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Super Sizing Seniors: Working the golden years at the golden arches.

By
Education & Training with Mortgage Broker Compliance Consultants

The baby boomer generation is headed for a shock as it nears the finish line known as retirement.   As the day of reckoning grows near, boomers will discover that they are long on life expectancy and short on cash.   They are more likely to be asking if "you would like fries with that" than traveling the world and enjoying their retirement.   

 How can this be you ask?   It has been a culmination of economic issues that has brought an entire generation into this financial crisis.   In addition to social security benefits, the foundation for retirement income has traditionally been corporate funded pensions and/or employee managed 401k or similar plans.  

 Boomers have found that they can not depend on the pension being there for them when they need it most (during retirement).   With pension cuts, corporate bankruptcies and corporate downsizing, most major companies have foregone the pension plans for the much more cost effective employee managed 401k plans.   This has allowed them to push as much as 50% or better of the cost of the plans off onto the employee themselves. 

 What's wrong with that?   Well, to start off let's look at what the average employee knows about managing stocks, mutual funds and the like.   NOTHING.  I was watching a special regarding this issue and the reporter ask a CEO of a large company if he would let the company janitor manage his retirement portfolio.   He said absolutely not.  As I am sure we would all reply.  So why then do we expect the average employee to be able to properly manage their own retirement funds?   

 This has proven disastrous for much of the boomer generation.    Most of them just went forth with the "set it and forget it" attitude and kept putting money in like the loyal employees that they are, fully expecting for the funds to be there when they retired.    The market crash of 2001-2002 took a hefty toll on many of these accounts, nearly wiping some of them out completely.  Without the years left for recovery of the funds before retirement, many boomers were left with the tough decision of whether to retire or not.   Many felt jaded and disappointed by the not knowing or understanding what was going on with their money.   Most people do not have a degree in finance to be able to keep up with the markets and manage their own funds.   

 The sad reality is that many baby boomers have to sideline their retirement dreams, due to their harsh financial picture headed into retirement.    You will see more and more seniors working part time and even full time well into their golden years slowly letting their retirement plans melt away and fade into the distant past.   

 If you or someone you know falls into this category, then I urge you to get financial advice from reputable, proven professionals.   You should be talking with a reverse mortgage consultant, elder law attorney, financial planners and a CPA to determine if there is a way to restructure things no, before it is too late and retirement is upon you or your loved one.    Many of these situations CAN be reversed and the outlook can be very positive.  

If you or someone you love would like more information regarding Reverse Mortgages, you can request it  by email at  telder@metlife.com,   Or click on the "BOOK NOW" button under my picture and choose Reverse Mortgage Consultaion option, pick a date and time you would like it sent or a call, and provide your contact information and  the FREE info will be on the way. I will provide a Free DVD and tons of valuable information that you must know before considering these loans.  

 

 ©2008 All rights reserved by Tom Elder

June Lewis
Northwood Realty Services - New Castle, PA
Realtor Northwood Realty - New Castle,Pa Lawrence Co 7247304571

Hi Tom Isn't that a sad state of affairs.  I checked into the reverse mortgage  information that they are always pushing on TV.  I even received the tapes.  I work with a lot of seniors who, like everyone else are in shock mode with their retirement options.  I do not give out  the tapes to my clients, only because I could not understand how on  a $ 150,000 or $ 160,000 you could reaceive only a fraction of the market value. around I think $ 129,000

( It has been a while since I checked on this)  and it would cost over $15,000 to do this.

Why wouldn't they just Sell?   I am sure it is mis-understanding on my part. But I could not suggest

anything I did not understand.  Now I direcdt them to a qualified  lender to fully explain this reverse mortgage stuff.

