News:  Reverse Mortgages Feel the Squeeze In a letter to reverse-mortgage lenders Sept. 23, FHA Commissioner David H. Stevens said his agency must reduce the maximum amounts seniors can receive on reverse mortgages because of an estimated budgetary shortfall of $798 million in the program for the coming fiscal year. Mortgage industry representatives said the move amounts to a 10 percent cutback for all new FHA reverse-mortgage applicants starting Oct. 1. Borrowers who already have FHA reverse loans will not be affected.  More Info  What is a Reverse Mortgage?   A reverse mortgage is a government insured loan program that allows senior homeowners who are at least 62 years old to convert a portion of the equity in their home into usable cash.    You do not have to income qualify, You do not have to have good credit or any credit, Your homes does not have to be free and clear of a home loan, You do not pay income taxes on any payments you receive from the reverse mortgage, There are no other tax consequences, You do not forfeit any of your rights as the homeowner, You never have to move if you don't want to for the remainder of your life, You receive monthly payments as long as you live in the home, You can take a lump sum payment and smaller monthly payment, You or the heirs of your choosing decide when or if the home is to be sold, And, when the loan is repaid 100% of the remaining equity belongs to you, your heirs or your estate.  However, your heirs would be required to pay off the outstanding balance on the reverse mortgage within six month's of your death or the lender has the right to foreclose and wipe out your heirs. How much loan can you get? Reverse Mortgage Calculator  Gather loan estimates from two nationwide reverse mortgage programs. See it in Spanish: Calculadora de hipotecas revertidas The concept is simple. Unlike ordinary home equity loans, a HUD reverse mortgage does not require repayment as long as the home is the borrower's principal residence. Lenders recover their principal, plus compounded interest, when the home is sold. In the event the sales proceeds are insufficient to pay the amount owed, HUD will pay the lender the amount of the shortfall. HUD's Federal Housing Administration (FHA) collects an insurance premium from all borrowers to provide this coverage. The pitfalls. Before obtaining the loan, borrowers are required to speak with a reverse mortgage counselor who has been certified by the Department of Housing and Urban Development. (A list of approved counselors is available on HUD's website.) But in a report released in late June, the Government Accountability Office found deficiencies in HUD's counseling efforts. Although counselors in general provided accurate information about the main features of the product, they overlooked some key details. For example, seven of the 15 housing counselors the GAO examined failed to discuss with borrowers all of their alternatives to reverse mortgages.  That's significant because in many cases, a reverse mortgage isn't the best option. A typical reverse mortgage will have more than $20,000 in upfront fees. anyone planning to change residences within a year or two should probably stay away. (And such fees can make products like home equity lines of credit less costly).  And by dipping into their home equity, reverse mortgage borrowers may be less likely to bequeath their property when they die. As a result, the loan might not be such a great idea for homeowners whose properties have been in their family for generations, says Christopher Fanney, the president and CEO of Seniors First Mortgage Company, which specializes in reverse mortgages. "A reverse mortgage is more of a last-resort kind of option," says David Certner, the legislative policy director for AARP. "It's generally for somebody who is older [and] plans on staying in their home for a longer period of time; they have a lot of equity tied up in the home but not much, if anything, in the way of other resources." Reverse mortgage proceeds should be managed with extreme prudence because in many cases, the cash represents the bulk of the borrower's net worth. "The thing that people should not be doing with a reverse mortgage is trying to create wealth," says Lewis of Generation Mortgage. "Don't tap your house and go out and buy equity-indexed annuities or invest in your uncle's dry-cleaning store." The senior may be required to do deferred maintenance on the home as a condition of getting this loan. Interest on the reverse mortgage compounds monthly on the amount seniors take, whether that be monthly or in a lump sum.  There is also a monthly service fee of $35 or more In addition to the upfront mortgage insurance to protect the lender there are additional monthly mortgage insurance charges monthly. If your spouse is not on the reverse mortgage and you pass away, your spouse will have to immediately vacate the home. If a bad element moves in around your house or your neigborhood declines you cannot move unless you pay off the reverse mortgage and the accumulated interest and fees, which may not leave you much or any money to buy something else.  And if your monthly income is limited you may not qualify to rent an apartment.  You would then have to live with relatives or friends. My advice to any senior considering a reverse mortgage to think long and hard about the long term implications that come with a reverse mortgage.  There may be better choices for you such as selling your home and moving into a senior complex or a senior mobile home park where you are with other people in the same time of life. I have represented the heirs of seniors who have sold their deceased parents' home that had a reverse mortgage on it.  In all cases the heirs have said they feel the reverse mortgage takes unfair advantage of seniors.

Senior Alerts Reverse Mortgage Seduction  More Info Abuses found in reverse-mortgage marketing - San Francisco Chronicle "We're seeing some of the same types of abuses that happened in the subprime market - perverse incentives to sellers, deep-pocket players, taking a product designed to fill a particular need for a particular group and pushing it as a commodity loan," said Rick Jurgens, a contributing author of the report from the National Consumer Law Center, a Boston nonprofit that represents low-income people. Reverse-mortgage industry comes under scrutiny Subprime sharks circle reverse mortgages Reverse-mortgage boom raising concerns on potential pitfalls Reverse mortgage abuses hurt elderly   Yes, you can lose your home In its investigation, the GAO found that certain reverse mortgage marketing materials contained potentially misleading statements. One of these claims was that the product allows borrowers to "never lose [their] home." That's not exactly true: While a reverse mortgage relieves a borrower of monthly mortgage bills, the borrower is still responsible for other costs. "Failure to [pay] the property taxes or insurance can result in foreclosure," says John Snyder, the manager of foreclosure programs for NeighborWorks America. Unlike other mortgage products, reverse mortgages do not have a requirement for associated taxes and insurance costs to be escrowed—or set aside in a separate account—to ensure payment. That means reverse mortgage borrowers must budget enough cash to cover these costs. If illness strikes, seniors may put off paying property taxes and/or insurance premiums due to medical expense pressures or physically unable to handle their financial affairs properly. A reverse mortgage borrower can also lose his or her home for not maintaining the property itself. As a result, a would-be borrower should be sure to have enough money set aside to mow the lawn, trim the hedges, and take care of any home repairs that may become necessary. Do Some Homework... Fewer people are getting reverse mortgages now because of the drop in home values because only a portion of the equity can be tapped.  Be sure to ask questions, check facts and figures and contact AARP, the American Association of Retired Persons for tips that can help. AARP's info on reverse mortgages 5 Questions To Ask Before Considering a Reverse Mortgage More Info Alternatives to a Reverse Mortgage