Archive for February 2008

AARP Report: 20 year Anniversary for HECM’s

February 29, 2008

j0422149.jpgI 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

February 25, 2008

j0422339.jpgWow! 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

February 4, 2008

j0399681.jpgFor 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.