Michael Pinter

There has been so much negative press about Reverse Mortgages lately. Most of it comes form a few mortgage brokers that are selling people deferred anuities with Reverse Mortgages. In my opinion anyone who sells a senior a deferred annuity should be beheaded or at leat put into prison.

Unfortunately, the bigger picture, which consists of an over 90% satisfaction rate, is not being portrayed in the media. The problem, I believe, is that most reporters already have most of the common misconceptions about the product. The amount of misinformation is staggering. To counter all of this, I wanted to reiterate why Reverse Mortgages are so great:

1) For any homeowner 62 or over who has significant equity in their home and a financial need, a reverse mortgage is probably the best place for them to get the funds they need. See my earlier post on why they are worth their addisional costs.

2) A Reverse Mortgage has a built in annuity feature with its tenure payment option. this means that a senior can get a monthly check from the lender every month, for as long as they live in the home, EVEN if they clearly owe more than the property s worth.

3) A Reverse mortgage is a great hedge against your property value falling because it is a NON-RECOURSE loan. This means that the lender can NEVER come after the borrower or their heirs for any shortfall. The lender can only collect the value of the property.

4) A Reverse mortgage is the only product that has a line of credit that grows and compounds. This means that the unused portion of your line actually gets larger, giving you more avavilable funds as time goes by. This can act as a hedge against other losses such as stocks or bonds.

I was listening to Donald Kohn, the vice chirman of the Federal Reserve on the radio yesterday. I'm guessing that he is probably very smart. He definitely understands the financial markets, but most of his speech was about the housing market. He said two things that I thought were interesting: 1) at the end of this year, the glut of unsold houses will be worked through and the housing market will improve 2)if the housing market is actually worse than he predicts, the economy can be greatly negatively affected.

The latter statement is correct. The former is not. Here's why:

1) The dirty little secret about the housing market is that dozens of thousands if not hundreds of thousands of homes that are in foreclosure were done fraudulently with straw buyers. There are NO government programs or lender programs that will do anything to remedy this situation. The borrowers can't be reached and even if they could, they have no interest in the property either. What is happening with these properties is that they are being sold at deep discounts to distressed debt buyers and will have to go through the foreclosure process before they are sold again at slightly higher prices than they were purchased for. In many states this will take more than twelve months.

2) Many homeowners in distress and potential home buyers know about #1. This means that if you can't pay your mortgage today, and you hear about what is going on around you; you may decide to work out a short-sale with the lender and a new lowball price will get recorded for everyone to see. OR if you are waiting to buy and you realize that lowball short-sales are going on in the neighborhood you are looking at, you can wait for an even lower price. Buying now would probably not be a great idea.

3) This whole process of identifying the straw buyer loans, packaging and selling them to distressed debt buyers, the lengthy foreclosure process and subsequent sales is JUST BEGINNING. It will take the rest of 2008 just to get through the first two steps. It will take 2009 and some of 2010 to get hrough most of the foreclosures and then in 2011, maybe, things can start to get better.

The bottom line is that literally millions of foreclosure properties are selling at tremendous discounts, and because of this, there is no way that the housing market can make its turn for the better anytime soon.

Why NOW is the time to take a Reverse Mortgage

There are a few compelling reasons to take a Reverse Mortgage right now as opposed to waiting:

1) Reverse Mortgage Interest rates are at their lowest EVER. The amount that you qualify for depends on three factors, age, value of the property and the interest rate. Rates for some products are below 4 Percent! Rate will probably not be this good for a long time.

2) The proliferance of new products gives many borrowers many more choices than they ever have had. Many of these products may not be offered in the future and some lenders have already started to phase some products out.

3) Home prices are going down in the vast majority of the country. This means that taking a loan (where you make no payments) should be done as soon as possible or you will probably get less in the future. Obviously, refinancing a regular first mortgage shgould also be done as soon as you can, but for Reverse Mortgages, where your monthly payment FROM the lender(if you choose this method) is set forever at closing, there are big consequences in a declining home market.

I was going to post today why I believe that the "housing crisis" is going to get worse for a few more yaers, but it is too long for today. I'll post it tommorow.

Why Reverse Mortgages are the most rewarding aspect of my life.

I have been in the mortgage business for over ten years. I have been honest and I have helped many people buy and refinance their homes and it has been great. BUT, for the past two years, I have been specializing in Reverse Mortgages and it has made a dramatic change in how I look at what I do and what it does for me. Let me explain why Reverse Mortgages are so different:

1) Reverse Mortgages are for seniors who have a financial need. This can be as simple as not having any savings and wanting a "cushion" or it can be as serious as they're about to be evicted due to foreclosure. When you can help someone out in a meaningful way, it is unbelievably rewarding.

2) The Reverse Mortgage process is much longer and intimate than most forward mortgage transactions. I have gotten much closer and deeper into many of my Reverse Mortgage clients lives. Many of them have taught me a lot about life and what is important to all of us in our later years.

3) There is usually much less negotiation or bargaining in the Reverse Mortgage process. While the fees may be perceived as high (see my earlier post on why they are worth it) but they are pretty uniform throughout the industry. This allows for more time to connect with my clients on a personal level and this stands in constrast to of some of the inherent distrust that exists for some forward mortgage transactions where the clients are looking to get a better rate or lower their closing costs and are comparing you to your competition.

4) The latest survey shows that over 90% of Reverse Mortgage borrowers are satisfied. This is light years ahead of any kind of response for forward mortgages. Having happy clients who contact you well after the closing is really a great thing.

I'm sure there are more reasons, but that's all I have for today. Tune in tommorow.

How do Reverse Mortgages work when used to Purchase a home?

This is a question that I get a lot (very often from Realtors.) The way that a Reverse Mortgage works for a purchase is that the buyer (who must be 62 or older) uses the proceeds for the purchase much like a regular 'forward' mortgage. Here are the differences between a forward mortgage purchase transaction and a Reverse:

First the Bad:

1) The maximum Loan To Value (LTV) will probably be 50 or less. This is COMPLETETLY DEPENDENT ON AGE. Right now at 80 years old the LTV is about 50. at 62 the LTV is about 35 and at 95 the LTV is about 60. These vary a little from lender to lender. Usually this is good for someone down-sizing who was planning to close all cash, and now they can keep a big chunk of what they thought they were going to spend.

2) Closing costs will be slightly higher than a traditional forward mortgage

3) Interest will be accruing and the loan balance will be growing as time goes by.

Now the Good:

1) The buyer will never have to make a monthly payment for as long as live in the home.

2) Reverse Mortgages can be used for Co-ops, Condos, PUD's and even for the purchase of second homes.

3) The Reverse mortgage can also provide a growing line of credit (if all of the available proceeds are not used.)

In summation: Reverse Mortgages for purchases are not for everyone. Typically, they are for older buyers who were planning on putting all of the proceeds of a sale into a new property. Very often, what they want is not to have any future monthly payments and they think that they need to sacrifice the security of retaining some savings. A Reverse Mortgage can give them both: no monthly payments and keeping some savings to feel financially secure.