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My Sellers are not grapes!

Ok, so I spent the day showing properties. This, I have to say, is one of the things I hate most in life. I avoid it all costs. Realtors have made tons of money off of Buyers that I hand over to them. But today was special. I was with Sellers, of mine, who are needing to downsize and I wanted to give them an idea of what they can buy for less than $100,000. So not only did I spend all day showing listings but I was showing manufactured homes. This is something I have never done. The whole purpose of this little adventure was to be able to reduce their current home by another $10,000 to expedite a sale. They really, really need to downsize.

My Sellers are close to 70 and are no longer able to maintain their property. All of their money is wrapped up in their home and it is slowly disappearing. My sellers are being crushed by a rising mortgage balance and a depreciating market value. I know what you want to say, "Broker Bryant, how come their mortgage balance is going up? Aren’t they making payments?” Well, technically, no. In reality, yes.

Several years ago, these Sellers were sold on the idea of a Reverse Mortgage. At the time, it seemed like a great idea. No more payments and you can live in your house until you die. Here in lies the problem. No one can predict the future. Life has a way of going where it wants to and we are just in it for the ride. How were they to know that their health would fail and they could no longer maintain their 1750 sq ft home? How could they predict property taxes and insurance rates skyrocketing and property values taking a plunge? Could they have foreseen their interest rate going from 1.5% to 6.47% in the first 6 months? Life is funny like that, it goes where it wants to go.

So here is their current situation. They are on a fixed income. Property taxes and insurance payments are now equal to the PITI payment they used to make on their mortgage, that had a balance of $69,000. Since they do not make payments and the principle balance and interest only “payment” goes up every month, their current mortgage balance, after 3 years, is $101,000 and climbing by about $600 to $650 per month. This payment will continue to increase every month until they die or sell. Their house, that was worth $250,000 last year, is now worth about $230,000 and decreasing rapidly. So where does this leave them? Being crushed between a rising mortgage balance and a decreasing house value.

Now I will be the first to admit that I am ignorant when it comes to Reverse Mortgages. Over the last month I have been reading up on them and trying to become more knowledgeable. I have several Sellers right now that either have one or are thinking about getting one. Are Reverse Mortgages a good thing? I just don’t know. Are they for everybody? Definitely not. Should homeowners have counseling before getting one? Absolutely. Should we, as Realtors, recommend them or give advice on them? I don’t think so.

From what I have learned about Reverse Mortgages, they can either be a blessing or a curse. Extreme caution is recommended.

For my Sellers, it has been a curse. It was a short term solution to a long term problem. If counseled properly, it would have been in their best interest, to of sold their house a couple of years back and downsized. Now they are forced to sell. If not, they will be crushed financially.

Unfortunately, in order for this to work, we are now looking at manufactured housing. Hopefully, I can get their home sold and they can pay cash for their next house and have much lower taxes and insurance. We did look at some fairly nice places today and they have "got their heads around" what must be done, to secure a future, they can afford. I am so pleased that I am able to help them. This is why I do what I do.

Nice folks, in their 70s, should not have to worry about being crushed. I hate showing properties! But I hate my Sellers being crushed even more. My Sellers are not grapes!

Posted by Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc on 10/13/2006 05:32 PM

Comments (39)

reverse mortgage, real life

39 Comments on My Sellers are not grapes!

OCT

2006

"Hubby=Broker Bryant"

What a GREAT post...A masterpiece...So much So...

That I am not going to tease you about showing properties today.

How can I? Seeing as how you are so Masterful.

See you at 8PM.

TLW "The Lovely Wife"...Kum La Ka Lakka...ROAR!

A comment from the wife and it's positive? And then she goes on to say how Masterful you are.... I guess you are buying tonight? <I am just being playful here> The one thing I don't need is for people to read into this and say that women can pay. Absolutely....this has nothing to do in regards to either sex. Again...just teasing. And is it politically correct when I don't know either one of them....have never spoken to the "Lovely Wife" and only conversed with Bryant several times in e-mails.... well, it's a gut feeling, but they both seem like awesome people.... And I appreciate the time that Bryant has taken to reply to a few of my e-mails.

Okay....I should have said nothing so this wouldn't have been long winded.... but this is my true personality in person...just friendly and outspoken.

