Reverse Mortgages - Why All The Negative Press?
Mathius Marc Gertz MBA, AFC®, CAPS
Unlike IRA, Keogh and 401k plans that have a favorable impression in most Americans minds, the HECM reverse program suffers from a bad reputation. Why is this? To understand why we need to go back to the 1960’s.
Two mortgage companies in the 1960’s came up with an idea for a new type of loan they called a reverse mortgage. Under their plan, you signed over the title to your home to the lender, the lender lets you live in your home for the rest of your life and paid you an income per month for life; and when you and you spouse passed away, the lender owned the house. Now this might be a good plan for some people but there was a problem.
Starting in the 1970’s, these reverse mortgage homeowners began to pass-away and that’s when many of their grown children found out for the first time that they weren’t going to inherit the home. There were big articles in the newspaper about it. Lawsuits, inquires, investigations and lots of negative press. By the end of the 1970’s these “reverse loans” were all but gone and an entire generation had been taught to believe that all reverse mortgages were bad.
Those loans from the 1960’s have nothing in common with the HECM program loans that began in 1998 except that they use the same nickname: reverse mortgages. But the damage was done. It is important to remember that HECM loans are a piece of federal social legislation like IRA, Keogh and 401k plans and they didn’t start until 1998.
Two mortgage companies in the 1960’s came up with an idea for a new type of loan they called a reverse mortgage. Under their plan, you signed over the title to your home to the lender, the lender lets you live in your home for the rest of your life and paid you an income per month for life; and when you and you spouse passed away, the lender owned the house. Now this might be a good plan for some people but there was a problem.
Starting in the 1970’s, these reverse mortgage homeowners began to pass-away and that’s when many of their grown children found out for the first time that they weren’t going to inherit the home. There were big articles in the newspaper about it. Lawsuits, inquires, investigations and lots of negative press. By the end of the 1970’s these “reverse loans” were all but gone and an entire generation had been taught to believe that all reverse mortgages were bad.
Those loans from the 1960’s have nothing in common with the HECM program loans that began in 1998 except that they use the same nickname: reverse mortgages. But the damage was done. It is important to remember that HECM loans are a piece of federal social legislation like IRA, Keogh and 401k plans and they didn’t start until 1998.
Just The Facts...
Before there was the series LAW AND ORDER there was the TV show DRAGNET. The Sergeant Joe Friday character frequently implored female informants to provide "Just the facts, ma'am". So, what are the facts versus the fiction about reverse mortgages?
Fiction: With a reverse mortgage you are selling your house to the bank.
FACT: Homeowners never give up the title or ownership of their home.
Fiction: Reverse mortgages are costly and have high fees.
FACT: Interest rates are comparable to conventional Federal Housing Administration (FHA) rates and fees vary by lender. Our company works with six different reverse lenders to design the best programs for your needs.
Fiction: If the home loan balance grows bigger than the home value, the borrower is on the hook for the difference.
FACT: A reverse mortgage is a non-recourse loan, and a borrower, the estate, the children or the trust will never owe the lender more than the current value of the home.
Fiction: You must own your home free and clear to qualify for a reverse mortgage.
FACT: Most homeowners use loan proceeds to pay off existing mortgages.
Fiction: Reverse mortgages are a loan of last resort.
FACT: May people use a HECM Line of Credit as a safety net to draw on in case of emergency. In addition, it is now possible to get a reverse mortgage up to six million dollars. Many people use this money to invest and create retirement income, as well as use the HECM to pay for property taxes and home repairs.
Fiction: There are few if any differences between a HECMLOC (Home Equity Conversion Mortgage Line Of Credit) and a HELOC (Home Equity Line of Credit).
FACT: They are entirely different except that they are both lines of credit that use your home as collateral for the loan.
Fiction: All reverse mortgage funds that you receive need to be explained, justified and approved for use by the lender, the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD).
FACT: There are no restrictions, approvals, explanations or reporting required. Funds may be used for any purpose, at will, without justification. Currently, Reverse loan proceeds are received tax-free and do not need to be claimed on your tax returns.
Fiction: With a reverse mortgage you are selling your house to the bank.
FACT: Homeowners never give up the title or ownership of their home.
Fiction: Reverse mortgages are costly and have high fees.
FACT: Interest rates are comparable to conventional Federal Housing Administration (FHA) rates and fees vary by lender. Our company works with six different reverse lenders to design the best programs for your needs.
Fiction: If the home loan balance grows bigger than the home value, the borrower is on the hook for the difference.
FACT: A reverse mortgage is a non-recourse loan, and a borrower, the estate, the children or the trust will never owe the lender more than the current value of the home.
Fiction: You must own your home free and clear to qualify for a reverse mortgage.
FACT: Most homeowners use loan proceeds to pay off existing mortgages.
Fiction: Reverse mortgages are a loan of last resort.
FACT: May people use a HECM Line of Credit as a safety net to draw on in case of emergency. In addition, it is now possible to get a reverse mortgage up to six million dollars. Many people use this money to invest and create retirement income, as well as use the HECM to pay for property taxes and home repairs.
Fiction: There are few if any differences between a HECMLOC (Home Equity Conversion Mortgage Line Of Credit) and a HELOC (Home Equity Line of Credit).
FACT: They are entirely different except that they are both lines of credit that use your home as collateral for the loan.
Fiction: All reverse mortgage funds that you receive need to be explained, justified and approved for use by the lender, the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD).
FACT: There are no restrictions, approvals, explanations or reporting required. Funds may be used for any purpose, at will, without justification. Currently, Reverse loan proceeds are received tax-free and do not need to be claimed on your tax returns.
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What Others Have To Say...
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Marc came to my rescue. He structured the Jumbo-Reverse loan so I was able to set aside $1,000,000 towards monthly income.
He made sure my appraisal came in at full value. Now I will be able to stay here for the rest of my life. He is the best at what he does. Call him! – David H, Beverly Hills, CA Marc did a great job getting me qualified so I could use a reverse mortgage-for- purchase to buy my retirement home. He overcame many financial obstacles on my behalf and succeeded where others would have failed. I’ve actually come to think of him as a loyal friend.
– Gloria L, Tucson, AZ |
Marc did a financial analysis for me and showed me how I was going to run out of money in 6 months. He was honest and he structured a reverse mortgage for me that not only cleaned up my bills, but also fixed up my house and gave me time to sell my business. Today I am debt free, my stress is down and my health and quality of life is better thanks to him.
– Paul Z, Lake Arrowhead, CA Marc got me a reverse mortgage on my mobile home. My taxes are paid, my bills are paid off, and I have a car that is reliable and money in the bank. He did a great job and he is a nice guy.
– Johnny P. Camarillo, CA |
