Currently the only state that doesn't let seniors use reverse mortgages for purchasing homes, Texas could switch course if voters approve a constitutional amendment in the Nov. 5 election.

Proposition 5 would allow homeowners age 62 or older to buy a new house by paying about half of their costs out of pocket and then using funds from a reverse mortgage loan to pay the difference — all in one transaction and without having to sell their current home first. Proponents say that such a streamlined process would cut closing costs and could benefit hundreds of thousands of Texans. But some observers warn that if the amendment passes, seniors shouldn't assume that a reverse mortgage is their only option when buying a new home.

If voters back Prop 5, Texans could become part of the Home Equity Conversion Mortgage for Purchase program, which offers seniors reverse mortgages, insured by the federal government, specifically for purchasing new residences.

Unlike a traditional mortgage, reverse mortgages allow seniors to borrow money against the value of their homes. The homeowners are not expected to make payments on the loan; instead, when the borrower dies, the home could be sold by the lender or the borrower's heirs to cover the loan amount.

Texas, which began allowing home-equity lending in 1997, has allowed reverse mortgages since 2000. State lawmakers had resisted this type of home-equity lending because of the state's constitutional homestead protections, which are designed to prevent creditors from placing or enforcing liens on a property.

Source: http://www.mysanantonio.com/community/bulverde/article/Proposition-5-would-allow-reverse-mortgages-for-4901424.php
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It’s a jarring situation: Your spouse dies, and you end up facing the possible loss of your home through foreclosure--just because you aren’t listed as a borrower on a reverse mortgage on your home.

       That’s what happened to Robert Bennett of Annapolis, Md., when his wife died in 2008. She was listed as the borrower on a reverse mortgage taken out on their home before her death -- but Mr. Bennett wasn’t. Rules administered by the U.S. Department of Housing and Urban Development allow banks to force surviving spouses who aren’t also listed as borrowers to pay off reverse mortgages, and to foreclose on the property if they can’t.

But a court ruling this week in a case brought against H.U.D. on behalf of Mr. Bennett by AARP Foundation Litigation should lead to regulatory changes that will help him and others like him remain in their homes, said Jean Constantine-Davis, a senior attorney with the foundation.

“The decision marks a turning point for surviving spouses such as our clients and ensures that they will receive the protections guaranteed by the law: that they will be able to remain in their homes, despite the loss of their husband or wife,” she said in a statement.

The United States District Court for the District of Columbia ruled Monday for the AARP, finding that H.U.D.'s rules contradict federal law governing reverse mortgages, which protects surviving spouses. The court sent the matter back to the housing agency for a fix.

It’s not known yet exactly how the agency will correct the problem, Ms. Jean Constantine-Davis said. H.U.D. may have to offer to take over affected loans, since the rules gave lenders the right to foreclose. It’s also unclear how many reverse mortgages are affected, or what their total value is, she said.

A spokesman for H.U.D. didn’t return a phone call seeking comment; a recorded message at the agency’s press office said the office was closed Tuesday afternoon because of the federal government shut down.

No one was available to comment Tuesday at the National Reverse Mortgage Association, which represents lenders.

The decision, Ms. Constantine-Davis said, should help remedy a potentially devastating snag in a financial product that was designed to help older people meet their expenses. “The decision will ultimately affect an untold but substantial number of similar surviving spouses, many of whom have contacted plaintiffs’ counsel over the past few years,” she said.

Reverse mortgages work differently than traditional mortgage loans. They’re only available to you if you’re 62 or older, and they’re meant to help you tap the equity in your house. Instead of you paying the bank, the bank pays you -- either in a lump sum, or in monthly distributions -- and interest accrues. When you die or move, you or your heirs typically sell the home to pay off the loan, and keep any money left over if the house is worth more than the remaining balance.

Here are some questions to consider, before taking out a reverse mortgage:

■ Does this ruling mean that I can now safely take out a reverse mortgage and leave my spouse off the loan?

That’s not a good idea, said Ms. Constantine-Davis. “I would at this point still be very discouraging from doing a reverse mortgage that leaves the spouse off,” she said, until it’s clear precisely what H.U.D. will do to fix the problem.

■ Why would I want to leave my spouse off the loan anyway?