Broker Bryant....in regards to your blog.. I am a loan officer of 14 years. Reverse mortgages have been around for over 5 to 6 years that I know of... and maybe longer. I know one loan officer that works for our company that said..."it's a money maker"...and it's great for the client. Yes....it is a money maker. These banks will pay out a lot. But I told him.... "I am not going to go out...take the tests or whatever you need to do....because in my gut, this won't last long. And I am in this business for the long haul....both in client satisfaction and products that are offered. EXAMPLE.... THE PAY OPTION ARM.... COSI loan...etc etc. Sure, World Savings has been around since the late '60s... but I remember them pushing their product in 1995 to 1996. It's been the number one seller for the last 3 years. It's not my niche for several reasons. I'll sell it if you want it...but I will educate you on it. But I won't go after these clients like so many....because I knew what was around the corner. And I want my clients to come back to me.

Bryant....sorry for the long comment. Great post. hey...I am human...but I guess I am more passionate in what I do. AND REALTORS... lol I am not your typical loan officer, even if I am out of state. That is another topic all over again, because there were many points that were missed on that.

Thanks and have a good weekend.

What is wrong...this is the 2nd time today that I went back to edit what I said and it won't allow me.

Anyhow..I wanted to mention. My opinion, as what Bryant stated in his, is that I think reverse mortgages could be good or bad. But most loan officers that sell these are selling them like the Pay Option Arm...that for each client...they are the best product out there. And they aren't. But since they are so damn profitable, they are great to the loan officer. Again...my opinion.

Bryant, thanks for posting about this. I have been trying to figure out for some time whether they really are good or bad. And in the example you gave, I now know why my gut was telling me they may not be as great as some lenders were making them out to be. Thank you again for the post on this and the links you included in your post.

Bryant, how do you get the links in your post as you do? I can't figure that out yet.

Jeff, I applaud you for your cautious approach and going with your gut! You have a conscious, and can sleep at night. ;-)

Ann Cummings
www.AnnCummings.com

I personally have never really looked into reverse mortgages. I had someone explain it to me, and it sounded a lot like viaticles and life settlements. Yes, you are hedging/predicting that your client is not going to be on this planet for much longer. At least that is the way it was explained to me. I could be wrong. But for now, if that is the case, I will have no part in saying, "Mr. and Mrs. Smith, you are getting old in age and let's face it time is running out. Let me talk to you about a reverse mortgage."

I do have a local competitor that only does reverse mortgages. If I ever get a client asking for one, I send them right down the street. I let the client decide if the mortgage is right for them because I know that they (the competitor) will educate them as to what the mortgage is and properly qualify them for the mortgage.

Who said that Realtors don't have a heart??

I'd like to know how to get the links in too. Much better than the entire URL that I've been adding.

Lenn Harley, Homefinders.com. http://www.homefinders.com. Serving Maryland and Virginia real estate buyers

Bryant, great insight into a growing issue. Kudos on doing something you hate...you took an example from yourself and stepped out of your comfort zone :-)

Hold on folks before the snowball becomes an avalanche. This is a product that has come and gone several times for at least 20+ years. There are some real snakes out there that have preyed on seniors, gave them small payouts and got their homes through a variety of means. There are also some very excellent approaches through some of the establihed lenders who are looking at this huge group of Boomers walzting down the street, some of whom will need and/or benefit from having a reverse mortgage.

As a starting point, I highly recommend Wells Fargo. They have trained counselors/loan officers to help people determine if this would be a good approach or, as Bryant pointed out earlier, whether it would be better to sell and pay cash for something smaller. Wells Fargo has a number of algorithms owners go through to look at a range of options; not just one.
Over the next 10 to 20 years, I think we all will be participating in the financial options conversations and, one of the options may be a reverse mortgage!

I am a fan of certain types of manufactured houses and represented Eagles Nest Homes for a couple of years (part-time). If the manufacturer is experienced and credible, the finished product is oftentimes a much higher quality home than one that was "stick-built" at the site. There's no guesswork about how things are cut and put together. Usually, all is pre-cut and partially assembled at the factory. After the foundation is in, the house is normally completed in 1/2 the time of one built from scratch.

For sure, there are some real horror stories about certain manufacturers who did a poor job in the factory and even worse at the site. I have seen doorframes that had settled 6 inches apart at the top corner. So, it really does matter who you select as a manufacturer and, equally important, the experience of the builder or contractor you employ to erect/assemble/build the home.

Like everything else in life, Reverse Mortgages have good and bad points.

They are not all the same and neither are the people that need them. There are many aspects to a Reverse Mortgage and a Realtor should definitely NOT try to explain one to anybody.

They (Reverse Mortgages) can help some people though, so are not to be discounted. The couple in this blog are obviously not getting helped. This is a very sad situation. Luckily they have Broker Bryant to save the day! We all know that if anyone can do it, BB can.

Thats my vote of confidence for you Broker Bryant. Believe it and you will help these people! And keep us posted, of course!

