Reverse Mortgage Industry – Current Implications

Posted May 14, 2009 by greggulliford
Categories: General, Reverse Mortgage Industry

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j0440988The reverse mortgage industry continues to grow nationwide. The numbers Year to Date have increased both in applications and in total endorsements (closings). But this is just a small picture of the overall industry. Over the past two years we have seen an industry get hit hard by a drop in home values, economic uncertanties, and interest rate adjustments. In addition, there has been a huge increase in the number of people who are originating reverse mortgages. Though this is good news from the standpoint that this product has become more of a standard product within the financial industry, it has impacted the total number of loans that any one individual can do. So we have a small increase in the total number of endorsements, coupled by more people doing them. This leaves many unable to close enough loans to make any kind of a marginal living. Many originators are finding business very difficult as competition has impacted the overall market.

This scenario is not surprising to me. Four years ago when I started in the industry it was an inevitable consequence to the financial condition of many of our seniors. I predicted the fact that banks and credit unions, as well as mortgage brokers would find this tool as one they need to add to their product mix. It was my attempt to make an impact in the industry at that time to position myself to be the local expert. And I have done just that!

What I did not see coming was the huge reduction in home values. At that time values were going, let me just say “bazerko” (sorry, probably not a word). Values are often much lower than the homeowners realize. Recently I had a home appraised that the homeowner was expecting $600-$700k in value. It is a phenomenal home! It was appraised at $485k. Now this is somewhat of an anomoly because of the lack of similar comparisons available, but more times than not, values are underestimated because there was a lack of understanding. The conversation of value is a critical one to have with the homeowners. Managing expectations provides open communication, and in the end, good relationships with clients (whether or not they were able to do the loan).

The other thing that was not expected was the increase in interest rate margins that we have seen with Fannie Mae. Fannie Mae, who purchases 90% of all reverse mortgages, has moved into a live pricing environment where the interest rates could fluctuate during the processing of the loan. For some, this reduces the expected benefit or all out takes them out of their ability to attain a reverse mortgage. Though I have been able to work around most of these situations to this point, it remains an unsettling reality in today’s market.

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Balancing the Cost of Reverse Mortgages

Posted May 12, 2009 by greggulliford
Categories: General, Reverse Mortgage Details

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CB068300It seems that every so often the issue about the cost of reverse mortgages flashes across my computer screen. In every industry there are skeptics about a solid financial product, but the reality remains, users of the product are much better people to ask. For example, if I was to find out if a particular brand of lawn mower is worth the cost, I wouldn’t ask the person who sells the lawn mower. I would ask the people who have had the lawn mower for an extended period of time. Neither would I ask manufacturers of a different lawn mower. Both groups of people would have a potential bias towards that particular lawn mower. I also wouldn’t ask a company that specializes mowing lawns as a service for they may play down lawn mowers as better sell their service.

However, the people that would provide good, unbiased information are the users of that particular lawn mower. Preferably they would be people who have used the lawn mower for a few different seasons. They would know if the lawn mower stands up to the reputation that is out there.

The same has to be said about reverse mortgages. Though it is always a good idea to get information from non-users, it is important to not judge the product by people who have not used the product, or don’t know many people who use the product. It sounds silly, but this is what happens with albeit “professionals.” They have a judgement about reverse mortgages, but they often have not known many people who have taken them out. They sort of clump everybody into one big group as having the same needs and needing the same solution to a problem.

And so, we get input from various levels of professionals who are not in the industry and don’t have a working knowledge of how the product has been used. The overriding issue is the cost. It is funny to hear this because from the many clients who have taken out a reverse mortgage from me over the past 4 years have never come back and said that it was too expensive. The overwhelming majority is that it changed their life. You see, the value of the benefit far exceeded the cost. The cost was a non-issue after they realized the overwhelming benefits.

Lastly, in dealing with the cost, one needs to look at what the costs are for. In this case, a huge part of the cost is what is the driving force behind the program, the FHA Insurance Premium (2% of the appraised value). This protects the lender as well as the borrower from any future liability in the event the balance exceeds the value at the time of sale of the home. This is called “Peace of Mind”. Peace-of-mind is a beautiful thing! What is it worth? You might just want to ask an independent senior who no longer needs to rely on others to make ends meet. It really is a beautiful thing!

So, for everybody who falls into the mode of “Reverse Mortgages are just too expensive,” my suggestion is to ask around to seniors who have benefited from a reverse mortgage. I think you’ll find that most will tell you that the benefits far outweigh the cost.

For another perspective on Reverse Mortgage costs, visit this link.

Transfer of Equity with Reverse Mortgages

Posted May 7, 2009 by greggulliford
Categories: General

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RetiredOver the years reverse mortgages have been used for a variety of reasons. It simply may be to help with the shortfall in cash flow from month to month, or to pay for future medical expenses, such as long term care, or to simply have an emergency fund to assist with potential home repairs in the future. There are unlimited reasons that a reverse mortgage can be beneficial.

One often overlooked reason to do a reverse mortgage may be what I call a Transfer of Equity. Many people who are retired may look at their home as a form of inheritance for their children. They may not have a lot to pass down in the form of assets, but they do have real estate, something that will grow in value over time, and will provide an inheritance to heirs.

