Show #484 Airing Sunday 7/14/09
Better hide those paper airplanes and swallow those spitballs. Summer school is now in session! Today’s subject? International history! Why in the world do we need this lesson? Betting to the head of the class today requires a world view. And joining us is our mortgage historian– Mark King – who has a four year history with Golden Opportunities (almost tenure)! Mark is a reverse mortgage consultant with Wells Fargo.
Question: Okay, professor, let's start with an obvious question - what in the world does the history of reverse mortgages have to do with my audience's financial security today?
Answer: Many people think that reverse mortgages are a new creation of clever American bankers. They may also believe that they are not thoroughly tested.
The truth is Europeans used Equity Release Mortgages for many years to finance their “Golden Years.” England, France, Israel, Australia and Ireland are just a few.
The U.S. began using them in the 1960s and made many improvements through the years.
And the improvements made in them can really help seniors who would like a bit more financial flexibility.
Question: Okay, give us the elementary facts about a reverse mortgage.
Answer: It is an open ended home equity loan.
The amount that can be borrowed is based on a HUD Formula that factors in age, home value and interest rates.
Funds can be withdrawn all at once, as a line of credit, or monthly.
The loan is due to be paid back when the senior no longer lives in the home; they have sold, moved in with relatives or passed on.
Their estate then has the option of selling the home and keeping any profit or keeping the home, of course the mortgage would need to be paid back.
Question: What improvements have been made over the years?
Answer: While reverse mortgages have been in the U.S. since 1961, for years they were not regulated. Every lender had their own program. Not all had the best interest of the customer in mind.
In 1989, as a result of a unanimous Act of Congress, the Federal Reverse Mortgage was instituted – a program managed by HUD and federally insured.
This brought consistency and accountability.
Every lender is required to adhere to the program, which was designed with the consumer in mind, including protecting the consumer’s rights.
Question: Since that took effect, what has been the response?
Answer: The response has been very positive.
In 1995, the American Bar Association endorsed reverse mortgages called HECM – Home Equity Conversion Mortgage.
Since then the amount of reverse mortgages has increased dramatically.
In the nineties, there were 8,000 loans written per year. AARP began ordering reverse mortgage counseling in 2000 and since then the number of seniors using reverse mortgages has grown dramatically.
Last April saw a new monthly record of just under twelve thousand reverse mortgages written - that was in just one month.
Question: What's involved in the counseling? And why is it needed?
Answer: The counseling is required for anyone interested in a reverse mortgage. A client must speak with a HUD certified reverse mortgage counselor – and AARP is one of them. This supports the HUD goal of putting the consumer first.
Question: So, you said all of this history could help seniors today. How?
Answer: That’s right. More and more seniors are living with a mortgage payment and monthly credit card debt.
One of the most common statements that I’ve heard from our area seniors is: “If I did not have this mortgage payment, we would live a lot more comfortably.”
A reverse mortgage can get rid of monthly payments that are weighing down many of our area seniors, because debt is repaid from your estate.
And the president of Ginnie Mae has stated that he believes more and more financial planners will be getting this request from their clients as they look to handle their retirement income.
Question: How have you seen seniors use reverse mortgages?
Answer: Most seniors use reverse mortgage to pay off existing mortgages, thereby riding themselves of the monthly payment…greatly easing financial pressures.
If they don’t have an existing mortgage, proceeds can be drawn monthly……again this eases financial pressure, making for a more comfortable retirement.
I have also seen grandparents use a reverse to pay off student loans for their grandchildren, or help their own children.
Reverse mortgages are an excellent option but you need to be a good student and study the facts. Mark will be happy to tutor you. His information is next. And now - class is dismissed.
