Steve Hawk

Another cool feature about Reverse Mortgages is that they are not credit dependent. Your credit score is not a factor in the decision making process. The loan amount you qualify for will be based on your age (similar to insurance products) and the equity (appraised value of home minus any mortgages and liens on the property) that you have in your home. You can choose the following options:

1. Just pay off your existing mortgage so that you have no more mortgage payments.

2. Pay off your existing mortgage (eliminating that payment) and take a line of credit, to be used when needed.

3. Pay off your existing mortgage and take a lump sum of cash, to be used however you want.

4. Pay off your existing mortgage and take monthy income payments in a fixed amount (similar to an annuity).

If you are struggling with your current monthly financial obligations, or just want to give yourself a more active and stress-free lifestyle, you owe it to yourself to check out a Reverse Mortgage.

Below is an excerpt from an article in today's Wall Street Journal about Reverse Mortgages. While it's important for seniors to be educated about the product to ensure that it's the right financial tool for them, a reverse mortgage is definitely an option that should be explored, in my opinion.

"Here's one segment of the mortgage market that's still hot: federally insured reverse mortgages, which enable senior citizens to take money out of their homes.

In March and April, the number of reverse mortgages backed by the government jumped nearly 20% from the same period last year. In April alone, the government insured 11,660 reverse mortgages, the highest monthly total since the government-backed program began in 1990. By contrast, the number of new home-equity loans, which similarly allow homeowners to tap the equity in their homes, fell around 70% in the first quarter from the prior-year period, according to Inside Mortgage Finance.

More seniors are turning to reverse mortgages to supplement their retirement savings, which in some cases have been decimated by stock-market losses. At the same time, more seniors now qualify for a reverse mortgage since Congress in February raised the maximum home value that seniors can borrow against to $625,500 from $417,000. The bill also capped reverse-mortgage origination fees at 2% on the first $200,000 and 1% on any amount over that, with fees not to exceed $6,000. Other upfront costs include an insurance premium and closing costs.

The way it works is this: Say a senior owns a house worth $500,000 that has a $50,000 mortgage. The senior might get a $250,000 reverse mortgage to pay off the existing loan and then have $200,000 left over. The homeowner could get that as a lump sum or a line of credit, and wouldn't have to pay it back until he moved or died and the house was sold. The bank is repaid, including interest, from proceeds of the sale.

For lenders, the risk is that when it is time to sell the home, it will be worth less than the amount lent. As housing prices have plummeted, concern has grown that losses from these loans have mounted. Nearly all private offerings of reverse mortgages have disappeared, leaving the Federal Housing Administration as the only game in town. The FHA doesn't make any loans, but it insures lenders against any losses on federally-insured loans, called Home Equity Conversion Mortgages.

Congress's decision to raise the loan limits allowed Suzanne Huntington, 64, to get a $285,000 reverse mortgage on her $480,000 home in Laguna Nigel, Calif., last month. She used the proceeds to pay off the existing mortgages on the house, which totaled $282,000. Now she no longer has to make monthly payments.

As a result, the recently retired accountant says her husband, a heavy-equipment operator, will be able to retire this month. While they would have had enough in savings and pensions to pay their mortgage after retiring, "we wouldn't have a lot left over," says Ms. Huntington, who says her 401(k) retirement savings took a hit in the stock-market downturn.

While reverse mortgages are more popular than ever, more borrowers are finding that their homes are worth much less than they believed, and they may be unable to qualify. Around one-third of borrowers who might have closed reverse mortgages two years ago no longer have enough equity in their homes to qualify, says Jeff Lewis, chairman of Generation Mortgage Co., an Atlanta brokerage. Around 85% of his reverse-mortgage customers are retiring their existing mortgages.

The amount of losses in the reverse-mortgage business as a result of the housing bubble won't be known for years. But the Department of Housing and Urban Development, which runs the FHA, asked for nearly $800 million in taxpayer money next year to boost its loan-loss reserves due to deteriorating home prices. It is the first taxpayer subsidy in the 20-year history of the program. "Needless to say, this program is very sensitive to the projected path of long-term house price appreciation," HUD Secretary Shaun Donovan told industry leaders last month at a conference.

Some say that the subsidy is a sign that the FHA needs to raise the insurance premiums borrowers pay that normally cover losses. "The government is giving people too much money," Mr. Lewis says. Mr. Donovan says the agency opted against increasing insurance premiums on seniors "given the current pressure on retirement savings."

Indeed, brokers point to retirement savings gutted by stock-market declines as a big reason for renewed interest in reverse mortgages. "People are trying to recover or buy some time before their retirement holdings need to be liquidated," says Eric Bachman, chief executive of Golden Gateway Financial, an Oakland, Calif., brokerage.

