The Wall Street Journal published a great article about Reverse Mortgages today entitled: "Seniors Drawn to Mortgages That Give Back." In it, Nick Tirimaos writes that many people are taking Reverses and how they have helped so many. He also writes that the potential for government losses from loans that are woth more than the value of the home are possible in the future, but unknown today. It is a great piece and, as I have said before, the general tone in the media has improved greatly since last November when Reverse Mortgage provisions were included in the stimulus bill. The link to the article is below:
http://online.wsj.com/article/SB124459828244500783.html
Most people do not understand that Reverse Mortgages are Non-Recourse loans. That means that if the loan grows larger than the value of the home when the loan terminates (because of sale or death) the lender has to eat the difference. If the opposite occurs and the loan balance is less than the value of the home, the borrowers or their heirs keep the difference.
The lender can only collect the value of the property (upon termination,) they cannot come after the borrowers or their heirs for one dollar, once the property is sold.
Now that we've established that Reverse Mortgages can help many people in foreclosure and that for many of them, a Reverse Mortgage may be their only option to save their homes, the big issue is how to deal with the shortfall between what they qualify for and what they owe.
Right now, I am actively negotiating with several lienholders (both first liens and second liens) to accept a short pay-off that they will get from the proceeds of a Reverse Mortgage. This is not an easy process and every lender is different. Some are much more amenable and some are very difficult. In many of these cases, since the loan is in serious default already, the lender will gladly take the sure thing payoff of a Reverse Mortgage over the possibility of a short-sale that may not happen for one of a million different reasons.
This is obviously a big part of the process and it can be very time consuming, but many lenders in many situations will work with the borrower or their representative to come to a solution that works for everyone.
Continuing the theme of using a Reverse Mortgage to save a home from foreclosure - the first issue is really the fact that for many people in foreclosure who should be helped (you can read my earlier posts to see why I believe over 80% of the current foreclosures should not,) a Reverse Mortgage is the ONLY viable option that they have.
Most homeowners in foreclosure cannot qualify for any kind of refinance. Most modifications do not really help anyone out.
Any homeowner 62 or over automatically qualifies for a Reverse Mortgage. The only question is: How much do they qualify for? This brings us to the biggest issue that comes up when we use a Reverse Mortgage to save a home from foreclosure - What if they don't qualify for enough.
Tommorow I will discuss how we deal with the shortfall.
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THE Reverse Mortgage Blog
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