Reverse mortgages are granted based on factors including the age of the borrower; the younger you are, the less money you get, since you are likely to stay in the home longer. Some borrowers may have been advised by brokers to leave the younger spouse off the mortgage to increase the amount of their loan, but borrowers may not have realized that could leave them at risk when the borrowing spouse died.

■ How can I be sure that I understand the risks of taking out a reverse mortgage?

Reverse mortgage borrowers are required to undergo independent counseling before signing loan papers; make sure both you and your spouse attend. New rules governing the loans start taking effect this month. For instance, you may be limited in the amount of money you can access in the first year of the loan. And your finances may get more scrutiny, to make sure you can continue to pay taxes and insurance on the home. More details are available in recent column by my colleague, Tara Siegel Bernard.   

Source: http://www.nytimes.com/2013/10/02/your-money/surviving-spouses-with-reverse-mortgages-win-case.html?_r=0


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A rule of the U.S. Department of Housing and Urban Development governing repayments of reverse mortgages by surviving spouses conflicts with federal law, a judge in Washington ruled.

HUD erred “when it insured the reverse mortgages of plaintiffs’ spouses pursuant to regulation, which permitted their loan obligations to come due upon their death regardless of whether their spouses were still alive,” U.S. District Judge Ellen Huvelle said in an opinion released today. The widowers who sued HUD cited a federal law that defers an obligation to pay off such loans until the homeowner’s death and defines “homeowner” to include the surviving spouse.

HUD rules make it more likely that a surviving spouse will end up in foreclosure, according to the suit, which was filed in 2011.

Brian Sullivan, a spokesman for HUD, didn’t immediately respond to telephone and e-mail requests for comment on Huvelle’s ruling.
Home’s Equity

Reverse-mortgage loans pay out a home’s equity to the homeowner, sometimes in installments, and are usually repaid when the borrower dies or moves out of the house. Borrowers are considered behind on payments if they don’t stay current on their property taxes and insurance.

The loans are available only to borrowers who are at least 62 and who have significant equity in their homes.

The language HUD used when implementing the law states that the loan comes due “if a mortgagor dies and the property is not the principal residence of at least one surviving mortgagor.”

In defending its wording of the regulation, HUD said that it was concerned that a homeowner, after taking out a reverse mortgage, might marry a young spouse, which would increase a lender’s risk, according to a filing in the suit.

The complaint initially was dismissed by Huvelle, who found that since the widowers weren’t borrowers on the loans, winning the lawsuit wouldn’t save their homes because it was the lender’s decision whether to foreclose.
HUD Remedies

In reinstating the case earlier this year, an appeals court said HUD could come up with remedies to keep widowers in their homes.

“HUD could accept assignment of the mortgage, pay off the balance of the loans to the lenders, and then decline to foreclose,” Circuit Judge Laurence Silberman wrote in the appeals court ruling.

Craig Briskin, a lawyer for the plaintiffs, said he didn’t know how many homeowners are affected by the ruling, “but the number of people who have contacted us is in the high hundreds, perhaps more than a thousand.”

“The court has told HUD, protect these people,” Briskin said. “They do have discretion to figure out how are we going to accomplish this.”

The case is Bennett v. Donovan, 11-cv-00498, U.S. District Court, District of Columbia (Washington). 

Source: http://www.bloomberg.com/news/2013-09-30/reverse-mortgage-rule-on-surviving-spouse-tossed-by-judge.html  
To contact the reporter on this story: Andrew Zajac in Washington at [email protected]

more articles about reverse mortgages at Best James Clooney

Security One Lending (S1L) is making headway in educating financial planners on the use of reverse mortgages as a viable retirement tool.




S1L, a division of Reverse Mortgage Solutions, presented a national webinar last week specifically designed for Certified Financial Planners, which attracted more than 500 advisors.




The webinar, “A Fresh Look at Reverse Mortgages,” featured guest speaker Michael Kitces, a partner and the director of research for Pinnacle Advisory Group. Located in Columbia, Maryland, Pinnacle is a private wealth management firm that oversees approximately $1 billion of client assets.




Attending CFPs also received one hour of C.E. credit for the session, the second in an ongoing series of national webinars offered by S1L and the American C.E. Institute. In June, Dr. Barry Sacks presented the first webinar in the series, “Reversing Conventional Wisdom.”