After he heard about friends having their lines of credit pulled by their lenders, Lou Grushen, 77, in April used his reverse mortgage to secure a new line of credit on his Fullerton, Calif., home. The new line, worth $320,000, extinguished $122,000 in debt on an existing line of credit. He had been using that credit line to pay taxes that resulted from withdrawing from his retirement account, which had fallen around 30% in value. "When the stock market went down, I was really in trouble," says Mr. Grushen.

Another reason for the growing demand: A tough housing market has made it harder for seniors to sell their homes and downsize. Brokers also say seniors are increasingly using reverse mortgages to pay off loans that have reset to higher payments. "There's definitely an increased cognizance of its value as...a bailout option," says Peter Bell, president of the National Reverse Mortgage Lenders Association.

Actuarial tables determine how much money borrowers can withdraw from their home. While a 62-year-old borrower might qualify for a loan worth 57% of the home's value, a 94-year-old borrower could receive as much as 85% of the property's value, says Michael Branson, chief executive of All Reverse Mortgage Co. in Garden Grove, Calif.

If the size of the loan falls below the amount needed to extinguish a borrower's existing mortgage, then the borrower may be unable to do a reverse mortgage. "It can cause a hardship," says Mr. Bell of the National Reverse Mortgage Lenders Association. "Now it means they need to come up with other cash to cover the shortfall or they can't go ahead and do the reverse mortgage.""

There is still a way to get 100% mortgage financing! There's just one catch. You need to be US military veteran. If you are, you are in luck. A VA loan is the least expensive way to purchase a home in today's volatile real estate and mortgage environment. You can qualify to borrow up to 100% of the purchase price of the home and, if the appraisal has a higher value than the purchase price, roll in up to 6% of your loan amount to cover closing costs!

A VA loan has very competitive pricing for interest rates and does not require that the borrower pay PMI (Private Mortgage Insurance). PMI is typically required when a customer borrowers more than 80% of the value or purchase price of the home. This can be a savings of a few hundred dollars a month. There is a one time, upfront "funding fee" required that pays to insure the loan for the lender against default. This funding fee is rolled into the loan and does not count towards the LTV (Loan-To-Value) ratio. Meaning, the actual loan can be higher than 100% of the purchase price.

If you are a veteran, there is no better loan out there. If you are a recent veteran who wants to take advantage of the depressed real estate market but doesn't have the cash for a down payment, you should definitely consider a VA loan to help you get into your first home!

I can't tell you how often I'll have a potential mortgage customer ask me "What are your rates?", as if this were a black and white question. I think it's the fault of our industry and how we've marketed our product that has people thinking I just have one rate! Yes, banks typically do have a "rate of the day". It is what it is and that's it! But, with brokers (I'm both a banker and broker) the answer isn't so simple.

I have a relationship with many different wholesale lenders (Wells Fargo, Bank of America, Suntrust, etc.). Depending on the product, these lenders price their loans differently on the wholesale side. By pricing, I mean how much will they pay the broker (yield spread) for a specific loan/rate. For example, a 30 year Fixed Rate mortgage, which is the most popular mortgage loan by far, will have different pricing depending on credit score, loan to value (what percentage of the home value are you looking to borrow), cash out for refinances, investment properties, multi-family homes...the list goes on.

As a broker (I broker most of my business), I need to look to multiple lenders to find the best pricing for my customer for their specific scenario. By best pricing, I mean the best rate that will also compensate me for my efforts. An option I'll also offer is to give the customer the best Par (best wholesale rate with no yield spread paid to the broker) rate and have them pay origination point(s) to compensate me. This is a big advantage to just having one "rate" to quote.

I know that sometimes customers think I'm trying to skirt the question when I tell them I can't just blindly quote a rate. This is because some of my competitors quote unrealistically low rates in order to try to get business and then 'bait and switch" when the time comes to lock the rate. This isn't how I work (and I'm sure I've lost a lot of business because of that) and my customers eventually appreciate that.

Next time a customer calls me, I want to hear "What is MY rate?"!

I'm currently doing a mortgage for a first time homebuyer who's buying her first home. She has extremely high credit scores (all 3 scores are over 800) and very little debt. She has a good paying, steady job (as much as a job can be steady in today's economic environment!) and has plenty of cash reserves. I'm still putting her in an FHA loan because 20% down would deplete her savings and the interest rate is still very competitive with conforming.

She only has to put down 3.5%! Save the rest of what would have been used for the downpayment to buy furniture and other essentials that you need when you move into a new home.

The seller's real estate agent is a little nervous. In the past, when you heard FHA you immediately thought very stringent underwriting and appraisal guidelines and a poor credit borrower. This is no longer the case. Especially in light of how difficult it is to obtain PMI now, FHA is the most viable loan for many customers who either don't have the 20% to put down or would prefer not to.

I guess the moral of the story is that FHA is the loan of choice now for many who wouldn't have needed to consider FHA in the past.