Letters to the Editor
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Yes I said this months ago
Mortgage companies are going into senior care and health care in a big way. They will sell you loan then siphon off the value directly into their own health care firms that are ready to provide care for you 'in your own home', which the resident really no longer owns.
Should be fun to watch mortgage companies evict sick people when they run out of healthcare. I will be laughing as I put on my blue Walmart greeters vest and don't starve.
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Reverse Mortgages
Reverse mortgages really confuse me. It sounds like free money, but I know that nothing in life is free. So I've always wondered how is this "free" money to be paid back? Wells Fargo says on their web site:
"With a Reverse Mortgage, the homeowner borrows small amounts - monthly or at other intervals through a line of credit. Over the course of time, the loan balance gets larger, and equity gets smaller. The balance due can come from home sale proceeds or from other resources, such as savings, insurance, or possibly applying for a new mortgage. There is no requirement that the home be sold, only that the loan be repaid. Ask a reverse mortgage consultant for details about when repayment may be due."
The last line conjures up images of a Snidely Whiplash like character twiddling his mustache with a "Pay Due In Full" bill in his hand. ("Nyah-ha-ha!") It all sounds way too loosy goosy to me and, as Andrew says, ripe for abuse. Even if selling the house is the only solution, in today's market it's really not a solution at all. Thus, seniors and their heirs could be stuck with a very nasty loan on their hands that will prove difficult to pay off.
I congratulate the Senators for asking pointed questions about this program, but they need to go farther. Large education programs about these loans need to be launched so that people have all the facts at their disposal. And then, regulate it like a hawk.
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Reverse Mortgages have their upside
The item of concern I believe is whether the loan is recoursing or not. A recoursing loan has to be paid off I believe. (Although I might have definitions reversed) If you hold such a loan and the value of the home doesn't match the obligation on the loan, then the borrower has to make up the difference, and that constitutes a lien against the estate.
Otherwise these loans often make a lot of sense. Where can you borrow a couple hundred thousand against a house that might only be worth half that much ten years from now? Especially if the loan does not imply repayment.
Also some loans let you take the cash, which is a good idea, because when these companies go broke lending money on real estate whose value has collapsed they are going to stop making payments.
The salient point on these loans, like ReFis in general, is what are you going to do with the money? Should you reinvest the equity in your home, in Treasuries, and home prices decline, you have done yourself a big favor.
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There's a Great Movie in this ..
Sorry - a bit off topic, but from the first time I heard about reverse mortgages, I've always had this movie script in my head for a suspense/thriller about some evil mortgage holding firm hiring hit men to do-in the elderly that are holding their reverse mortgage accounts and living past their life expectancies and the firms get desperate to "liquidate" their holdings. And, HUD would be in on the plots.
I'm thinking Clint Eastwood and maybe Jane Fonda, uncovering the truth and exposing the evil bankers at their own peril. Sort of Dirty Harry meets On Golden Pond meets The Firm.
Don't you think that would be great?!
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Huh?
Nulla, as it is, Medicare mandates that you cannot receive government-paid LTC so long as you own your home or have equity resulting from the sale. What's the difference?
Also, I'd be very surprised is the FHA was behind that reverse mortgage with $16,000 in fees, the FHA generally caps what brokers can charge in direct compensation on home loans; for example, an origination fee charged to the borrower cannot exceed 1% of the loan amount.
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Stupid testimony
There were also many problems with that testimony about the 80 year old woman. First, about that equity built up "one buck at a time" over the years--so, none of that value came from unearned appreciation during the real estate boom of the past twelve years? Hmm--but I'll skip that tearjerking rhetoric for the moment.
"Finance charge" equals interest. Would there be no interest on the home equity loan? I doubt it. What rate would that be? And would that be fixed or, like all HELOCs, adjustable? And what were the caps set on that loan? Another thing--ALL home loans have interest compounded daily, including HELOCs. Also, HELOCs are now harder to get and require evidence of ability to repay the loan; reserve mortgages do not.
Finally, can you explain how ANY annuity requires anyone to reach age 100, the actuarially determined age of probable certain death, to get a cent of their money after age 62?? As a formerly licensed life, health and DI licensed agent with a Series 63 license to sell annuity instruments, I can state as an expert that is not the case whatsoever. Annuities pay out a monthly income and can be invested in municipal bonds; but whereas before she was only receiving dividends, she would now be receiving both dividends and principal, which at age 80 she should be getting!
If you want to call your column "How the World Works", please do a little research as to how it works before posting such inflammatory non-truths.
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Don't trust your financial advisors, trust us
I had to read that section twice because I couldn't believe what I was reading. Then there is the reassurance that it doesn't actually cost anything to do this. The very nicely confused the issue of how this mortgage is actually paid for. I read that twice and I'm still not sure exactly who pays for what. The part about taking out a reverse mortgage even if you don't need the money was also priceless. Reading this really helps me to understand how so many people were tricked into taking out mortgages that were totally inappropriate for them. This brochure, printed material, reads like a con, and I can only imagine what kinds of things are being said in person. I had actually considered a reverse mortage for my mother, but at this point I will strongly recommend that she not consider this option until it is more widely regulated.