Who Can You Trust?

I am a sports radio fan! Here in Portland, Oregon, we have a sports radio station that runs 24/7. I know, it is not what most of you probably enjoy, but I like it. It gives me updates on the sporting world, and that is an interest that I have.

Every day they have syndicated talk shows. They do have great local stuff, too, but today I was listening to Dan Patrick, a nationally known sports guy. I enjoy his stuff as he is a great interviewer and has a perspective that is entertaining to listen to. Today they had a poll question. The question was “If you knew you would never get caught, would you cheat to win a gold medal?” What a great question to ask the public. As people from all around the country called in, they responded to the question. Last report showed that the online poll shows that 32% voted Yes, while 68% voted No. I am at least pleased that the No’s won out, but weren’t the Yes’s too high. I am a little dissappointed, but not surprised. I actually thought it might be a little closer to 50/50. I am glad I was wrong.

So what is my point? I was told early on that just when you think nobody is watching, somebody is watching. I also have learned that the measure of a man is not what one does in public, but what one does in private, when nobody is watching . . .  when nobody ever knows. Those that are close to us often don’t know the “real” us. The person who knows the “real” us is the bank teller when she has to give you some bad news about your bank account or a loan request. Our character is revealed when we face adversity.

I am not going to get real political here, but I do want to share one thing. In watching the Olympics and how things have been portrayed, it has given me a look into the hearts and minds of the Chinese government. There have been a few things that have caught my attention: 1. Opening Ceremonies Lip Sync - the little girl who we heard was not the one who appeared to be singing, 2. Opening Ceremonies Fire Works - several of the fireworks on TV were not really appearing in China, it was digitized to appear better than it really was, 3. The age of the gynmists - though not confirmed, it appears that some of the gymists were underage (still to be determined). There may be more, but these three things are fresh in my mind. What are the intentions of the Chinese government? Possibly to appear better than they really are? Who are they really? Are perceptions reality? Are the perceptions something we can trust?

I do believe that we all want to be trusted. But the question remains, can we be trusted. If I trust you, will you pull through for me? Will you tell me the truth? Are you on my side, or are you only really looking out for yourself? Will you sleep at night with the information you tell me? Will you stretch the truth? In all reality, whatever we do or say, we will have to live with it the rest of our lives. And everyday, when we face the world and all of the treasures we have amassed, we will have to look at ourselves in the mirror and see either a “fake,” or an “authentic” individual. Is the Truth your friend? I hope so!

In working with seniors, I take it upon my responsibility to be a truth giver. It hurts sometimes to tell someone what they don’t want to hear, but truth always wins out. It always wins out! Is it a coincidence that “Truth” and “Trust” start with the same three letters (I really don’t know). Do they represent the same thing? Many people today walk around telling people they can be trusted. “Trust me,” they say. I simply know that trust is earned through time, and that history is a good indicator of future behaviors. So, I’ll ask you the question, “If you knew you would never get caught, would you cheat to win a gold medal?”

Though it is difficult to really know how we would answer the fictitious question, it is a great question to think about and ponder. Is it Truth that we are after, or do we strive to be percieved as wanting Truth. Good question . . . . Who can you Trust?

Re-thinking the Three-Legged Stool in Retirement

I recently read an article in The Oregonian titled “Boomer’s future is spelled: W-O-R-K.” Doug Bates spelled out the difficulty that boomer’s are having keeping up with their lifestyle with the traditional “savings, pensions, and social security” mentality, commonly seen as the “three-legged-stool.”

Though there are many areas to blame for this problem, the reality is that those who are considered “boomers,” as a group, have not saved enough money to maintain the lifestyle that they are accustomed to. In fact, two-thirds of today’s leading baby boom cohorts are not ready for a financially comfortable retirement. “Comfortable” is defined as being 80% of the pre-retirement income.

The rest of the article went on to talk about how the United States must re-invent retirement, which likely should include creating opportunities for retirees to work throughout retirement, more specifically a more flexible system in which more opportunities would be available to them.

The article is a good read and I recommend it. However, though I agree with Bates that this is going to be a huge problem for many of the boomer’s planning for retirement, there is an option that was not discussed, and which may be a more solid fourth-leg on the retirement stool. You guessed it! A reverse mortgage!

