Reverse Mortgages

[1911Sooner]

No, it's a great illustration of David Ramsey's "summary."

Where's the David Ramsey alternatives? I seemed to have missed those. What's his solution, to say the scenario I posted above about the couple wanting to continue to live in their home? What's his solution?

Well I recently went through FPU so I can somewhat speak on behalf of him. He suggest to rent and save up for a house. In 4-7 years you could even pay cash for a house. Think about that. He does say it's okay to take out a 15 year only fixed loan only if need be. However your payment should never be more than one fourth your take home pay.

 

[MaddSkillz]

So Madd, I got a question.

From the Dave Ramsey summary:

The U.S. Government Accountability Office last year found dozens of misleading marketing claims about reverse mortgages in materials distributed by several large lenders. We’ve already debunked the first two:

* Never owe more than the value of your home – If your loan exceeds the value of your home, you or your heirs will have to make up the difference if the home isn’t sold when the loan is due.

Do the heirs of the estate become responsible? Because I just don't see how they could be held liable for debt that someone else signed up for.

I can see that a RM would be a quite attractive deal to someone who has no heirs. But to me it seems like the RM companies are horning in on people's inheritance.

No, it's insured by the FHA. The borrower, nor the heirs cannot be held responsible if an upside down situation were to occur.

Say a home appraised for $100k... A RM will give the senior $70k based on their age. Let's say they spend all the $70k and 15 years later they're gone, the home depreciates to $75k but the RM grew to $85k. That's $10k upside down. The FHA insurance (which is one of the fees at the onset of the RM) makes up for it.

 

[MaddSkillz]

I can answer that. IF the heirs have to probate the estate then the ESTATE will have to make up the difference. So, yeah, technically the heirs would lose whatever inheritance they might have had that is equal to the deficiency of the RM.

Now whether a home being leveraged in a RM requires a probate of an estate (and it seems to me the bank would place a requirement in the fine print to protect itself) I am unsure of.

The heirs make up nothing. If the RM eats up the equity they then inherent nothing either.

This is what the FHA insurance is for which is one of the fee's at the onset of the reverse mortgage.

 

[1911Sooner]

Funny I haven't been able to find one article saying what a great idea it is. This one is pretty informative as well....

http://clarkhoward.com/liveweb/shownotes/2009/08/19/16468/

Aug 19, 2009 -- Reverse mortgages continue to be a bad deal for seniors

Reverse mortgages have been very popular as of late with seniors. With a reverse mortgage, an elder gets to stay in his or her home and collect a check each month from the mortgage company.

You essentially turn your house into an ATM. It's been particularly attractive to seniors who can't afford to sell at a loss and are in need of supplemental income.

But what seems good in concept has not been good in reality. Reverse mortgages have historically come with exorbitant fees and expenses. The forthcoming September issue of Consumer Reports has a write-up on why they stink. Keep an eye out for it shortly on a magazine rack near you.

Meanwhile, the Federal Reserve is taking a look at the main part of the mortgage market. There are new proposed rules now open to comment from the mortgage industry through November.

In short, the Fed is trying to force mortgage lenders to lay out in plain English what will happen to you in a loan or home equity line. The proposals would also outlaw kickbacks where lenders purposely put you into a higher cost loan to earn compensation.

Clark hopes the Fed stands up to the mortgage business and doesn't weaken its proposals. We need the industry to have fiduciary duty and work for us, not against us.

And remember to always get several mortgage offers before making a final decision.

 

[BadgeBunny]

The heirs make up nothing. If the RM eats up the equity they then inherent nothing either.

This is what the FHA insurance is for which is one of the fee's at the onset of the reverse mortgage.

Does the lender or insurer of a reverse mortgage typically require that the estate of a deceased person with a reverse mortgage be probated by the terms of the RM contract?

Or if the family of a deceased person with a RM decide not to probate for some reason does the lender or FHA just "eat" the loss?

 

[Glocktogo]

The challenge for the person with the fixed income is managing the spending of the RM funds, probably not wise to go crazy and splurge......

And this is what most likely will happen. If not on toys and extravagant lifestyle, then medical bills and leeching relatives. If they had managed their finances well, they wouldn't be looking at a RM.

HUD and FHA are involved. That's a deflection and not the same as the question I asked. Saying HUD and FHA are "involved" is not the same as saying they sell RM's or control the rates & fees.

And I guess I don't follow the rest of what you're stating about profit-margins. Really? You don't follow that I'm talking about predatory lenders who screwed the system and a whole bunch of greedy, yet ignorant Americans with the housing bubble? And now it looks like they're targeting our elderly as well?

