Although competition is big for the senior reverse mortgage industry, there are still companies that are finding ways to squeeze more fees from their senior clientèle. I strongly believe companies that are looking to corner the market such as Bank of America and their soon to be acquired subsidiary Countrywide Home Loans, will find their numbers higher as they look to constantly lower rates in an effort to make their money from servicing and creating banking relationships. The Chicago Tribune, writes that

A reverse mortgage can be a financial lifeline, but consumer advocates are worried that some people are taking them out with too many strings attached.

Some lenders inappropriately push older homeowners to the products or sell them additional high-cost annuities, a new AARP survey claims. And some experts say (more…)

Reverse Mortgages Under Senate Scrutiny,

Recently, the United State Senate Special Committee on Aging held hearings on the problems and opportunities surrounding the rapid growth in reverse mortgages (Reverse Mortgages: Polishing Not Tarnishing The Golden Years). The testimony of witnesses is loaded with some compelling insights (good and bad) and is highly suggested reading for those considering a reverse mortgage.

We thought it worthwhile to re-publish some of the testimony for the benefit of visitors. The first entry is from the daughter of a elderly California homeowner who clearly feels her mother was taken advantage of in the reverse mortgages process:

Statement of Carol Anthony
Before the Senate Special Committee on Aging
December 12, 2007

Senators Kohl and McCaskill, thank you for shining a light on this important issue.

My father, John Adcock, was a member of the greatest generation. During WW2 he served proudly with the United States Marines in the South Pacific. When the war was over, he returned to his home town, Salinas California, Grateful to be able to get a good
job and in his words “marry the prettiest girl in town.” Mom and Dad built a home, lived their lives modestly and made sure their 2 daughters were provided the opportunity of higher education.

When dad died in 2000, he left mom with a comfortable estate so she would be provided for safely the rest of her life.

What he didn’t provide, what he never even anticipated, was the need and knowledge to protect her from Predatory Lenders, Con-Men and the “new California Gold Rush” also known as the reverse mortgage.

That’s why I’m here today. In April 2006 my 80 year old mother (Betty) was sold a reverse mortgage. At the time of the sale, she was in poor health, frail and not at all capable of entering or understanding even the simplest financial dealings. And, most
importantly, mom didn’t need a reverse mortgage. She had substantial money in different accounts and investments and beside, I had already helped her establish a $150,000 home equity line of credit in her name for any unforeseen emergency. The closing cost for the home equity line was zero.

In the 3 years she had access to the credit line, she had only borrowed $19,000. She was paying very little per month to service this line.

But in April 2006, a salesman entered the picture, introduced to my mother by her 86 year old friend (by the way, also a widow). The salesman and the lending institution promised:

• “There would be no risk of losing her home.” But there was.
• “She would receive independent credit counseling.” But she did not.
• “All loan options available to her would be reviewed”. But they were not.
• “She would never be rushed into signing anything she did not fully
understand or was not ready to sign.” But she was.
• “She would never be pressured into applying for more money than she
needed.” But she was.
• “She would not be incurring a mortgage.” But she did.
• “All loan terms would be carefully explained.” But they were not.

When mom signed on the dotted line, she felt the salesman was a good friend. But he was not.

In place of the no fee home equity line, she now had a reverse mortgage that charged 18 closing fees depleting the equity in her home: The equity that had been saved over the years …. one buck at a time.

The 18 closing fees totaled a staggering $16,791.23. Next, she was forced to make home repairs of about $5000. Repairs not mandated with the equity line, but are all to common with financial freedom. Now, instead of paying interest only on the $19,000 equity line, she received her first statement showing a principle balance of almost $37,000 with interest compounded daily. She would also be charged a monthly finance charge called an “MIP” and another monthly finance charge called a “Finance Charge” to compound the financial damages, the salesman converted $125,000 from one of mom’s municipal bond funds into a 20 year annuity.

The municipal bonds had been paying mom a nice monthly income, now, she would have to wait until her 100th birthday to see a cent of her money.

Even though the salesman, working for Senior Financial Freedom (for the reverse mortgage) and Standard Life of Indiana (for the annuity) had no real estate or securities license, the harm was done. On the day she signed the loan and insurance documents,
close to $165,000 had been effectively lifted from her estate.

Why Should You Get Involved?

I believe the current housing crisis and the explosion of reverse mortgages have some similarities and connections. Both entities have at least insinuated, if not promised home values would continue to rise at about 4% forever. Both sets of lenders have
demonstrated they are more than willing to sell loans to people who can’t afford them, or to the elderly with home equity lines that don’t need them. Lenders are no longer dealing in subprime loans and people without money are unable to qualify for loans.

So where do you think the thousands of real estate and insurance salesmen and women are headed? To the reverse home mortgages market!

It is the new California Gold Rush coming to your area faster than a California wild fire. Thanks to aggressive DVD marketing, featuring such trusted celebrities like James Garner and Robert Wagner. Over 86,000 seniors purchased reverse mortgages just last
year. Sales seminars are seeing 10 times the number of participant as they were seeing just a year ago. Senior Financial Freedom is offering careers in what they are calling the explosive market of reverse mortgages.