“The success of these presentations clearly shows the reverse mortgage has evolved from merely a needs based ‘product of last resort’ to true and viable option to be considered as just one component in an overall and more comprehensive retirement plan,” said Torrey Larsen, president of retail lending for RMS.




Eliminating reverse mortgage misconceptions among the mainstream financial community is a key element in S1L’s “education business model,” said Director of Business Development Shelley Giordano, who has been working on S1L’s ongoing education efforts among the financial planning community. Those efforts have included the webinar series as well as the recent establishment of a reverse mortgage advisory board to target misconceptions about the product among financial planners.




“The success of these first two national webinars clearly shows this topic is incredibly timely and relevant to financial advisors working with seniors,” Giordano said.




Future presentation topics will address the relationship of long-term care and reverse mortgages, as well as the ongoing series “Using Household Wealth During the Distribution Phase of Retirement.”




Source: http://reversemortgagedaily.com/2013/09/23/s1l-continues-dialogue-with-financial-planners-on-reverse-mortgages/




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The spigot on reverse mortgages has been slowly tightened over the last several years. Borrowers can no longer tap as much of their home equity as they could before the housing crisis. 




 Now the rules are about to change again.




As a result, some people with heavy debt who were hoping a reverse mortgage would solve their financial problems may find that it is no longer a viable option. Under the new rules, which go into effect on Sept. 30, many borrowers will be able to get access to even less of the value locked in their home — about 15 percent less — compared to the maximum available now. The rules also put new limits on the amount of money that can be taken out in the first year, which may further deter the most distressed prospective borrowers.




“The changes really put the product on track as a long-term financial planning tool as opposed to a crisis management tool,” said Ramsey Alwin, senior director of economic security at the National Council on Aging.




The Federal Housing Administration, which insures most reverse mortgages, is making the changes in an effort to strengthen the program, which allows people 62 and older to tap their home equity without making payments. Lenders get their money back once the house is sold.




Since the economic crisis, more homeowners withdrew the entire pile of cash they were eligible for all at once, which strained the program’s reserve funds (lenders were also paid more when borrowers took large sums, and reverse mortgage experts say lenders prodded borrowers in this direction). Declining home values also hurt the program’s overall finances, since lenders often could not recoup the full loan amounts when the houses were ultimately sold.




The F.H.A. hopes that the changes, particularly the limits on how much can be withdrawn in the first year, will encourage people to tap their home equity slowly and steadily, in a way that will enable property owners to stay in their homes as they age. That’s a change that several consumer advocates, along with members of the industry, agree was necessary.




Up until now, just about anyone could qualify for a reverse mortgage. But perhaps the biggest change to the program will go into effect early next year, when borrowers will also need to prove that they have the wherewithal to pay property taxes and insurance over the life of the loan. If they cannot, they will have to set that money aside — and that could consume much of the loan’s proceeds.




There is still a little time to get a mortgage using the current program. As long as prospective borrowers go through the required financial counseling and receive a case number before Sept. 28, they will be able to qualify under the current rules.




Here’s a closer look at how the changes will affect prospective borrowers:




FIRST-YEAR LIMIT There will now be a limit on the amount of money that can be withdrawn in the first year. A homeowner eligible to withdraw a total of $200,000 in cash, for example, would be allowed to get only $120,000, or 60 percent of that sum, in the first year.




There are exceptions. Some homeowners will be able to draw a bit more if their existing mortgage, along with other items like delinquent federal debts, exceed the 60 percent limit. Homeowners are required to pay off those items — which regulators call “mandatory obligations” — before qualifying for the loan. So borrowers can withdraw enough to pay off these types of obligations, plus another 10 percent of the maximum allowable amount (in this case that’s an extra $20,000, or 10 percent, of $200,000).




Credit cards are not considered a mandatory obligation, so people with significant credit card debt may find they can’t withdraw enough money to pay those loans off, said Christopher J. Mayer, professor of real estate, finance and economics at Columbia Business School, who is also a partner in a start-up company, Longbridge Financial, that provides reverse mortgages. “There will be fewer financially distressed borrowers for whom a reverse mortgage will provide a satisfactory solution,” he added. “The product will be more attractive for people using it as part of a retirement plan.”