Gee, if my trust fund ever gets off the ground, maybe we can help in other ways also.

Okay, I also would like to know how to do the link thing.

Thanks for all the great comments. I am looking forward to helping these folks settle in to a new and affordable life style.

Ok links are easy. If you are typing in a word or works program just copy the url you want to link to, then highlight the words you want linked, right click and copy the url into the insert hyperlink box. OR if you are already on activerain do the same thing except instead of right clicking open the little chain on the text tool bar. Hope this helps. I am extremely tech stupid but hyperlinks I love! This works in e-mails also

great post again

Reverse mortgages are like almost every other financing tool (short of the tried and true 30-year) ... they may work for some, but they definitely do not work for all.

Reverse mortages have changed a lot since they have come out and can be a great tools for those over 62...

Thanks again for the information...

Bryant,

You just made a large growth in life on what is out there. But, I even though I am not mortgage broker try the reverse mortgage.

But , good luck.

Another great post from Broker Bryant - Great Job helping this couple out!

Great Post ... Hey my secret posting word is Lemon. I guess you are trying to make lemonade out of lemons.

OCT

2006

Sadly reverse mortgages have been talked about most recently on morning news shows in a way that is rather misleading. Unfortunately people use such info as gospel and go with it without getting the facts.

Bryant, thanks for the tip on links in posts!

Candi, thanks for your link as well!

Ann Cummings
www.AnnCummings.com

Very interesting Blog Bryant. I tend to feel as you do. A mixed bag dependent upon what the financial state of the client is. But to be frank I personally suggest that folks don't do the reverse mortgage. Let's sell it right off and find you something that you can live with.

As far as manufactured homes. I've seen some really nice "Wheel Estate" but we tend to stay away from it. I've a buddy in Central Florida and he raves about some of the LARGE communities in Central Florida. But ultimately "WheelEstate" is like a car the dwelling depreciates while inversely the land appreciates so is it a good thing. Possibly but over all give em stick built homes.

Good Post. Reverse mortgagesin my opinion are a last ditch solution. And I believew thewy work best when a home has been paid off and has substantial equity to work with. But counseling beforehand, and the adult children possible should be brought into the mix.

ANd yes this editing thing is not working right.

Hey suggestion, can we have a bigger box to type in,,, I am constantly making typos... sometimes I will type in word and paste, if I am blooging... but for comments... well I'd rather not

Even though I am a Loan Officer, I do not know much about "Reverse Mortgages". It is a product that I have not chosen to pursue as of yet, so I am not going to comment on it one way or the other. But what I will say is that in my years in sales, and they have been more than a few, I have come to realize that the problem rarely lies in the product, but in the person selling it. There are people whose focus is in how much can I make, regardless of what the need of the customer truly is. These people come and go, but unfortunately those who consider the customers needs first, are left with the mess the others leave behind. So I would not blame the "Reverse Mortgage", it probably has situations for. Blame the predator that sold it for the wrong purpose.

Broker Bryant from this blog I can see that you are the type of person that I would like to do business with if I were in Florida. A tip of my "hat" to you.....oops, oh yah, I don't wear one, but if I did, I would be tipping it.

Some good comments in here... and George Souto... I also mentioned here that I don't know everything about reverse mortgages....just as Pay Option Arms started taking off. BUT ONE THING that I can say from experience... reverse mortgages pay well to the loan officer. So do Pay Option Arms.... so then loan officers go out selling it like crazy. Sure, you have to take classes on this and get certified..... but that doesn't stop the greed. It can add to it.

And yes....just like option arms are good for some...so can reverse mortgages be good for others. BUT.... and even though the borrower has to be counsled on this.... it comes down to the person selling this a George stated.

Again... Bryant... good topic... it's good to see others help their clients and being careful about it.... not just jumping in.

How about a reverse reverse mortgage? What's that you say? I don't have a clue, but I'm sure a lender out there somewhere wither has one or is busy creating one.

George and Jeff, you guys are absolutely correct. I can think of many situations where a reverse mortgage would be a good thing. Unfortunatley, when these products are being sold you can be sure that a "greedy" loan rep will be stressing "the live in your house forever with no payments" aspect of the product. This is what the consumer hears and it sounds go. Then somewhere in a whisper or fine print is the part about how you "pay". And you do pay, dearly. They forget to stress the part where your equity is eaten up by "reverse" compounded interest.

These type of loans can get ugly real quick. As I stated in my post, things change, if you have to move and are depending on your equity only to find out it's not there any more, you are in trouble.

