Reverse Mortgages

If you're at retirement age and worried about how you'll pay the bills after the bear market devoured a chunk of your nest egg, you may be sitting on the solution: your home. With a loan called a reverse mortgage, homeowners who are at least 62 years old can tap the equity in their homes to provide monthly income for life.

The recent conviction of a Delray Beach, Fla., loan officer for his participation in a scheme to persuade seniors to refinance their reverse mortgages should serve as a warning to the friends and relatives of elderly people about the surprising ease with which senior homeowners can be exploited. That the loan officer and his co-conspirators, including a title agent, were creating false loan applications and pocketing the money casts a pall over the lending business. And with good reason, according to the National Council on Aging, which ranks homeowner/reverse mortgage scams as the eighth most prevalent scam specifically targeting seniors.

Their retirement accounts flattened by the sour economy, older homeowners are increasingly turning to so-called reverse mortgages -- the sometimes expensive loans that don't require payments until the borrower sells the home or dies. The Federal Housing Administration insured 11,261 reverse mortgages in March, a jump of 17% from the same month last year.

Dear Liz: My healthy and active 82-year-old mother is faced with having to sell her home this year because she's running out of money. She has lived a very minimal lifestyle for many years as her savings dwindled, and her income is now basically Social Security. She owes $25,000 on a home worth more than $700,000 in a top school district. We don't know if we are jumping the gun with this sale. I could move in with her and pay rent for a year or two, although that would mean a longer commute for me and would just put off the day she has to sell.

Seniors living in Laguna Woods may now take advantage of a unique reverse mortgage product under a program launched this month by Fannie Mae. Under the program, owners of co-ops in Leisure World will be able to gain the same access to reverse mortgages that other senior homeowners have had for years. Reverse mortgages allow seniors to tap into their home's equity. In most reverse mortgages, no monthly payments are due until after the senior dies or moves.

If you, your relatives or friends are contemplating applying for a reverse mortgage in 2010, check out the new guidelines proposed this month by the federal regulatory agencies for financial institutions. Though aimed at banks and credit unions, the guidelines neatly sum up the potential snares and pitfalls for consumers in the fast-growing reverse mortgage field. Reverse mortgages typically are restricted to homeowners 62 and older who have untapped equity available and want to turn it into cash.

For as long as I can remember, the lone crusader for senior citizen reverse mortgages has been Ken Scholen. His National Center for Home Equity Conversion has brought about the current abundance of reverse mortgages. Reverse mortgages pay people over age 62 either a lump sum or monthly payments, which need not be repaid until the homeowner either dies, moves or sells the home. Today, reverse mortgages are easily available from major lenders such as Fannie Mae, Transamerica, FHA and others.

Q: I read recently that the number of reverse mortgages available to older homeowners would soon be increasing. How do I find out more about these mortgages and whether I can or should even want to qualify for one? --A.C.R. * A: Last month, the Federal National Mortgage Assn., the nation's largest provider of home loans, said it would begin next year to offer reverse mortgage to eligible older homeowners.

A few months ago Evelyn Judisch felt like she was headed for financial ruin. Judisch, 83, had amassed $15,000 in credit card bills for medication needed to keep her 94-year-old husband alive. "It got to the point where it was too much," she recalled. A home equity loan was out of the question for her and her husband--who has since died--because they had barely enough income to get by.

Federal and state regulators should ensure that seniors have access to unbiased financial counseling in order to protect against hazards associated with so-called reverse mortgages, Consumers Union said in a report. A reverse mortgage allows those over 62 who own their homes to borrow against the equity and then receive monthly or lump-sum payments from a mortgage lender.

Reverse mortgages may very well be a good choice for some seniors who need to tap into equity they have in their homes. But there are other options elder owners might also want to consider. For example, some state and local governments offer a less costly version of a reverse mortgage called a deferred payment loan (DPL). Generally, there are no origination fees and insurance premiums, and closing costs, if any, are very low. The interest rate on DPLs is low as well, if interest is charged at all. When it is, it's often on a fixed basis, meaning that the rate never changes.

The Federal Housing Administration isn't talking publicly about it, but the agency may be getting ready to cut the upfront costs of reverse mortgages for some borrowers. The agency also, however, may be reducing the amount seniors can borrow against their homes. In a recent conference call with industry participants, FHA officials said they were finalizing plans to offer a home-equity conversion mortgage requiring almost no upfront mortgage insurance premium, according to the National Reverse Mortgage Lenders Assn.

Here's a sobering message for anyone who has a federally insured reverse mortgage or plans to apply for one: If you don't pay your local property taxes or hazard insurance premiums, you should know that the risk of losing your house to foreclosure is about to increase. Although the Federal Housing Administration, which runs the dominant reverse mortgage program, often had been lenient and forgiving in past years about tax and insurance delinquencies by senior borrowers, it's likely to take a more disciplined approach when it issues new guidelines this summer.

If you, your relatives or friends are contemplating applying for a reverse mortgage in 2010, check out the new guidelines proposed this month by the federal regulatory agencies for financial institutions. Though aimed at banks and credit unions, the guidelines neatly sum up the potential snares and pitfalls for consumers in the fast-growing reverse mortgage field. Reverse mortgages typically are restricted to homeowners 62 and older who have untapped equity available and want to turn it into cash.

The recent conviction of a Long Island woman who stole the home of a 93-year-old retired barber suffering from Alzheimer's disease should serve as a warning to the friends and relatives of elderly people about the surprising ease with which some older homeowners can be exploited financially. The elderly are victimized to the tune of $2.6 billion a year, according to a recent report from MetLife's Mature Market Institute. And that's a conservative guess because it has been estimated that only one in 25 cases of financial abuse is ever reported to authorities.

Falling home prices have forced the government to ask Congress for a $798-million taxpayer subsidy to prop up a program that lets senior citizens tap the equity in their homes. The government said the Federal Housing Administration needs the money to support a program that lets homeowners older than 62 obtain reverse mortgages, which allow borrowers to convert equity to cash without making payments until they die or sell their home. Interest is then due. But with the housing market in a slump, participating lenders may not be able to collect the full loan amount from some borrowers.

Four years ago, Prestonia Morgan faced a financial crisis after her husband died of a stroke. Morgan didn't know whether she and her disabled daughter would be able to remain in their home, because they were losing part of her husband's pension and other retirement benefits. Morgan eventually solved her financial problems by taking out a reverse mortgage guaranteed by the Department of Housing and Urban Development's Federal Housing Administration.

Re: "Stimulus package drives demand for reverse mortgages," April 15: I'm glad to see that the government has considered reverse mortgages in the stimulus package. But still not enough has been done. This has been one of the biggest rip-offs in the banking business -- and directed at seniors, which is inexcusable. The biggest problem with the reverse mortgage is not the exceedingly high origination costs, the maintenance costs or the low ceiling on loans, but the fact that there is no fixed interest rate.

Their retirement accounts flattened by the sour economy, older homeowners are increasingly turning to so-called reverse mortgages -- the sometimes expensive loans that don't require payments until the borrower sells the home or dies. The Federal Housing Administration insured 11,261 reverse mortgages in March, a jump of 17% from the same month last year.