AGAIN, before you say no to a reverse mortgage, learn the correct facts! Don't believe the myths!

Today, I came across a blog by Mike Jones Tucson Mortgage Company, LLC, http://activerain.com/blogsview/550373/You-Should-Worry-If .  I just HAD to reply!

WOW, is about all I can say.  This is from a mortgage broker no less.  And some of the comments were completely false, I just could not let it go!  As I keep saying SO often, LEARN THE CORRECT FACTS, DON'T BELIEVE THE FALSE MYTHS!  I recommended my mom get a reverse mortgage, although she is not one of the many where a reverse mortgage could be a life saver for them.  But I told her, it is your money, don't worry about what you leave me, enjoy your retirement, and with a reverse mortgage, not only can you enjoy retirement, but you can easily keep a roof over your head the rest of your life!!  And to those others, I can tell you so many stories of seniors not eating properly, financially burdening their loved ones, not taking proper medications because of lack of money, etc., but then getting a reverse mortgage and then having the monetary means to eat right, afford medications, PREVENT FORECLOSURE and so forth.  Yes, a reverse mortgage in most cases (if they have enough equity) can actually PREVENT foreclosure as lenders / FHA / HUD want to keep senior homeowners in their homes!  Again, this is another correct FACT!

First, he mentions fees. Yes it can be around 6%, BUT, to just ignore getting this loan because of this, could be preventing a senior from enjoying a more comfortable retirement, and even KEEPING A ROOF OVER THEIR HEAD! BTW, what is one of the most common percentages that Realtors make on the sale of properties, 4%-6% ALL BY THEMSELVES, PLUS then all the other closing fees on top of that, and nobody blinks an eye?  The 6% mentioned includes ALL the lender/broker fees, title work, taxes & recording fees, HUD Mortgage Insurance, etc.  I did a blog a couple of months ago, and broke these fees down. Not including the HUD Mortgage Insurance, the closing costs comparing regular mortgages to reverse mortgages, 4% to 4.3% respectively. Now, yes, the mortgage insurance does add another 2% bringing it to the approximate 6% that Mr Jones mentions. BUT the insurance protects not only the borrower, but their heirs from ever having to pay back a loan that the value of their home does not cover. On a regular mortgage, if the home value is short, a lender can, and in many cases does sue you for the shortage. I'm not sure about recouping the costs over the first couple of years as mentioned by ‘Wells Fargo' in the comments, but I believe that is correct.  Even if they live to 110 years old, and the loan goes to $300,000 and the value of the property is depressed (like in today's market) to $100,000 THEY REMAIN IN THEIR HOME AS LONG AS THEY CONTINUE TO PAY THE PROPERTY TAXES AND HOMEOWNERS INSURANCE.  That is a FACT!

Second, there were comments about the reverse mortgage fees eating up equity and leaving the person with little or no money.  This is usually a case of the person/couple refinancing and eliminating one or two mortgages and they now no longer need to pay these mortgages.  How much money does that put in their pocket?  And how did that person or couple get so indebted, because of the reverse mortgage closing fees all by themselves?  Obviously, NO.  Whether because of poor financial planning, unexpected excessive medical costs, or a host of other reasons, SOMETHING caused a depletion of the person/couples money, but it certainly is NOT the fees to get a reverse mortgage.  But again, just think how much money not having to make a mortgage payment puts into the pocket of the borrower.  Take a person with pensions and Social Security making $1500 a month and paying $500 a month mortgage payment (this is a very conservative example) that leaves them with $1000 a month to buy and pay for groceries, gas, electric, water, sewer, taxes, supplemental health benefits, (lets assume they don't have cable and internet services to save money) health care costs (including doctor visits, and prescriptions, and sometimes hospital services), set aside money to pay for homeowners insurance and property taxes, and anything else they need.  With a reverse mortgage, NOT $1000, but rather their ENTIRE $1500 a month income can go toward these same bills, they would only need to set aside money to pay their homeowners insurance and property taxes, which would need to be done no matter what, this is not an extra.   