Elderly people are every vulnerable. In another life I sold Medicare supplemental insurance for about a month. That was how long it took me to be sick of agents, visiting the elderly and driving them to the bank to get cash, for the new policy they just sold them, that they did not need. A month later they would go back and sell them another one. Over and over again they did this. The agent got 50% of the anual premium everytime they did this. The folks they ripped off were trusting and clueless. This was a major 100 year old insurance co. Of course the salespeople were independant contractors. For some reason I had a hard time making money in this business. Bunch of thieves. Most ended up doing prison time. I wasted 3 months of my life with these crooks. 1 month of schooling to get a insurance license, 1 month of training and 1 month of trying to do it honestly.

Bryant.... you didn't waste your time per se. You learned not what to do.... or later saw, if you do this, this is what could happen.

My very first company back in 1992.... crooks and still around. Many of them made more money than me... some still make more. But again, there is a fine line on what you want to do for your clients. I learned many lessons from working with those crooks and I carry these thoughts with my business plan and through my years working in this industry.

Did I waste 7 months? yes...in a way,....but take something positive from it. I bet you are a much better person because of this. I can see it in your blogs...even though I didn't know you prior to working with crooks.... lol

Jeff, you are right it was a learning experience. This was about 25 years ago, I left a $50,000 a year job as, are you ready for this. A WAITER! Thats right I made $50,000 a year waiting tables 25 years ago. That was big bucks back then. But anyway I left this job because I really wanted to try something different and one of my customers sold my on this. I should have went into Real Estate. Not sure why I didn't. I was already a RE investor and owned 4 properties at the ripe age of 24. Took me a bankruptcy and 13 years to finally get into RE. Life sure is funny like that. I guess I just needed a few more of life's lessons before I could be successful and fulfilled in RE.

Ahhh, I am back, just finished insolating the air conditioner, it is starting to get cold outside. I know, I know I should move to Florida and then I wouldn't have to be concerned with the cold or insolating air conditioners.

Bryant the Elderly seem to be easy to take advantage of. That is why we see more and more laws to try to protect them from people like you mentioned. But what I have learned in my tender 55 years is that laws are really for the honest people, because the predators always seem to find a way around them. Hopefully, those of us that have a conscience will get to them before the others do.

By the way $50,000 as a waiter 25 years ago?? Did it involve you having to shave your legs?

George, you are so right about laws being for the honest people. Crooks don't care about laws.

And no, I didn't have to shave my legs. Boy what an ugly sight that would be. I actually worked in a very upscale Cuban/Spanish restaurant for 10 years. Just to give you an idea, we had wine starting at $25 a bottle up to $6,000 a bottle. Yep thats $6,000. Never sold any of those but sold many in the $500 to $600 range. I loved being a waiter and I was very good at it. Had all my own clientele. Plus I worked all the time, first one in, last one out, 10 shifts a week. If they were open, I was there. It's where I met TLW. She was the bartender at the club next door. This was the job that got me motivated in life. I waited on millionares and stars every night and realised most of them were just normal people. I figured if they could make it I could too. So I went for it.

Shhhhhhh.

Too late the truth is out TLW

I can't win. Little by little...I am jumping out of a box! :>

OCT

2006

To echo the sentiments of others, thank you for a great post. I will bookmark it, to be sure.

The mention of "learning experience" puts me in mind of something my grandfather used to say, which I am just now beginning to realize the wisdom of:

"Experience is something you get right after you really needed it."

By sharing your experience with us, hopefully we can learn from your experience, before we are forced to learn from our own. Thank you.

(NOTE TO TECH STAFF: to edit my post, I had to cut/paste it into a new response, and delete the original.)

OCT

2006

As much as we sometimes hate it, we do things because "it's the right thing to do". I am sure you sleep soundly at night.

This is a good reminder, any niche product is not for everyone. It's a sink or swim type of situation.

BB,

I believe that you and I had a brief telephone conversation on this seller's situation a few days back....they may be fairly close to me......as to the Reverse Mortgage or Home Equity Conversion Mortgage (HECM). This is a FHA loan that serves a very good purpose but only if the borrower is fully educated and has a good handle on their future plans and financial circumstances. AARP website has a surberb feature in their website that fully explains the pros and cons of these loans. Most likely, the loan officer that handled their loan did a very poor job of counselling your sellers.

I hate hearing stories like this.....help them BB, help them!

Ron you got that right. I guess now folks have to have counseling before they do a reverse mortgage. At the tiem these sellers did it they didn't. They had no adea the rate of 1.5% was just a teaser. It went to 6.47% after 6 months.

And Jefffrey, I'm on it!!!

APR

Bryant....just landed here via your other blog!

I once tried to get my mom to consider doing this...and from your story, I'm so glad I did not!

Probably best to stay away from these!

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