The Reverse Mortgage Dilemma

With the economy still in slow recovery mode and real estate continuing to lag, many clients and friends have asked about the wisdom of taking a reverse mortgage for themselves or their aging parents.  Not a simple question!  But to properly address the issue, we need to first understand what a reverse mortgage is and how it operates.

Perhaps the simplest explanation is that a reverse mortgage (as the name implies) operates in the opposite direction of a traditional mortgage loan.   The borrower receives either a lump sum, monthly payments or access to a line of credit - all of which are based on the value of the property, the applicants age,  and his or her life expectancy.   There are generally no credit or income requirements and - most importantly- no monthly payments are required.  

Sounds lovely, right??? Not so simple.   Here are a few serious 'cons' that may outweigh the "pros' :

• Reverse mortgages for seniors have high closing costs. The senior must pay origination fees that are about double what they are for conventional mortgages and mortgage insurance. The interest rate is variable and is generally several points higher than conventional loans.

• For seniors who depend on Medicaid or other state or federal programs, it’s important to consider if reverse mortgage payments will affect their eligibility. 

• In the Federally sponsored programs, property values are often based on HUD statistical data- not actual appraised value.  This can sharply diminish the amount of available equity- particularly in the current market.  

• Borrowers are responsible for paying taxes, homeowners insurance, maintenance costs and other expenses. If they don't, the loan may become due.

• More importantly, the balance can (and does) continue to grow quite rapidly because you are paying interest on interest each month that the loan remains outstanding.

This last factor is perhaps the most telling aspect.   The reverse mortgage is a classic case of 'negative amortization'- i.e. the principal balance grows instead of decreasing as in a conventional loan.  And this can easily strip all the equity from the property over time.



Like taxes, "Uncle Sam" will come calling to collect from the estate when the borrower passes away.  Unless there is no estate to consider, here are a few alternatives you may examine before deciding on a reverse mortgage:

• A line of equity may be an alternative. There are fewer fees, and the money is available on an as-needed basis, but it requires monthly payments.
• Refinancing the home with a conventional mortgage may save mortgage insurance fees that a reverse mortgage would require. However, this too requires monthly payments.

As in all complex financial matters, seek the help of capable professionals and agencies such as AARP before acting.

To Stay or Go?

Probably the most difficult task for a homeowner with a property in distress is the question of whether to stay or go.  Because home ownership carries so much emotion with it, that emotion often clouds the rational thought process that might lead a person to conclude that the numbers simply don't work!
For a growing number of owners-particularly those who purchased with highly leveraged financing (90% and above) during the early 2000's- the loss of value caused by the recession and downturn in the housing market has left them "under water".  Their mortgage balances are simply larger than the value of their houses.  And the amount of time and often staggering amount of money they will need to spend just to get back to a break even point on their equity just doesn't warrant the expense.

For a good , unemotional look at the numbers try using this calculator http://www.payorgo.com/  .  It's easy to get caught up in the 'what if ?' and "if only"  of reliving our financial pasts.  Remember that the only mistakes are the ones we fail to learn from. 

If I can be of assistance in reaching a sound conclusion on how to approach your current situation, feel free to call or e-mail.

SAVING A HOME FROM FORECLOSURE

We are living in unprecedented times- a recession that has changed the face of the American economy and the dream of financial security that was in the fabric of our country since its foundation.

In the frightening days since the collapse of Bear Stearns and the unraveling of the mortgage industry, we have seen real estate values plummet, investment accounts shrink and plans for early retirement vanish.   And many families are hearing the footsteps of the local marshall approach as their houses are being taken to foreclosure auction.


How do you stop what seems to be an inevitable catastrophe?  I have spoken to hundreds of home owners whose loans are in distress. The overwhelming majority mention that they have tried for a loan modification- and they are still waiting for an answer- often six months to a year later.  To see the actual performance of this program , go to our web site:
http://www.wehelphomesellers.info/Loan_Mod_stats2.html .

If your attempt at a modification fails- or there is simply not enough time to wait for the bank's answer- and your payments are unmanageable, you face several possible paths of actions:

• Do nothing : this will bring the inevitable foreclosure and all the nasty things that come in its wake. 
• Attempt to sell the home to a cash buyer (if there is equity in the property) and use the proceeds to buy a new home or scale down to an affordable rental.
• Consider a "short sale" - see our web site for a complete explanation http://www.wehelphomesellers.info/Short_Sale_FAQs3.html 
• Consult an attorney about protecting your home within the bounds of a bankruptcy filing.  

Whatever your situation, seek capable professional help, determine a course of action and stick to it.
Please feel free to consult me -either by e-mail or phone -if I can be of assistance.
Meir

NEIGHBORHOOD PARTNERS PROGRAM

 

We Help Home Sellers, LLC announced an initiative today called the “Neighborhood Partners Program” that will offer local residents in Queens a chance to change the face of their neighborhoods- and earn significant fees in the process.

According to Meir Horowitz- former CEO of Mortgage Market Resources, Inc- and a Real Estate Specialist at Citi Homes Group, Inc.- the motivation for the program came from the local areas in which they specialize.    “We hear from people every day about properties that are an eyesore on their block- and that bring down property values for a whole neighborhood”.

The program will enable participants to earn a finder’s fee for locating and reporting a  potential distressed property that leads to the eventual  purchase of the home.

Concerned residents should call the Neighbor’s Partner “Hotline” at 877-559-5445 for more information .  Details are also available on line at http://www.wehelphomesellers.info/