Borrowers generally choose to receive the money in one of two ways: as a lump sum (using a fixed-rate loan) or through a line of credit (which carries a variable rate). But lenders typically require people who use a fixed-rate loan to withdraw all the money at once — so they’ll be limited to 60 percent (or the amount of their mandatory obligations plus 10 percent). Only borrowers who opt for the line of credit may be able to access more money over time.




LOAN AMOUNTS The two types of reverse mortgages available now — the “standard” and the “saver” — are essentially being eliminated and consolidated into one.




The maximum amount of cash you can withdraw still largely depends on the age of the youngest borrower, your home value and the prevailing interest rate. (The older you are, the higher your home’s value and the lower the interest rate, the more money you can withdraw.)




Starting on Sept. 30, however, many prospective borrowers will have access to about 15 percent less home equity, on average, than the maximum amount available now.




With a mortgage rate of 5 percent, that means a 62-year-old will be able to withdraw up to 52.6 percent of the home’s appraised value, minus fees, under the new rules, according to the F.H.A. Under the existing program, the same person can tap up to 61.9 percent of the home’s value using a standard reverse mortgage, and 52.3 percent using a saver mortgage (which is cheaper than the standard, but gives you access to less home equity).




PRICING Part of the mortgage’s cost will now be based on the amount withdrawn. If borrowers take out more than 60 percent of the total amount available in the first year, they will have to pay a higher upfront fee: the upfront mortgage insurance premium, which can be wrapped into the loan, will be 2.5 percent of the appraised value of the property. Everyone else — that is, people withdrawing less than 60 percent — will pay 0.5 percent of the value of the property. (Previously, the upfront fees were 2 percent for standard mortgages and 0.01 percent for savers.)




The second fee, known as the annual mortgage insurance premium, will remain at 1.25 percent of outstanding loan balance.




FINANCIAL ASSESSMENT Lenders will also be required to ensure that homeowners can afford to make all the necessary tax and insurance payments over the projected life of the loan. Starting Jan. 13, lenders will analyze all income sources, which includes any earnings as well as pension income, Social Security, individual retirement accounts and 401(k)’s, among other things. A borrower’s credit history will also be factored in.




Lenders will also look closely at how much money is left over after paying typical living expenses, which include all property-related costs, federal and state income taxes, utilities and other debts and obligations, like a car payment or alimony.




If a single homeowner has from $529 to $589 left over after paying those expenses (thresholds are higher for couples and families), they will probably be able to qualify for a reverse mortgage free and clear — that is, without having to set aside a big sum of money for property tax and insurance.




If a prospective borrower falls short, the lender is supposed to look at other factors. The guidelines say they can consider “extenuating circumstances,” but it is unclear how lenders will interpret them. F.H.A. officials said they would also factor in how the loan proceeds would help improve a consumer’s financial situation.




SET ASIDE If a lender determines that you may not be able to keep up with property taxes and the required flood and hazard insurance payments, you will be required to set aside money (depending on your situation, it may be charged to your credit line or deducted from your payments), which means less cash in your pocket.




This requirement could disqualify many borrowers. “In many cases, the reserve consumes the entire credit line and then some,” said Mark Browning, president of Community Home Equity Conversion Corporation, a reverse mortgage lender in Rochester. “This provision hits especially hard in geographies where home values are more modest and property taxes and/or insurance charges are higher as a proportion of the home value.”




The upside: Property taxes and insurance would be taken care of, leaving other income to pay for living and other expenses. How all of this will work in practice, of course, remains to be seen.




“What regulators are trying to do is shift behavior so that people are more thoughtful and methodical about how they draw the money,” said Peter H. Bell, president of the National Reverse Mortgage Lenders Association, the industry trade group. “The changes are intended to put the program back on track and encourage people to take what they need and no more.” 




source: http://www.nytimes.com/2013/09/07/your-money/tighter-rules-will-make-it-harder-to-get-a-reverse-mortgage.html?pagewanted=all&_r=0




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In the aftermath of more than 2.5 million foreclosures, the Federal Housing Administration (FHA) is now offering a homeownership program that will put previously troubled borrowers on a fast-tracked return to the home ownership market. The new program, known as "Back to Work – Extenuating Circumstance," cuts the standard three-year waiting period to only 12 months.

According to Charles Coulter, HUD's Deputy Assistant Secretary for Single Family Housing,

"We understand that families occasionally experience financial difficulties that are simply beyond their control. We already have a policy allowing for exceptions to this waiting period when there is an extraordinary life event. This Mortgagee Letter is a targeted expansion of that policy.

