Reverse Mortgages Zoom Call 5.10.22
The Zoom call of 5.10.22 was presented by Caroline Gerardo, or CG. She has been in the lending business for over 30 years and aside from some technical difficulties presented the call most expertly.
A reverse mortgage is a type of loan that allows homeowners aged 62 and older to turn their home equity into cash. Most reverse mortgages today are insured by the FHA and are called Home Equity Conversion Mortgages (HECMs).
This allows homeowners to have access to some extra cash without having to sell their homes, having to give up their title or possession, or having to make monthly mortgage payments, provided a homeowner occupies the property as their primary residence. The property owner still has to pay the property taxes, homeowners insurance and property maintenance, and HOA fees.
There are pre-requisites in order to qualify for a reverse mortgage. For an FHA type, there is a minimum FICO score of 600, and also for community non-profit and shared equity. Jumbo requires a 680 FICO score.
There are 4 different ways to pull equity out of the house. One is tenure and assuming a person is 70, they can set up a monthly payment of $1,000. The second method is called term where they set up payments for a fixed number of years, or establish a line of credit where money is drawn as needed or used with a credit card with money drawn as needed. The last way would be modified tenure which is a combination credit card and payments or modified terms.
Initially, someone would go to the house, which could be 2-4 meetings and if possible get heirs or other family members involved as well. This is necessary in order to determine if the house is suitable for long term occupancy presuming stair. There may also be instances where a real estate agent might get involved it there is a purchase involved. The family accountant may also need to be involved in the decision as well.
Cost to Regulate
The product is more expensive than a standard re-finance. It is regulated and the maximum cost a lender can charge for the product is $6,000 which would come out of the proceeds after establishing the mortgage. It breaks down as $2,500 or 2% of the first $200,000 and 1% on the additional $100,000 increments up to the maximum of $6,500.
They also pay for the appraisal, title policy, and attorney to handle the documents. Depending on the state, it would be handled as a typical closing. They can stay home and have a notary come for the signing of the documents. They must provide identification which can be a problem for some seniors. Identification could be in the form of a current drivers license, passport, or social security card with some form of photo ID.
Advantages of a Reverse Mortgage are that the people can stay in their own home, and community. Do maintenance, or even make an addition.
Disadvantages of a Reverse Mortgage are that the owners cannot deduct the interest payments on the reverse loan. They must watch the amount they draw especially if they are on Medicaid which has income limitations.
When one of the partners dies, the other can continue in the property as a joint tenant or the family can take title as a trust. An LLC is not allowed with a reverse mortgage. They own the property in their own names.
The mortgage is not a recourse mortgage. A standard mortgage is a recourse loan and it can be foreclosed if payments are not made. As they own the home, when both parties on the loan have passed, then the heirs have 12 months to sell the property and repay the loan, or simply refinance the amount drawn on the loan and keep the property. The 12 months allows for probate issues to be resolved.
A reverse mortgage can be a very strong source of income for people that do not have a lot of other types of income. It is a loan that will need to be repaid, typically when the owners have passed on or need to go into a facility with extended care.
Reverse Mortgages Zoom Call 5.10.22