You can put the rest in the growing line of credit so it grows over time. Seriously? I wonder what percentage of RM users are doing that? Have a number to support this outlandish concept? It's not like these people getting RM's can afford to sock that money away in a LOC. If they could, they wouldn't need an RM, would they?

The heirs have a year to determine what to do with the home after the senior passes or moves out. So you're saying that if a 65 year old gets $25K for his equity in the house and lives to be 120, the RM lender will wait till he passes or moves out to take over the home? And you're saying the heirs have a year to determine what to do, do you mean whether to buy the home back from the RM lender? Who sets the price? Got any evidence to support this?

I really don't know what you're getting at but that's as fair an assessment of me not purchasing a blender because I could somehow step in it while it's on the counter and chop my foot up.

That's the best you can come up with? Your responses to this thread are causing me to loose a great deal of respect for you. If you can't answer these hard questions without pitiful deflections, that's a sign that you're working in a less than honorable field and you have no way to defend it.

No, it's insured by the FHA. The borrower, nor the heirs cannot be held responsible if an upside down situation were to occur.

Say a home appraised for $100k... A RM will give the senior $70k based on their age. Let's say they spend all the $70k and 15 years later they're gone, the home depreciates to $75k but the RM grew to $85k. That's $10k upside down. The FHA insurance (which is one of the fees at the onset of the RM) makes up for it. So they take 30% of the home's value up front, then in 15 years if the home appraises for $130K, they take another 30%? Yep, that's a great deal for the homeowner! And who do you think pays for that FHA insurance? Oh yeah, the borrower, not the lender. I love how the lender actually gets the vic..., er, borrower to insure the lender's potential loss.

+1

Reverse mortgages are like payday loans for senior citizens. If you're smart with your money you'll never need one.

Exactly! That the lender is gambling on the borrower's timely death and expecting the borrower to insure their gamble is ghoulish and predatory. Only seniors and terminally ill are targets for this type of lending. It does not entice anyone that is not in financial distress and without options.

 

[RidgeHunter]

Not a fan of the RM but I would rather see a retired person live comfortably than be constantly concerned about paying the bills while living in a house they worked hard to pay for. Screw the kids, they can make it without an inheritance.

Hey hey hey, lets not get carried away. I call my parents place my "401K Ranch".

It seems that my generation is more aware of retirement savings plans and investing than our parents and grandparents were, so hopefully, the RM business will be short lived.

I don't know about that, most of my grandparents generation that I grew up around were smarter with their money than my parents generation. Until they get senile and buy stuff from QVC anyways.

Anybody have any numbers on this? It would be interesting to see who squanders money more, baby boomers vs. old timers. Isn't the averge personal debt (unsecured credit card type stuff) increasing (not in sync with inflation)?
I'm too lazy to search, but just anecdotally speaking all the old timers I have known have done OK with very little. I've known many more baby boomers up a creek while/after making damn good money than low income old timers.

 

[MaddSkillz]

Does the lender or insurer of a reverse mortgage typically require that the estate of a deceased person with a reverse mortgage be probated by the terms of the RM contract?

Or if the family of a deceased person with a RM decide not to probate for some reason does the lender or FHA just "eat" the loss?

There's no probate required.

FHA takes care of it.

Does that answer your questions?

 

[BadgeBunny]

There's no probate required.

FHA takes care of it.

Does that answer your questions?

Yep. Thanks.

I'll get with you on the Medicaid questions as soon as he gets back.

 

[MaddSkillz]

And this is what most likely will happen. If not on toys and extravagant lifestyle, then medical bills and leeching relatives. If they had managed their finances well, they wouldn't be looking at a RM.

That's the best you can come up with? Your responses to this thread are causing me to loose a great deal of respect for you. If you can't answer these hard questions without pitiful deflections, that's a sign that you're working in a less than honorable field and you have no way to defend it.



Exactly! That the lender is gambling on the borrower's timely death and expecting the borrower to insure their gamble is ghoulish and predatory. Only seniors and terminally ill are targets for this type of lending. It does not entice anyone that is not in financial distress and without options.

OMG man! Every RM I did they they put the money in the growing line of credit. Every single one, over the span of the few years I was involved in the industry.

I can tell you, based on your questions you're really behind the curve on this subject. And I don't mean that as a dig, but you're throwing some pretty harsh words my way and they're baseless, really.

You want to me to come with the answer for if someone lives to be 120 years old? Would their name also happen to be Gandolf?