"As part of FHA's ongoing mission" Coulter continued, "we want to make sure that qualified borrowers are not being unnecessarily shut out of the market. We 're looking forward to working with our industry partners to strengthen our housing market, to protect FHA's insurance fund, and to make certain access to credit remains available for future generations of homeowners."

That's good news for borrowers who lost their home because of specific financial hardships but can now demonstrate they have regained previously lost financial ground. The list of eligible financial hardships reads like a list of housing crisis woes:

Chapter 7 or Chapter 13 bankruptcy
Deed-in-lieu
Forbearance
Foreclosure
Loan modification
Loss of income, employment or both that totaled at least 20 percent of previous earnings for at least six months, including copies of applicable termination notices or changes in employment status
Pre-foreclosure sales
Short sales

Additionally, consumers must also meet other verifiable measures to participate in the program:

Proof of borrower's current income – usually W-2 forms or federal tax returns that show the desired mortgage would be affordable and sustainable;
Credit history pre- and post the eligible hardship event that is free from late payments or other major credit issues, including rental housing payments and accounts delinquent by 30 days or more;
Credit score of at least 500; and
Housing counseling by a HUD-approved counselor at least 30 days but no more than six months before submitting an FHA application.

For consumers meeting all of these criteria as well as other standing FHA mortgage guidelines, the Back to Work program is now available nationwide through FHA-approved lenders. Once participating lenders determine that mortgage applicants meet all eligibility and policy criteria, the same 3.5 percent minimum FHA down payment requirement will apply. Mortgage insurance and closing costs will also apply.

Only one FHA program is ineligible for the Back to Work program: reverse mortgages.

Earlier research by the Center for Responsible Lending found that more than 2.5 million homes were lost to foreclosure during the housing crisis. According to CoreLogic, a firm providing data and analysis to financial services companies and real estate professionals, the number of homes in some state of foreclosure dropped below the million-mark as of July 2013, to 949,000. This figure also represents a drop of 32 percent since July 2012.

Underwater mortgages, properties that are now worth less than their purchase price, also continue to haunt housing recovery. As of May 2013, Core Logic, the firm specializing in residential property information, found that 11 states had more than 1-in-5 underwater homes. The states with the seven highest numbers of underwater properties were Arizona, Florida, Georgia, Michigan, Nevada, California and Illinois.

As CRL has stated before, the housing crisis is not yet over. But programs that enable former troubled borrowers to regain the pride of home ownership and the chance to build family wealth have to be good news

source: http://www.atlantadailyworld.com/201309038588/Business/program-returns-foreclosed-borrowers-to-homeownership

According to banking-industry estimates, roughly 600,000 Americans over the age of 62 currently have a reverse mortgage – essentially, a loan that converts their home equity into a line of credit that doesn’t have to be repaid until they move out, sell the home or die. In most cases, such loans are a sign that the borrower is in dire straits, with no other means to cover expenses. But as Kelly Greene writes this week in The Wall Street Journal, some financial advisers think that even relatively affluent retirees could benefit from reverse mortgages—using them as an income stream that could help them lower their tax bills or avoid ill-timed sales of other investments.

The strategies that Greene describes fall into two main categories. The first involves using reverse mortgages as a cash cushion when stock or bond markets are depressed. Retirees whose income strategies involve regularly scheduled liquidations of parts of their portfolios can take a disproportionate hit if they have to sell during a down market, as many found out the hard way during the 2008-09 crash; falling back on a reverse mortgage could help them maintain a steady cash flow without selling assets at a discount.

The other strategy involves using a reverse mortgage to avoid rising into a higher tax bracket. Withdrawals from traditional IRAs are taxable, but tapping a home for income could allow some retirees to make smaller withdrawals; it could also keep their taxable income below the threshold at which Uncle Sam takes a bite out of Social Security benefits. (One counter-intuitive approach that an adviser describes to Greene: using a reverse mortgage to make payments on one’s mortgage, to avoid withdrawing nest-egg money for that purpose.)

Most large banks no longer offer reverse mortgages, and consumer advocates have accused some brokers in the field of fraud and high-pressure sales tactics; as Greene notes, anyone pursuing these strategies should tread carefully and skeptically.