Here are some numbers to chew on . . . . Financial Freedom, one of the largest reverse mortgage lenders in the country, estimated that roughly 30 million senior homeowners hold 3 trillion dollars in home equity (2006). Though this number is probably down using today’s home equity numbers due to a devaluation of home prices, those numbers will likely climb back in time. The reverse mortgage can be used to provide a guaranteed income for life, as long as they reside in their home. At the point in which the owner moves out of their home, the loan comes due. As an FHA guaranteed loan, the owner will never owe more than the value of their home. This kind of guarantee is one that many seniors today are considering. It is a source of income that pays, and allows boomers to enjoy their final stage of life! Let’s hear it for the “four-legged stool.”

Are Interest-Only Mortgages for Seniors a Good Idea?

I recently helped a senior who was paying over $800 per month on an interest-only loan. She had been interested in a reverse mortgage for some time as her increasing monthly expenses were causing much stress to her. It made sense to evaluate this option for her.

One of the things that she realized is that her $800 payment was literally a throw away. The only thing it was providing for her was the minimal tax benefit at the end of the year. What if she were to have NO payment, and use a portion of the $800 to invest in a low-risk fund, bond, or whatever. (By the way, I am not a financial planner, so I did direct her to a financial professional that could assist her.) By investing in a low-risk investment she not only frees up some cash for her to have some elbow room each month, but she also will provide herself future financial resources.

In working with seniors in this situation as they consider a reverse mortgage, the question is always the same, “What are your plans for your equity?” and “Would you rather use your equity today to give your breathing room to live and pay your bills, or would you rather use it later for someone else?” Healthcare issues are usually a part of that conversation as many seniors would like to keep a portion of their equity for a possible long term care need. Whatever the case, these are the issues that one needs to consider when looking into a reverse mortgage.

So, does paying on an interest only mortgage make sense for a senior? It appears that there may be better options available. Using the reverse mortgage is just one of those very good options!

My Thoughts about Fixed Rate Reverse Mortgages

Ever since I started offering reverse mortgages about 3 years ago, one of the most common requests were for a fixed rate reverse mortgage. The look on my clients face when I told them that the reverse mortgages were all adjustable made me cringe. ”I don’t like adjustable rates,” was a common statement. “They just make me nervous,” says another. I often gave them hope in that a fixed rate reverse mortgage was on the horizon. Well, for a conventional mortgage, adjustable rates can make people nervous. But for reverse mortgages, it really makes a lot of sense given the way that fixed rate reverse mortgages have been set up.

After following the fixed rate reverse mortgage products for several months, it is becoming more and more apparent that it is not the great deal we were all hoping for. Limitations and risks are a big part of this product.

When we take into consideration that the required lump sum draw requirement is often many thousands of dollars, I am not sure it is a wise move. The only way I could see it being beneficial is if: a) there is an investment (low risk) plan that the client has discussed with a financial advisor, 2) the borrower has to bring money to the table in order to close the loan, 3) if the rate gives the borrower a peace-of-mind about their future equity.

If any of the above are not true, then it would take a lot to convince me that it is the right move. If you simply do the calculations you will see what I mean. Interest will accrue much quicker on a $100,000 than on, let’s say, $20,000. If this is done year in and year out, it will eat up the equity at a faster rate . . .  something that we don’t want to see with our clients. However, if that $100,000 has been placed in an appropriate financial product (I stress . . . . with a knowledgeable financial professional that cares about your money more than his/her wallet) that earns tax free interest, etc. then hopefully you will have made up any interest that has accrued on the reverse mortgage. In this type of situation, then it may make sense to consider a fixed rate reverse mortgage.

If the borrower has to bring money to the table at closing, then it certainly makes sense. In this case there is no money to take out in the lump sum, so it doesn’t increase the amount in which interest is accruing on. Secondly, if the client is at all concerned with their equity being consumed, then it makes even more sense.

One last thought that is a concern. The fixed rate, in most cases, cannot be locked until just prior to closing. This allows a bit of risk when the interest rate spikes. For someone that doesn’t like surprises, this makes me nervous for my clients. A small difference in the interest rate may wipe out a good chunk of available cash for the lump sum. For those who are bringing money to the table, it increases the amount they would need to bring . . . .  ugh. I don’t feel good about that at all.

Overall, I really don’t like the fixed rate option. In a small number of cases, it may make sense. But as a rule, be very, very careful!

AARP Report: 20 year Anniversary for HECM’s

I recently came across a report that was completed by AARP. The name of the report is “Reverse Mortgages: Niche product or Mainstream Solution.” In the celebration of the 20th Anniversary of FHA’s HECM, AARP did thorough research to find out how far the HECM has come since its birth in 1988.