I have some suggestions on how to put a damper on the reverse mortgage market.

First make reverse mortgage lenders compare their product with other conventional home mortgage products – such as the home equity line of credit. This one act would reduce the future number of reverse mortgages and the problems associated with them.

The current system of letting the lending institutions provide their own sales pitch and calling it “independent credit counseling” should be stopped. And second, substantially reduce loan fees the elderly must pay for the privilege of tapping into the equity of their own homes.

When mom realized what the salesman had done, she became very depressed and all but stopped eating. The rage that I felt seeing her cry and hearing her call herself a fool was profound. She was lucky, I was able to buy back her house and amicably settle the annuity issue.

But what about the other victims, the aged, the elderly, the members of the greatest generation. They are part of that trusting generation now so susceptible to predators, predators whose only appreciation for the elderly is appreciation of their money. I
appreciate these members of the greatest generation and will be forever thankful and in awe of their sacrifices. They put their lives on hold, went to war and saved the free world. Now I am asking you to save them.

The experience of Ms. Anthony and her mother make it abundantly clear that self-education is the key to a successful reverse mortgage transaction.

,

Full post here Reverse Mortgage Information

I have watched reverse mortgage points and fees decline in the most recent year but they are still the most expensive loan outside of private money for borrowers with standard credit and income.  The Motley Fool, reports.

They’re not always a good deal. The points and fees they charge can be fairly high, and their interest rates can be considerably higher than those for regular mortgages. The cash flow you can expect from a reverse mortgage is determined by your home’s value, your age and interest rates. Those 62 years old or older, with little or no debt, stand to benefit the most from reverse mortgages. Loan programs vary widely in what they offer, so shopping around is critical. Retiring the debt usually means selling the home — often upon the death of the borrower — unless the heirs can cough up the repayment.  Full Article

I came across an advice column in which a widow looks to avoid buying an annuity but may qualify for a reverse mortgage. Sound advice or junk information, you make the call.

DEAR BRUCE: I need help. I am a 75-year-old widow with little income. My modest (more…)

Aug. 29 (Bloomberg) — U.S. Senator Charles Schumer called on Countrywide Financial Corp. to waive prepayment penalties, refinance loans and eliminate “above-market fees” to help homeowners struggling to make payments on subprime mortgages.

Countrywide, the biggest U.S. mortgage lender, should stop paying higher commissions to brokers who steer borrowers to high-cost loans that “are designed to fail,” Schumer told reporters in Washington today.

“I am calling on Countrywide, as our nation’s largest lender, to bury its bad business practices and reverse some of the damage it has already inflicted on our housing market,” the New York Democrat said. (more…)

Courts in Los Angeles provide for the rules and remedy in applying the option given to the reverse mortgagor to seek payment instead of continuing with foreclosure. In suspending the possession proceedings, the court should be satisfied that the mortgagor is able to pay the arrears within the period agreed upon for completion of payment. If the court sees the ability to pay then the installment payments will commence. However, if the court deems the mortgagor unable to pay, the latter is given the option to seek the court’s permission to acquire possession of the mortgaged property to put it up for sale.

Los Angeles reverse mortgage provides a qualification to the option of seeking possession in order to sell the property. The decision in this case implores the reverse mortgagor to provide evidence that the total amount of unpaid debt will be fully satisfied with the selling price of the mortgaged property. The purpose of allowing the reverse mortgagor is to sell his property in Los Angeles according to his interest to obtain the highest possible selling price.

Los Angeles law forbids both payment and receipt of any kind of interest. Los Angeles citizens do not subscribe to mortgage agreements involving interest. Los Angeles reverse mortgage covers an agreement that the bank pays eighty to ninety percent of the total purchase price while the buyer pays the balance. Full payment of the property gives rise to the registration of the property under the name of the buyer. The buyer pays the money forwarded by the bank within the agreed period.

Budgeting will be a key for the reverse mortgage to work. Ultimately the whole reverse mortgage planning process in Los Angeles is likely to be summarized in a few key budgeted or forecast financial statements. These budgets or forecasts will then provide the reference point, or reverse mortgage master plan, against which progress can be monitored and controlled. The efficiency and effectiveness of the reverse mortgage planning process in Los Angeles will be greatly aided by the application of computerized financial modeling.

The management of reverse mortgage in Los Angeles is all about analyzing financial situations, making financial decisions, setting financial objectives, formulating reverse mortgage plans to attain those objectives, and providing effective systems of financial control to ensure reverse mortgage plans in Los Angeles progress towards the set objectives. Reverse mortgage plans, like objectives, must have a time frame, short, medium, or long-term and will essentially provide the road maps detailing how the mortgagor’s objectives are to be reached. The essence of reverse mortgage planning is to ensure that the right amount of funds is available at the right time and at the right cost for the level of risk involved to enable the mortgagor’s objectives to be achieved.