Reverse Mortgages

Reverse Mortgages AFCPE Extension Pre-Conference November 19, 2008 Susan E. Cosgrove, AFC Mississippi State University Extension Service

Reverse Mortgage • Introduced in 1989 • Special type of home loan • Home Equity Conversion Mortgage (HECM) • Converts equity into cash

Who’s Eligible • All owners must be at least 62 years of age for most Reverse Mortgages • All owners of the home must apply and sign loan papers • Owners of a single family one-unit dwellings are eligible properties

How does it work? • A loan against your home • You do not have to pay back for as long as you live in the home • Can be paid all at once • OR, as a regular monthly advance • OR, at times and in amounts you choose

How does it work? • Paid back, plus interest when the last living borrower dies • Or, sell your home • OR, permanently move out of your home • The amount you owe grows larger over time • As your debt grows larger, equity grows smaller • Still responsible for property taxes, insurance, and repairs

Growth in Reverse Mortgages • Grew from nearly 8,000 in 2001 to more than 107,000 last year • The average loan amount grew 80 percent to $138,700 during the same time period • More than 450,000 HECMs have been since 1989

Housing & Economic Recovery Act of 2008 Intended to help seniors by reining in fees and fraud associated with reverse mortgages

Housing & Economic Recovery Act of 2008 - Provisions include… • Amount a senior can borrow were increased to $417,000 (ranged from $200,160 to $362,790)

Housing & Economic Recovery Act of 2008 – cont. • Origination fee - - - • Cut to 2% of the first $200,000 borrowed • 1% for any amount after that • Cannot exceed $6,000 • Law does allow for cap to adjust based on annual percentage increase in CPI

Housing & Economic Recovery Act of 2008 – cont. • Lenders prohibited from requiring borrowers to purchase insurance, annuities, other similar products, as a condition of getting a reverse mortgage

Who’s A Target----Some Seniors Are Victimized • Seniors who are rich in home equity but poor in cash • Victim to salespeople who use high-pressure sales pitches and unscrupulous tactics to sign them up for the mortgages • paying exorbitant fees • buying unnecessary insurance policies --- annuities

Unscrupulous salespeople looking for a quick way to make a hefty commission • Some salespeople call themselves "registered financial gerontologists" or certified senior advisers • Use aggressive sales methods • Enticing radio and TV ads, and direct mail • Sell other financial products that are unnecessary and come with hefty fees

Unscrupulous Sales Pitch

Unscrupulous Salesperson Recruitment

Important Key Decisions • Choosing a Counselor • Considering Options and Timing • Estimating Leftover Equity • Picking an Interest Rate • Sharing the Decision

Reverse Mortgage Counseling

QUESTIONS?!?!

Reverse Mortgages Developed by: Evelyn Edwards Vice President of Community Reinvestment BancorpSouth – Mid MS Region Updated by: Susan E. Cosgrove Family Resource Management Area Extension Agent Mississippi State University Extension Service

Reverse Mortgages