Within the report, which is quite lengthy, you will learn about how many HECM’s have been completed, consumer awareness issues, what consumers had used reverse mortgages for, and their evaluation of how the reverse mortgage accomplished their goals. It also takes a look at the reasons some consumers decided against taking out a reverse mortgage. Lastly, the full report goes into what recommendations they have for the development of the reverse mortgage products.

For anyone interested in the details of the industry, this is a must read. You can either read the full version(aarp_rmreportfull.pdf), or you can read the brief version(aarp_rmbrief.pdf) of the report. Enjoy!

Reverse Mortgages: When Home Values Drop

Wow! It has been some time since I have written. My apologies to those who have been following this blog. To be honest, I have been trying to get a feel for the current market. It is crazy, and very frustrating. But today I thought I would give some insight as to what I have been doing with homes that have shown a drop in their value. It goes without speaking that when homes decrease enough, it makes it more difficult to make a reverse mortgage work. Waiting for values to come back might be the best advice. But it is always based on speculation, not real hard data.

 1. While evaluating the hard data (financial benefit) for a reverse mortgage, find out what current sales prices are going on in the area. Many county websites will have research functions that you can use. Another website that will provide general data, but not always real reliable, is Zillow (http:www.zillow.com). Zillow will provide “ballpark” figures. It also will show recent sales.

2. If you are not getting good information, many appraisers will send you an update of sales in your area. They have software that can do that. I can’t say that all appraisers will do this for you, but those who want your business should be able to provide you something.

3. Once you choose to move forward with an appraisal, be sure to communicate with them about what your expected value should come in at. Ask them if they will contact you immediately if they see the values not supporting the expected level. In most cases, they will. This can also reduce the cost of the appraisal.

4. Once you get good data from the appraiser (written or verbal), it may take some juggling of numbers to allow the reverse mortgage to work. I recently had a client who let me know that he did have some cash available if he had to use it. In that case, I reduced my numbers where I could and went forward with the appraisal. There are limitations as to what we can do, but if an originator is in this business for the right reasons, there should be some flexibility when we are in this type of market.

5. In the situation where there is a home that may need some repair, it is a good idea to walk around the house and get a feel for areas that show a safety concern (i.e. open wires, leaning sheds, etc). Also, check areas that may show structural concerns. Dry rot, fallen gutters, shingles missing, etc. This may put the project right over the top. In this situation, there may be some government programs that will provide some low interest loans for home repair for seniors. U.S.H.S. is a good organization to look into. This may buy you some time so that once values do increase again (and they will), the homeowner will be able to take out the reverse mortgage and payoff all of the debt.

One organization that I have recently learned about, but have never used their services, is Virgin Money. This organzation is the conduit between two parties, often times either friends or family. They create the legal component between two parties who want to create a lender-lendee relationship. They have the ability to do a reverse mortgage. Obviously, this is not an FHA reverse mortgage, but it works similar. And it is a lot cheaper. Again, I have not used this company, but the services they provide seems like it may work in the right situations.

As we wait through this downturn, hold tight and do your due diligence.

Home Value Decrease Hurts Seniors

For many months I have been working with a couple as they await the proper timing for them to get into a reverse mortgage. They currently have an adjustable rate mortgage that will reset within the next couple of months. Over the past year it was their assumption that the value in their home would be in the mid $300’s (thousands). At this value they would have enough equity in their home to pay off their current mortgage, and have some left over to put in a line of credit. They have been excited over the past year or so as this would give them the opportunity to get rid of their mortgage payment and live more comfortably.

Two months ago I did a basic evaluation of their property. I am not an appraiser, nor do I think I can even pretend to be one. However, by just looking at home sales in the area, I was dissappointed to see that their were virtually no sales over the past 6 months that sold for over $300k. What is the likelihood of the appraiser giving a value of anywhere around $350k? Not very likely! In fact, after looking at comp’s in the area, it is more likely to be closer to $300k than $350k. This poses a problem!

By doing a reverse mortgage, and paying off the current mortgage balance, my clients would now be in the hole about $30k. Ugh . . . .  Who would have thunk it? We are currently evaluating all options, including doing a simple refinance, which they are not too excited about. But in all reality, it might just buy them enough time for values to get back to where a reverse mortgage would make more sense.

Again, It’s All About Timing

In most big decisions that we make, much of it has to do with our timing. Whether it is buying a car, purchasing a home, refinancing our mortgage, or remodeling our home, timing is everthing. It is no different with decisions regarding reverse mortgages, and thus with one of my most recent discussions with a prospect.

