deserve better.

Anyone who pounds you with emotional stories and reasons to get a reverse mortgage, or anything...I would likely be skeptical about what they're trying to compel me to do. Anyone who is all about the numbers and not listening or interested in my goals...I'm going to be equally skeptical. The key is balance. It's wise to align yourself with an expert in their field. Just the same, it's a key to find someone who is in tune with what is important to you.

Remember, reverse mortgages are about you. You must grasp hold of this in order to recognize professionals who also understand this, and you won't fall victim to those who don't.

If you've read my blog or spent any time with me, you probably know by now that I love using analogies and metaphors. In that light, I write this post.

You will hear financial "experts" insist how complicated reverse mortgages are. Well, my car is a pretty complicated piece of machinery, but all I need to know is how to fill the gas tank, take it regularly to get the oil changed, tires rotated and other fluids checked and filled, and just drive responsibly. Every single time I've gotten in it, I turn the key, and VROOM, it starts. I couldn't tell you how it does, but it does.

Yes, under the hood, reverse mortgages have a lot going on. But to the borrower, most of what's under there is up to the lender to maintain. The borrower simply needs to make sure, like the oil change, they keep up on their property taxes, homeowners insurance, and keep the home in a good state of repair. We'll send you a monthly statement showing you exactly how your reverse mortgage vehicle is performing.

With that being said, I think that before one gets a reverse mortgage, they should be sure and do more than simply kick the tires. You and I should spend a lot of time together talking and listening to one another. We should ask each other a lot of questions to determine if it's right for you. I have no desire or interest in leading you into something that doesn't work or will be an inappropriate vehicle for you because I don't need you calling me and showing up at my door angry and upset, pointing at the smoking mess I led you to. I'd much rather see you zoom by, honking, smiling and waving with the wind in your hair as you live your life of financial independence.

Like cars, there are many different reverse mortgage vehicles out there. When at a car lot, you can choose between sedans and pick-up trucks, SUVs and sports cars. With reverse mortgages, you have fixed rate and adjustable rates. Jumbo loans or the Home Equity Conversion Mortgage, (HECM), and then many variations of each of them. I'll then prepare for you a customized comparison of each of these. I'll show you how they work and how they will perform for you in the future. You will be able to see which fits your situation the very best. Or, you may find that none of them do. One way or the other, you will be equipped to make an educated decision.

Understand that there is a lot to a reverse mortgage loan, and I will not hide anything from you. But that also means that once you get a reverse mortgage, the maintenance is actually quite simple. And like a good, dependable car, it will comfortably, safely and reliably take you from where you are, to where you want to be.

A couple months ago, I was going through my files of people who had gotten a reverse mortgage in the past. I came across a lady, I'll call her Mrs. A. I noticed that she had gotten her reverse mortgage several years ago, when the lending limit in her area was considerably lower. Also, since she got her original loan, several new reverse mortgage products have been released. I ran the new numbers and found that she could potentially benefit greatly from a refinance with a new reverse mortgage.

When I called Mrs. A, she was particularly concerned with making sure I was being honest with her. I told her that I do not work directly for the lender with whom she got her original reverse mortgage, but I am authorized to represent them and offer their loan products to qualified seniors. That was not satisfying to her. She absolutely refused to even speak to anyone who wasn't directly employed by her original lender, so she hung up quite abruptly.

Though I'd like to think I might have handled the conversation differently if I were her, I really tried to put myself in her shoes. The poor lady has probably received tons of letters, postcards and phone calls from so many people and companies that she felt like a piece of raw meat in the lion cage. I was so convinced that if she took the time to listen to the facts, she might really be pleased with what a re-fi could do for her.

I could have lied to her and told her I work for the company in question. Heck, she'd never know. I have all their paperwork and promotional materials. But I don't do business that way. Fortunately, I have a very good friend who works with the company she has her original loan with, so I gave Lisa a call. I told her she really ought to call Mrs. A and let her know what she can get by refinancing. Lisa called her, sufficiently convinced Mrs. A that she is employed by her lender, and they were able to have a series of productive conversations.

Fast forward to today. Mrs. A is signing her closing documents today, and is so excited, Lisa is bringing balloons to the signing. Though I didn't write the loan, I have a great feeling inside that I really took care of Mrs. A, though indirectly. Her reservations weren't personal against me. She probably doesn't even remember my name. That is not what is important. Right now, she's excited that she has a considerably deeper financial reservoir provided by her new reverse mortgage.

It's not about me, it's about them.

Congratulations Mrs. A!

You know, we spend our lives climbing and climbing. It takes a lot out of you, doesn’t it? The phrase “over the hill” is clearly understood as a euphemism for being past your prime, or even irrelevant. If you’ve ever hiked up a hill or climbed a mountain, you’ll find that the best view and vantage point is…the top. When you reach this plateau, you gain a perspective almost impossible to achieve from any other place or any other way. The picture you see below is one I took not long ago while visiting the Pine Mountain Lake area of Northern California.

 

 

Once you’ve reached that place of perspective and even peace, you soak it in. You savor every detail. The sound, the sight, the smell. Then, you begin your descent. Isn’t the hike down much easier? You’re going with gravity, not against it. Life is the same way. Or at least, it should be. You’ve climbed all your life. You’ve now reached the top of the hill. You have perspective on life that others cannot obtain until they get there themselves. You can try to tell others of the view, but they can’t fully grasp it’s majesty until they witness it themselves.

Your remaining years should be less stressful and taxing. The descent is by no means easy, but it should be easier. Reverse mortgage is a wonderful tool which more and more American seniors are using to ease the natural strain their golden years bring, and allowing them to enjoy the view. If you, or someone you know is feeling a financial strain, at least take the time and give me a call to get the facts. It’s not the answer for everyone, but it certainly is for many.

Now, on a lighter note, here are 7 perks to being “over the hill” I recently read:

• There is nothing left anymore to learn the hard way
• Things that you buy now won’t wear out
• Your investment in health insurance is finally paying off
• Your secrets are safe with your friends because they can’t remember them anyway
• Your joints are more accurate meteorologists than the guy on TV
• You can get into a heated argument about pension plans
• You can eat dinner at 4:00 in the afternoon

Have a great weekend!