In talking with people in their retirement years, one of their desires during this time of their lives is to travel. Some would enjoy a beach house, or a mountain cabin that they can spend short or longer periods of time away from their home and further enjoy this period of their life. Real estate is deeded property and can be passed on to their heirs just like their home. Many, though they would like this, also realize that they don’t necessarily have the funds to make monthly payments on such investments.

Today, with lending limits at $625,500 across the country for HECM loans, coupled with the fact that real estate values are at all time lows, it is a great opportunity to take advantage of living out those dreams. The reality is that owning another property would allow for appreciated growth in not one property, but two, and not be required to make any monthly payments . . . ever. Deeded properties may include properties such as condominiums or even fractional ownership properties located typically in resorts around the world. For those who like to travel once a year for a nice get-a-way, you can “own” property for a period of time each year. The property appreciates over time, and it can be an opportunity to share with loved ones, and thus passed on from one generation to another, just like any other type of deeded proprty. It can provide the opportunity to build memories and continue to give in a way that the whole family can enjoy!

HECM for Purchase

Posted April 30, 2009 by greggulliford
Categories: General, Reverse Mortgage Details

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CB028929Recently, HUD has authorized the use of a reverse mortgage to purchase a home. Sounds a little odd, but is actually a great way for seniors to downsize with the added “No Monthly Payment” that reverse mortgages offer.

Here is how it works. Let’s say that a couple are in a two story home that they really don’t see as a functional house for them as they age and their ability to get up and down the stairs becomes more difficult. Though their income is at a point where they don’t really want to add an additional monthly payment. A HECM for Purchase will allow them to come in with a down payment, likely used from the sale of their home, of anywhere between 35%-40% (depending on the age of the youngest borrower) of the appraised value of the new home and not have any payments for the remaining years of their life while they live at home.

The reverse mortgage comes with all of the guarantees that a typical reverse mortgage would have. Though it was possible to do a reverse mortgage in the past on a purchased home, it could only be done after the original mortgage (we call it a forward mortgage) was approved and completed. The problem with this is that they would have to double pay closing costs, origination fees for both loans. This provides more flexibility and options for those who would like to move, but didn’t feel that they wanted to pay the additional fees upfront.

Be aware that because it is a different type of transaction and that underwriting is more along the lines of a traditional mortgage underwriting, if there are plans to rent their existing home, disclosures of income may be a requirement, as well as other disclosures may be required.

For more details surrounding this new program, visit here.

Funding Long Term Care

Posted April 29, 2009 by greggulliford
Categories: General

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CB044104It appears that long term care costs continue to increase which is putting a squeeze on those baby boomers who are on the brink of retirement. “Because the costs of long term care insurance and other health related expenditures are rising and the income system is contracting, these latest findings raise major concerns about the retirement security of baby boomers and succeeding generations.” That is the outlook from Alicia H. Munnell, Director of Center for Retirement Research at Boston College.

Options for long term care financing include Long Term Care Insurance, Medicaid, or private pay. And how much does one need in order to cover these expenses? That is a loaded question, but figure a good long term care facility starts at $3,500/month. Private pay as an option could be a spendy one. Medicaid will cover those with few financial assets, but the level of care is minimal, and finding a facility that takes Medicaid can be difficult.

For those who are considering their long term care plan, it would be wise to talk to an expert in the field. Long Term Care Insurance costs vary depending on a lot of factors. If you are concerned about this cost, take a look at how a reverse mortgage may play a role in financing this high cost product. If health history prevents a Long Term Care Insurance policy, then it really does pay to look into the reverse mortgage option. Planning for this type of event is not necessarily a fun thing to do, it may prevent a major headache down the road both for you and your heirs.

For questions about any of these options, please visit my website here. And for a full report on the rising costs of long term care, visit this article.

Check Out My Website

Posted April 28, 2009 by greggulliford
Categories: About Me . . ., Uncategorized

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f0796_gullifordg1For years I have wanted to develop my own website that provides information about who I am and answers many of the questions that people have about reverse mortgages. I am proud to say that it has finally happened and much thanks goes to Rachel in marketing at Genworth Financial Home Equity Access. It is finally completed and looks great! Check it out at here!

Medicare News

Posted April 28, 2009 by greggulliford
Categories: General, Uncategorized

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42-16163361I am sorry to my readers for including this information in my blog today, but I think it is worthwhile information. With federal, state and local economies bringing out their axes, we are seeing a host of cuts in every industry across the board. It is no different with the medical insurance programs that seniors rely on to cover the majority of their medical needs.

Fast Facts from Medicare Right Center: Only 25 percent of US retirees in 2009 say they are very confident that they will be able to cover the cost of medical expenses during their retirement, compared to 41 percent of retirees in 2007. (Employee Benefit Research Institute, The 2009 Retirement Confidence Survey: Economy Drives Confidence to Record Lows; Many Looking to Work Longer, April 2009).

For many seniors, the increase in costs or the reduction in coverage in Medicare could bring with it critical shortfalls in care and/or a shortfall in senior’s ability to afford such care.  If this is of interest to you, sign up for Medicare Watch.