Aug 30, 2008 04:01 AM
Thomas E. Elder
Mortgage Broker Compliance Consultants - Forest Hill, MD
Founder, Mortgage Broker Compliance Consultants

June,

Reverse mortgages are a very misunderstood loan product  With the new HECM and Reverse for Purchase products becoming available and the lack of understanding in the real estate market, I am actually working with a leading CE provider to put together a class for Realtors that would allow them to get a better understanding of this product and to get CE credits.   I will let you know as soon as it is approved.  

To answer your question about why wouldn't someone just want to sell their home?  In the scenario that you provided the average reverse mortgage closing costs ON A 150K  home would only be about $4800 plus a mortgage insurance of about $3000 (this will depend on the age of the borrowers and the principle limit).   The rest of the 15k that you are talking about is probably part of a servicing set aside (but still seems a little high for this loan amount).    This set aside is a calculation and not a fee, let me explain.  

The servicing set aside is an amount deducted from the available loan limit at closing to cover the future cost of servicing the reverse mortgage.   The only amount actually added to the loan balance is the monthly servicing fee , which generally ranges from $30 to $35 per month.  So even though an amount of the avaliable equity has been"set aside" for the servicing the only thing that will ever cost the borrower is the monthly fee for as many month's as they are in the mortgage. 

 Then you have the available loan limit which is always going to be much lower than the actual value of the home.   As a rule of thumb you can generally subtract 5 years from the age of the borrower and that is the percentage of loan to value they will qualify for.   For example, a borrower is age 75, they will gnerally qualify for somewhere around 70% LTV.   This is not a scientific method, but more of a field guide to estimating if someone is qualified.    

What does that mean for the borrower?   Well that means they have EQUITY. (Equity that would get eaten up by R/E fees and moving costs should they decide to sell the home, see bleow for explaination)    They have gotten rid of the monthly mortgage payment and still have something to leave for their heirs.   With the annual home  appreciation rate of around 4%, on average over the long haul, there should always be equity over the course of a normal life expectancy.  There is the possibility that they will outlive the equity in their home should they live for a long enough time, but this is where the high up front Mortgage Insurance comes into play.   With a normal mortgage MIP the policy protects the lender in the event of default, but in a Reverse Mortgage, the MIP policy protects the borrower and their estate from any shortfalls due to being over equity.   That means that Reverse Mortgages are "NON-RECOURSE" loans.   The bank can never come after any more than the house is worth, even if it is upside down.   The lender merely submits a claim for the difference and is paid through the MIP.    

So to answer your question as to why someone would not just sell thier house let's dig a little deeper into the real life situation.   Baby boomers would prefer to age in place, meaning that they would like to keep the family home and grow old and live out thier days there.   The problem is affording the payments and upkeep on a fixed income.   The fundamental purpose of the reverse mortgage for many is simply to get rid of the mortgage payment and provide enough income to maintain the porperty.  

As you can quickly see, the cost of staying is by far , in most cases, cheaper than the cost of selling (remember the 6% R/E, 7% in some places), that could cost as much as $10,500 on a$150K HOME.    And let's not forget about the concessions that would more than likely have to be made with the buyers in order to sell the house in the current market.   Add to that the cost and aggrevation of moving, setting up new utilities and starting over in a new home.  Worse yet moving into an assisted living community or the unfair pressure of moving in with a child and having them care for them, and you can quickly see that the cost of selling and moving on can certainly out weigh the cost of the reverse mortgage.  

  As with any financial product there are cases where it fits and cases where it does not ( a true professional knows the difference).   The most common reason for someone who WILL really benefit from this valuable financial tool not move forward is the lack of understanding of the product itself.   We reject that whcih we do not understand.   It is my mission to educate as many professionals as I can on this product and how to properly use it.   The reality is that there are going to be a lot more people that have to utilize this financial vehicle to live a normal retirement.   I would much rather have them talk to people who truly understand  the benefits and the pitfalls of these loans so that they get the right loan, the first time every time.  

This was a great question and I will actually be posting the answer on this week's blog.   Thanks for taking the time to inquire.  

Sep 01, 2008 03:31 PM