Comments on: The Good, The Bad, and The Reverse Mortgage http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/ Financial Advice.... with a hint of Free Market Politics Wed, 20 Aug 2008 08:51:41 +0000 http://wordpress.org/?v=2.5.1 By: Bgaston http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-3598 Bgaston Mon, 30 Jun 2008 14:25:49 +0000 http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-3598 hmmmmm, seems to me that you RM professionals somehow talk elderly people into going back into debt, when they were debt free, or nearly debt free. I was curious to find out the "cost" of borrowing this money. I found this... http://www.daveramsey.com/etc/realestatecenter/index.cfm?FuseAction=dspContent&intContentID=9314 here is what he says, The truth about reverse mortgages Many elderly people in need of money look at getting a reverse mortgage. Reverse mortgages are very dangerous, especially for elderly homeowners. Reverse mortgages are very expensive and promise an uncertain amount of benefits. For example, a typical reverse mortgage may provide a home owner $300 per month with a monthly compound interest rate of 1%. Over 10 years, the home owner receives $36,000 but will owe close to $70,000 – almost twice as much received! Also be aware that these loans have complex contracts and can even include “additional interest” clauses. These clauses can allow the lender to keep all future property gains should the property appreciate before the loan is paid in full. Do yourself a favor and stay away from reverse mortgages. If you have a family member considering a reverse mortgage, convince them otherwise. Seems really expensive to me!! hmmmmm, seems to me that you RM professionals somehow talk elderly people into going back into debt, when they were debt free, or nearly debt free. I was curious to find out the “cost” of borrowing this money. I found this…
http://www.daveramsey.com/etc/realestatecenter/index.cfm?FuseAction=dspContent&intContentID=9314

here is what he says,
The truth about reverse mortgages
Many elderly people in need of money look at getting a reverse mortgage. Reverse mortgages are very dangerous, especially for elderly homeowners. Reverse mortgages are very expensive and promise an uncertain amount of benefits.
For example, a typical reverse mortgage may provide a home owner $300 per month with a monthly compound interest rate of 1%. Over 10 years, the home owner receives $36,000 but will owe close to $70,000 – almost twice as much received! Also be aware that these loans have complex contracts and can even include “additional interest” clauses. These clauses can allow the lender to keep all future property gains should the property appreciate before the loan is paid in full.

Do yourself a favor and stay away from reverse mortgages. If you have a family member considering a reverse mortgage, convince them otherwise.

Seems really expensive to me!!

]]> By: Max http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-3223 Max Mon, 23 Jun 2008 01:35:49 +0000 http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-3223 Please keep these excellent posts coming. Please keep these excellent posts coming.

]]> By: s http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-3036 s Thu, 12 Jun 2008 03:40:09 +0000 http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-3036 Reverse mortgages aren't bad in and of themselves, if the borrower understands the terms of the loan. Like just about any financial tool, it's a double edged sword. Boach either didn't know, didn't remember or perhaps wasn't told in clear terms what her loan meant. Generally would-be borrowers are required to undergo financial counseling on the matter. I feel for the poor woman, but that's why they say 'caveat emptor.' Reverse mortgages aren’t bad in and of themselves, if the borrower understands the terms of the loan. Like just about any financial tool, it’s a double edged sword. Boach either didn’t know, didn’t remember or perhaps wasn’t told in clear terms what her loan meant. Generally would-be borrowers are required to undergo financial counseling on the matter. I feel for the poor woman, but that’s why they say ‘caveat emptor.’

]]> By: The Good, The Bad, and The Reverse Mortgage http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-1677 The Good, The Bad, and The Reverse Mortgage Sun, 27 Apr 2008 19:18:19 +0000 http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-1677 Debt Prison presents The good, the bad, and the reverse mortgage. Debt Prison presents The good, the bad, and the reverse mortgage.

