Reverse Mortgage News

Reverse Mortgages Are Not Part of Current Credit Crisis

April 25 , 2008

By Nikoletta Sioris, Let Your Home Pay You

With the national mortgage market experiencing an
unprecedented liquidity and public confidence crisis, it is
no wonder that anyone considering entering into a mortgage agreement these days, does so with great trepidation and a certain amount of outright fear.

Given the current state of economic affairs, these reactions would appear to be justified.  However, there is one segment of the mortgage market that is virtually unaffected by the upheaval on Wall Street and the huge failures taking place among high profile financial institutions. That segment is the "Reverse" mortgage
market. For the most part, the lenders that originate
reverse mortgages did not participate in originating
sub-prime or high risk mortgages during the soaring housing boom years of the recent past. Consequently, if you have been considering a reverse mortgage as a financial solution during your retirement years, you should not be paralyzed by what you are observing in the "forward" mortgage credit market.

The problem though, is that the general public, especially seniors, are not differentiating between these two market segments. During recent weeks I have heard several senior homeowners say things like; "I would never think about getting a reverse mortgage now, with everything that is going on." Or "I can't get a reverse mortgage now and risk my home to foreclosure in today's market."

In essence, this way of thinking is like throwing the
baby out with the bath water. A reverse mortgage works in a completely different way from a regular "forward" mortgage. A reverse mortgage and a forward mortgage should not be thought of as the same thing. A reverse mortgage should not be dismissed out of hand just because the word "mortgage" is involved in its' product name.

For one thing, a reverse mortgage requires no mortgage payments for as long as the senior lives in the home. Therefore, you could never lose your home to foreclosure because you didn't make your payments. In fact, many seniors have actually saved their homes from foreclosure by getting a reverse mortgage to pay off an old "forward" mortgage that they were falling behind on. With an FHA insured reverse mortgage, your home is virtually foreclosure proof as long as you maintain your property taxes.

Additionally, if your reverse mortgage is a HECM, (Home
Equity Conversion Mortgage) it is insured by the FHA,
(Federal Housing Administration). What that means to
you in light of the recent bank losses and hedge fund
failures, is that in the event the lender that originated
your reverse mortgage goes out of business for any
reason, the FHA will step in and take responsibility for
your reverse mortgage and continue to pay you your reverse mortgage money.

Another safety feature of reverse mortgages, is that anyone interested in applying for this type of loan must first attend a HUD counseling session. HUD counseling is conducted by FHA/HUD approved non-profit credit counseling agencies that are not owned by or affiliated with reverse mortgage lenders. The counseling covers the pros and cons of reverse mortgages and points out possible alternatives that should be considered, other than a reverse mortgage. The HUD counseling is free of charge to the senior and can be conducted in person or by telephone appointment. Seniors are encouraged to have adult children, trusted advisors or anyone that may help with their decision, attend the counseling session as well. After the senior completes the counseling, a certificate is issued which must be presented to the lender before an application for a
reverse mortgage can be processed.

Although it is understandable that the general public perceives that now is not a good time to consider any type of mortgage, it is definitely not true if the mortgage you are thinking about is a reverse mortgage. In fact, doing this type of mortgage sooner rather than later might actually be a benefit. The reason is that
a key ingredient to how much money a person can get from a reverse mortgage hinges on the amount of equity in the home. If your home is declining in value because of the current housing and credit crisis, you will realize a lower benefit amount from a reverse
mortgage if your home is worth less in the future than it is today.

The bottom line is, don't let fear or fear of the unknown prevent you from educating yourself about this unique financial planning tool if you think it is something you may be interested in doing. And don't let friends and neighbors talk you out of it if they are not experts on the topic. Hearsay is rumor and talk is cheap. They
should not be used for major decision making. Education and information is how to make an informed decision.