Third, Mr Jones uses scare tactics to say interest rates can go to 13%. Technically, yes it CAN go that high - if they are in an adjustable (which most are), but do you know how many times the HECM Reverse Mortgage interest rate has gone over 10% in the LAST TWENTY (20) YEARS - NONE, ZERO, ZIP, NADDA, NOT ONCE!!! The two worst years had it go to 9.5% in 1991 and 9.18% in 2000 for the monthly adjustable, and 7.9 and 7.58 for the same years on the yearly adjusting HECM Reverse Mortgages. But almost all years have been between 5-8% for both yearly and monthly adjusting. And it is a bit lower right now - about 4%.  But again, as mentioned previously, even if rates do go that high, the borrower CANNOT be forced out of their home as long as they continue to live in the house, pay their property taxes, and pay their homeowner insurance.  Period.  Again, this is a CORRECT FACT!  BTW, like Victormentions, if the reverse mortgages interest rate does get to 13%, then that means ALL mortgages rates at that time will be that high, and we would be seeing rates like the 70's & 80's - 20%.  But these reverse mortgages are capped, so they will not go that high.  Another great point Victor brings up, the counseling - I cannot agree more with him, this counseling needs to be implemented on ALL loans - so that we can help reduce the potential of ever repeating today's mortgage problems - I stress the word reduce, as it clearly would not completely eliminate problems.  Lets see ONE regular 'forward' mortgage broker/loan officer help promote that idea.  With the potential of fully educating their client and them not getting the loan, not too many will back this - but it is required of ALL FHA/HUD HECM Reverse Mortgages, which I FULLYsupport and NEVER want to see this requirement dropped! 

Gary McAdams- mentions that reverse mortgages cause many foreclosures and short sales. I have yet to see even one, and I live in one of the worst foreclosure states in the country (Lee county is my neighboring county and it is 2nd worst in the country) with one of the oldest populations and that has the most reverse mortgages. This is clearly a perception problem and lack of information and is a statement NOT based on fact. All the borrower needs to pay with a reverse mortgage is homeowners insurance and property taxes - not an extra, these need to be paid anyway! While many seniors may have limited and fixed incomes, almost all can at least pay that, thereby preventing any foreclosure or short sale. Also, as mentioned above, the 'non-recourse' feature of reverse mortgages prevents a lender from seeking the other assets of the borrower, even if they have a million dollars in the bank! And the mortgage insurance prevents the borrower and their family from being burdened with a loan exceeding the value of their house.  I actually did a reverse mortgage for a couple on their home that owned $1,000,000 piece of commercial property, and even that cannot be forced in part or full to be used to pay back the reverse mortgage.  You cannot say that about any regular 'forward' mortgage if the property does not pay back the loan completely!  Option ARMS, ARMS in general, and no documentation loans are the BIGGEST group of foreclosures and a big part are the troubles and causes of foreclosures today.  I can't say no reverse mortgages are foreclosed upon, but I can say VERY few (almost none) that have reverse mortgages are foreclosed upon.

Several mention it is not for everyone. I can't agree more. It is NOT for everyone, but I have seen so many helped by them, it is incredible! And I have come in contact with many as a Notary Signing Agent that would benefit by getting a reverse mortgage rather than a HELOC or other regular mortgage. You don't know how bad I have to bite my tongue and not break the law by remaining impartial, but I do keep my mouth shut, unfortunately, I feel!! I feel those mortgage brokers and loan officers are doing a tremendous disservice to the senior homeowner/borrower.

Patty & Scott - mention just one of the many types of people that can benefit from reverse mortgages. In their case, it is just a more enjoyable retirement lifestyle, but for many it can be a necessity and life saver! Donasks about 80% equity, to answer his question, if they have 80% equity, virtually all senior homeowners 62 and over would qualify. About the only ones that would not is a lot of mobile homes, some condos, and someone currently IN bankruptcy, and virtually everyone else would qualify. As long as they are 62 or older (youngest person when couple) and have 50% or greater equity will almost always qualify them for the reverse mortgage. On the HECM program, they need less equity the older they are.

Paul- you are not alone! Those that are FULLY and CORRECTLY informed about reverse mortgages are almost always are in favor. It is an education problem! Also, some fears and myths have a valid basis with the reverse mortgages that started in the 70's and 80's. But FHA & HUD have eliminated those inappropriate rip-offs!  I have mentioned this over and over, some of these fears stem from equity sharing, forced annuity purchases with their funds, etc. FHA/HUD no longer allow these rip-offs, so again, when you know the CORRECT FACTS, it is hard to say no to a reverse mortgage!

Bottom line, I agree, reverse mortgages are not for everyone, or for every situation. But to many, it can be such a tremendous benefit for a more enjoyable retirement lifestyle, but it can also be a life saver! It is obvious from Mr Jones' blog that he knows some, but like most, he does not know all the COMPLETE facts about reverse mortgages, and worse, uses some scare tactics to potentially sway someone from something that could be great for them. I can only strongly suggest everyone learn all there is to learn about them, and see where they have benefited senior homeowners.  When you know the correct WHY and HOW seniors have benefited from reverse mortgages, it is hard to say 'don't get one' unless of course you are selfish and greedy and more concerned with inheritance than the quality of life of a loved one.  I would gladly put you in touch with some seniors that have obtained a reverse mortgage, and they can tell you their life saving story! Or even just a story of a more enjoyable retirement!

ONE MORE TIME - Learn the true correct facts about today's reverse mortgages BEFORE you say no.  Don't believe the myths!

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