]]> By: 2paupers » Blog Archive » Carnival of Living Cheaply - April http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-1103 2paupers » Blog Archive » Carnival of Living Cheaply - April Wed, 02 Apr 2008 02:35:36 +0000 http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-1103 [...] Bass presents The Good, The Bad, and The Reverse Mortgage posted at Debt Prison, saying, “A financial decision involving hundreds of thousands of [...] [...] Bass presents The Good, The Bad, and The Reverse Mortgage posted at Debt Prison, saying, “A financial decision involving hundreds of thousands of [...]

]]> By: Searchlightcrusade.net http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-870 Searchlightcrusade.net Thu, 13 Mar 2008 21:31:46 +0000 http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-870 Despite misinformation about deferred annuities, I'm going to give a strong recommendation to "The Good, The Bad, and The Reverse Mortgage". The author doesn't know nearly as much about deferred annuities as they think they do. For instance, NASD rules explicitly prohibit investing with borrowed money, so only a fixed deferred annuity is possible. The so-called "Equity Indexed Annuity" is the prime culprit in these schemes, and there have been recent rulings making those substantially more difficult to sell without an NASD license that puts the seller under the purview of NASD rules. Any of these instruments can still be annuitized without penalty, so the money is not out of reach. I could go on, but the primary thing here is the reverse mortgage - on which I agree completely. If you think you have a need the reverse mortgage, you are so much better off "swapping down" or even just selling completely that I have yet to find a scenario where a reverse mortgage makes financial sense for the client. Selling the family home, that your kids grew up in, can be emotionally difficult, I know. However, RAMs are costly, high interest rate loans, and the numbers speak eloquently against them. But since they're high commission products also, people interested only in a commission check will try to sell them - and they're often not telling "The truth, the whole truth, and nothing but the truth." I have in the past made jokes along these lines Q: How do you know someone trying to sell a RAM is an unethical shark selling an overpriced worthless product? A: By the fact that they're trying to sell a RAM! Despite misinformation about deferred annuities, I’m going to give a strong recommendation to “The Good, The Bad, and The Reverse Mortgage”. The author doesn’t know nearly as much about deferred annuities as they think they do. For instance, NASD rules explicitly prohibit investing with borrowed money, so only a fixed deferred annuity is possible. The so-called “Equity Indexed Annuity” is the prime culprit in these schemes, and there have been recent rulings making those substantially more difficult to sell without an NASD license that puts the seller under the purview of NASD rules. Any of these instruments can still be annuitized without penalty, so the money is not out of reach. I could go on, but the primary thing here is the reverse mortgage - on which I agree completely. If you think you have a need the reverse mortgage, you are so much better off “swapping down” or even just selling completely that I have yet to find a scenario where a reverse mortgage makes financial sense for the client. Selling the family home, that your kids grew up in, can be emotionally difficult, I know. However, RAMs are costly, high interest rate loans, and the numbers speak eloquently against them. But since they’re high commission products also, people interested only in a commission check will try to sell them - and they’re often not telling “The truth, the whole truth, and nothing but the truth.” I have in the past made jokes along these lines

Q: How do you know someone trying to sell a RAM is an unethical shark selling an overpriced worthless product?

A: By the fact that they’re trying to sell a RAM!

]]> By: Debt Prison http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-833 Debt Prison Sat, 08 Mar 2008 22:31:40 +0000 http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-833 Hey Corey - Thanks for your input - actually the USA Today article repeats what you priced as the fees of $11,000 or so - that's why I provided links to two different sources - I'm sure consumerlaw.org had their reasons for conjuring up the $25,000 - just not sure how they got to that figure. Like you - what really bothers me is financial advisors requesting America's seniors take out a reverse mortgage to make investments of sorts - that's the real problem with all of this, which is why that's the first thing I attacked in the opening paragraph. However, for a senior citizen who is cash poor and really needs some help - a reverse mortgage can be a welcomed option. Once again thanks for both your comments and have a Great Day - Knowledge is just what the doctor ordered!!! Hey Corey - Thanks for your input - actually the USA Today article repeats what you priced as the fees of $11,000 or so - that’s why I provided links to two different sources - I’m sure consumerlaw.org had their reasons for conjuring up the $25,000 - just not sure how they got to that figure. Like you - what really bothers me is financial advisors requesting America’s seniors take out a reverse mortgage to make investments of sorts - that’s the real problem with all of this, which is why that’s the first thing I attacked in the opening paragraph. However, for a senior citizen who is cash poor and really needs some help - a reverse mortgage can be a welcomed option. Once again thanks for both your comments and have a Great Day - Knowledge is just what the doctor ordered!!!

