How the housing slump can affect reverse mortgages
Dear Liz: What does the housing slump mean for all of those seniors who took out reverse mortgages? And what does it mean for their heirs? My mother is 78 and fortunately has not had to go down that path (yet). But many of her friends have. I just haven't seen anything on any adverse effects and wondered.
Answer: Reverse mortgages allow people 62 and over to tap the equity in their homes without having to pay back the loan until they move out or die. Lenders can't "call" or rescind the mortgage if the home's value drops.
"Let's say the home plunges in value . . . and the senior has actually pulled out more than the value of the home," said real estate columnist Tom Kelly, author of "New Reverse Mortgage Formula: How to Convert Home Equity Into Tax-Free Income." "If the owner dies, the lender can look only to the value of the home for repayment -- nothing more."
That's the good news. The bad news is that in a poor real estate market, there may not be any equity after the loan is paid to be distributed to heirs.
Reverse mortgages aren't for everyone, but if your mother expects to remain in her home at least five years and needs additional income, they're worth investigating. If you're interested in learning more, AARP has an excellent tutorial at www.aarp.org/revmort.
Borrowers aren't solely to blame
Dear Liz: Many thanks for being so practical, responsible and honorable in responses to the many greedy and irresponsible people published in your column. One of the main reasons the U.S. economy is in such a mess is that far too many of us have been greedy and irresponsible with our money -- but somehow feel entitled to a bailout of our mistakes by some institutional father figure.
My parents both made it through college in the depths of the Great Depression, and they taught me by example the morality of living within their rather restricted means -- father was a low-paid clergyman with three children, mother stayed home.
It's very hard to feel much compassion for people who are earning more than I ever have earned but who are now in danger of losing their homes because of their profligate spending and lack of precautionary saving during the financially good times.
Keep up the good work, even though I'm sure your advice and sense of financial ethics are unpopular with many.
Answer: Thanks for the compliment, but your assessment of your fellow Americans may be a bit harsh.