Throughout my interview process, it is important for me to get a handle on several things about wishes and desires of my clients. What are their goals? Do they want to stay in their home for an extended period of time? What is their current income? Are they currently working? What is their current financial situation? These are just a few of the questions I ask to help determine if the situation is right for them to enter into a reverse mortgage. If done too soon, it may put them in a difficult situation later on.

Many most recent client is a nurse. She works part time earning about $1,000 per month to supplement her social security income. She is 63 years old and sees herself working for the next 5+ years. In evaluating her current situation, she is not in such a tight financial position where she needs to have more incoome. Her current financial situation should take care of her for the next few years without too much problem. Yes, she would like to have some extra money for the unexpected events, but it is not pressing for her. At 63 years old, the greatest benefit for her would be to pay off her current mortgage. With the little amount left over, it provide her with a small line of credit, or an income of a couple hundred dollars more per month, which she really doesn’t need at the moment.

Together we decided that it might be in her best interest to wait. Why so, you ask? With reverse mortgages, the older the age, the more one can receive. In fact, the average age is roughly around 72 years old. Though everybody’s situation is different, it seems to be the age when the financial crunch hits people the most. Medical expenses and liquidity become the most pressing issues.

It is important to evaluate each situation carefully. Not only do I feel better about the purchase, but the client usually very much appreciates the assistance in evaluating their options. It may mean, in this situation, that a simple refinance of their current mortgage will free up some extra cash each month which may hold them over for a period of time. The only thing one does not want to do (if they are looking for a reverse mortgage in the future), is to NOT do a cash-out refinance. Once they start dipping into the equity, it may move them out of the possibility of doing a reverse mortgage later on.

Selling reverse mortgages is not really about selling at all, though that is what we call it. Acting as a consultant and doing what is in the best interest of the senior client is what reverse mortgage sales is really about. It makes me sleep better at night!

We Have Been Pleased with Our Reverse Mortgage

Over the past several months I have been in conversation with a client that took out a reverse mortgage about 2 years ago. Their home is valued around $400,000. It has been an interesting conversation as they have been very pleased with what their reverse mortgage has done for them over the past 2 years. It has provided them a chance to enjoy their life more without the constant stress about finances.

Both husband and wife have said, “We want to use the maximum amount that we can. We don’t plan on leaving anything.” Now, I must say, I don’t get this kind of comment very often. They have three or four children who currently live in different parts of the country, and all of their children have encouraged them to use the reverse mortgage any way that they can to improve their quality of life. In fact, they have mentioned several times that their children all make more money in a given year than they ever have.

If you know much about reverse mortgages, HECM’s (the FHA insured product) has county lending limits that will limit the value of homes that exceed that limit. In this case, when my clients took out their original reverse mortgage, the limit was $284,600. This left them with almost $115,000 of equity that FHA did not recognize in getting the loan. Today, as we await lending limits to go up with the passage of the FHA Modernization Bill, they would be able to access another $60,000-$70,000 of their equity.

As we move into this new era of reverse mortgages, more and more seniors, who are struggling to take care of their financial needs and desires during their retirement years, will have great opportunity to benefit from the host of benefits that reverse mortgages offer. With cautious optimism, we look forward to President Bush signing the bill that will impact the lives of seniors today and allow more people to benefit from the program.

My Clients - Some Reverse Mortgage Statistics

Over the last few years, I have kept some statistics about my clients. These statistics are based on nearly three years of working in the industry. Keep in mind that reverse mortgages have become much more accepted over that past year than they had prior to that time.

Average Age: 73.62
Youngest: 62
Oldest: 97

These stats are based on the age of the youngest borrower.

Primary Purpose:
Increase Income: 73.2%
Emergency Fund: 18.3%
Medical: 6%
Pending Home Project: 3%

Most of my clients had a combined purpose for taking out their reverse mortgages as many established an emergency fund with their line of credit, and either paid off their mortgage or received the tenure payment as income. In addition, many of my clients had medical bills that they needed to pay off, or they wanted an emergency fund in order to pay for some upcoming medical bills. Dental procedures and the desire to travel were additional reasons to consider a reverse mortgage. In most cases, the reason for taking out a reverse mortgage was based multiple reasons. In all actuality, though those listed above were the specific reasons, the more general and biggest result was that it created a peace-of-mind about their financial situation.

Married: 51%
Single: 49%

Referred by a friend/relative: 51%

Working in the senior industry, it is very common for people to lean on knowledge and experience from friends and family. In most cases, there is a level of trust that has already been established when a friend or family member refers someone. This has been my most enjoyable client to work with.