]]> By: Corey Matelli http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-831 Corey Matelli Sat, 08 Mar 2008 22:22:03 +0000 http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-831 OH, one more thing! (sorry). In a recent study put out by AARP, 93% of borrowers and 75% of non-borrowers reported they were satisfied with their experience with lenders. It's also worth nothing that 93% of existing borrowers reported that their reverse mortgage had a "mostly positive" effect on their lives. This is juxtaposed by 3% who noted it as "mostly negative". You may read more on this study here: http://www.aarp.org/research/credit-debt/mortgages/inb999_revmortgage.html OH, one more thing! (sorry). In a recent study put out by AARP, 93% of borrowers and 75% of non-borrowers reported they were satisfied with their experience with lenders. It’s also worth nothing that 93% of existing borrowers reported that their reverse mortgage had a “mostly positive” effect on their lives. This is juxtaposed by 3% who noted it as “mostly negative”.

You may read more on this study here:

http://www.aarp.org/research/credit-debt/mortgages/inb999_revmortgage.html

]]> By: Corey Matelli http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-829 Corey Matelli Sat, 08 Mar 2008 22:13:36 +0000 http://debtprison.net/wordpress/94/the-good-the-bad-and-the-reverse-mortgage/#comment-829 Thank you for this article. I am a Reverse Mortgage loan officer, so as an expert in the field, I want to add my 2 cents. I'm not here to "sell" anything, only to educate. Knowledge is power, and I believe in empowering people. There are many things you write with which I agree, and some (I'm sure unintentional) inaccuracies in it, as well. I'd like to point some things out. First, where I agree. I have written many articles which strongly say what you have about running (not walking) away from anyone who suggests you obtain a RM for the purpose of securing deferred annuities. Whether it is an insurance professional or a RM professional, anyone suggesting you obtain a RM for this should be avoided. Now about the inaccuracies. <i>“Reverse mortgages are high-cost loans. Origination fees and insurance premiums typically eat up $25,000 or more of the total proceeds of a common reverse mortgage on a $250,000 house"</i> This is simply untrue. Grossly untrue, to be frank. In the case of a 62 year old, their RM would pay them over $138,000, after fees. This means that not only will it retire their current mortgage, but give them over $38,000 as a line of credit, lump sum, monthly payments, or any combination of the three. The quote above misrepresents the closing costs by more than 54%. The <i>actual</i> closing costs would be about $11,600. I know, that's still not cheap, but nothing like the ridiculous claim above. If you could pay $11,000 to get $138,000, wouldn't you? That leads to the concern about the interest and long term affect. The downside you see is due to the fact that there are no monthly payments. However, the beauty that the vastly satisfied reverse mortgage borrowers find is the fact that there are no monthly payments. If that same hypothetical 62 year old lived until they were 100 and took out no more than the $111,600 that was their initial balance, their balance after 38 years would be in the neighborhood of $700,000. That sounds astronomical, doesn't it? But there are a couple things to consider. One, most people don't live that long. Also, it's likely that their home will appreciate in value between now and then. Should their home be worth less than the loan balance when they're no longer in the home, the lender can only collect the fair market value of the home. If the heirs want to keep the home, they may secure their own financing, just like any other lien against the property. In closing, you provided the link to the story in USAToday from about 45 days ago. You will find my comments beneath that article as I engaged in conversation in its wake (I'm identified as "ForwardByReverse" in the comments). You've no doubt heard the phrase, "if it bleeds, it leads". Meaning of course, where there are victims, real or perceived, it's going to make good headlines. The story here is definitely a sad one, and worth noting. However, it is also worth nothing that Mrs. Boach was duped by her so-called financial adviser, not by the reverse mortgage, itself. <i>"An adviser urged her to take out a reverse mortgage, available mainly to those 62 and older, and use the money to buy deferred annuities."</i> I return to what I said in the beginning, and what you'll see in my own articles. No one in the reverse mortgage lending world should <i>ever</i> refer, offer, imply, suggest or otherwise lead anyone into using their proceeds for the purchase of deferred annuities. In fact, your RM officer should specialize and focus on just that, reverse mortgage. Of course, the money is yours, and you can spend it on whatever you need/want. But that's <b>your</b> decision. I agree with you that one should seek counsel from whomever they trust. I have never, and will never offer a reverse mortgage to anyone who would not genuinely benefit from it. The situation must be right, and the borrower must understand how the program works. If you have further questions, I welcome your comments. Thank you for this article. I am a Reverse Mortgage loan officer, so as an expert in the field, I want to add my 2 cents. I’m not here to “sell” anything, only to educate. Knowledge is power, and I believe in empowering people. There are many things you write with which I agree, and some (I’m sure unintentional) inaccuracies in it, as well. I’d like to point some things out.