Source: http://blogs.marketwatch.com/encore/2013/08/19/retirees-get-creative-with-reverse-mortgages/?mod=MW_latest_news

Earlier this year, Cecil and Ann White found themselves facing a difficult decision. The home they were renting was up for sale, and they had to either buy it or find a new place to live.

Worried about repeating their situation, they didn't want to rent again, but a traditional mortgage was not an option because they did not meet all the requirements.

When their financial consultant, Tracy Bush, suggested a reverse mortgage, it opened up the opportunity to own a home and save money without a 30-year mortgage.

“My wife said, 'That sounds too good to be true,'” said Cecil White, but “I've tried to see any negatives from it and I don't see any.”

Thanks to increased government regulations and involvement, reverse mortgages have become an increasingly viable option for seniors, Bush said. He rarely recommended them until recently, but sees much less risk involved now.

“They have evolved a lot in the last five years,” said Bush. “It's a lot better process than it ever has been.”

And as the housing market in Frederick County shows strong signs of recovery, higher home values are driving more seniors to seek reverse mortgages, said housing counselor Joseph Baldi, of the Frederick Community Action Agency.

“With the economy having taken the hit that it took a couple years ago with equity falling, the reverse mortgages were much more difficult to do,” Baldi said. “It started to come back, so now we're seeing a few more calls on HECMs.”

A HECM, or Home Equity Conversion Mortgage, is the most common type of reverse mortgage.

HECMs are federally insured, backed by the U.S. Dept. of Housing and Urban Development, and account for most of the reverse mortgages in the United States. In order to qualify for a HECM, applicants must be at least 62 years old, live at the collateral property as a primary residence and meet with a department-approved counselor, such as Baldi.

While applicants must have a sufficient financial standing with the federal government, there is currently no credit requirement.

Conditions of the HECM are likely to change, however, because the Federal Housing Administration recently got congressional approval to alter the programs. One possible change is the addition of a required financial assessment.

Reverse mortgages are essentially what they sound like — they take the money that someone has already spent or will spend to pay off their home, and gives it back to them, creating a new loan. In most situations, the borrower can wait to pay back the loan until they no longer live in their home.

If done right, a reverse mortgage provides needed income for the senior, who can fully pay back the loan upon selling the house. Under a federally insured HECM, the owners are protected from paying back more than the house is worth at the time of repayment.

“It cannot be a detriment at all,” White said.

All he has to do is continue paying property taxes, homeowners insurance and homeowners association fees, which cost less than he was previously paying for rent.

Minimizing risk

While the popularity of reverse mortgages is increasing, they are still not as mainstream as some other loan and retirement planning options.

Paula Blundell, of the Frederick County Senior Recreation Council, said she surveyed 90 council members and none of them said they had a reverse mortgage.

As for herself, Blundell said she had never even considered the option, having heard stories about people who got trapped in their reverse mortgage or left heirs with debt.

“Right now, it doesn't sound too promising with what we know about it,” she said.

But with a federally insured HECM, Baldi said, those risks should not exist. Even with the protections, however, the program is not without its costs.

If a senior wants to leave heirs with a large estate, a reverse mortgage may not be the best plan. Since the value of the home is used as equity on the loan, the borrower, or the heir if the borrower has died, would have to pay off the loan to keep the property, or sell the house.

"A best-case scenario is that the property sells in excess of the reverse mortgage lien (or conventional lien) on the property," said Angela Dredden, a HECM retirement specialist for Security1 Lending. This would allow the borrower or heir to have some money left after paying off the loan and related fees.

Borrowers also need some capital up front to even get the loan. For an HECM, they must pay a loan origination fee, which can be expensive, Baldi said.

In a case such as the Whites, who purchased a house using a reverse mortgage, the applicant also needs enough money to make a down payment. Baldi has advised customers who chose this path to homeownership, he said.

“Just be really sure it's the right program for you,” he said, “because it is expensive, but it can be an excellent program.”

So far, the Whites are happy with their financial decision and their 3,000-square-foot home in Frederick.

“It's very pleasant,” Cecil White said. “We're set now, we don't have to worry about the rent.”

Source: http://www.fredericknewspost.com/news/economy_and_business/business_topics/personal_finance/article_a84714f8-5768-508a-8343-5474cd18472f.html