First, where I agree. I have written many articles which strongly say what you have about running (not walking) away from anyone who suggests you obtain a RM for the purpose of securing deferred annuities. Whether it is an insurance professional or a RM professional, anyone suggesting you obtain a RM for this should be avoided.

Now about the inaccuracies. “Reverse mortgages are high-cost loans. Origination fees and insurance premiums typically eat up $25,000 or more of the total proceeds of a common reverse mortgage on a $250,000 house”

This is simply untrue. Grossly untrue, to be frank. In the case of a 62 year old, their RM would pay them over $138,000, after fees. This means that not only will it retire their current mortgage, but give them over $38,000 as a line of credit, lump sum, monthly payments, or any combination of the three. The quote above misrepresents the closing costs by more than 54%. The actual closing costs would be about $11,600. I know, that’s still not cheap, but nothing like the ridiculous claim above. If you could pay $11,000 to get $138,000, wouldn’t you?

That leads to the concern about the interest and long term affect. The downside you see is due to the fact that there are no monthly payments. However, the beauty that the vastly satisfied reverse mortgage borrowers find is the fact that there are no monthly payments. If that same hypothetical 62 year old lived until they were 100 and took out no more than the $111,600 that was their initial balance, their balance after 38 years would be in the neighborhood of $700,000. That sounds astronomical, doesn’t it? But there are a couple things to consider. One, most people don’t live that long. Also, it’s likely that their home will appreciate in value between now and then. Should their home be worth less than the loan balance when they’re no longer in the home, the lender can only collect the fair market value of the home. If the heirs want to keep the home, they may secure their own financing, just like any other lien against the property.

In closing, you provided the link to the story in USAToday from about 45 days ago. You will find my comments beneath that article as I engaged in conversation in its wake (I’m identified as “ForwardByReverse” in the comments). You’ve no doubt heard the phrase, “if it bleeds, it leads”. Meaning of course, where there are victims, real or perceived, it’s going to make good headlines. The story here is definitely a sad one, and worth noting. However, it is also worth nothing that Mrs. Boach was duped by her so-called financial adviser, not by the reverse mortgage, itself.

“An adviser urged her to take out a reverse mortgage, available mainly to those 62 and older, and use the money to buy deferred annuities.”

I return to what I said in the beginning, and what you’ll see in my own articles. No one in the reverse mortgage lending world should ever refer, offer, imply, suggest or otherwise lead anyone into using their proceeds for the purchase of deferred annuities. In fact, your RM officer should specialize and focus on just that, reverse mortgage. Of course, the money is yours, and you can spend it on whatever you need/want. But that’s your decision. I agree with you that one should seek counsel from whomever they trust.

I have never, and will never offer a reverse mortgage to anyone who would not genuinely benefit from it. The situation must be right, and the borrower must understand how the program works. If you have further questions, I welcome your comments.

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