Data Shows Seniors Turning to Reverses to Make Up for Investment Losses (Reverse Mortgages)

Broker Universe ^ | March 25, 2009 | Brad Finkelstein

[2ndDivisionVet]

OAKLAND, CA - More senior citizens are looking into reverse mortgage loans as a way to offset the income that has vanished as the result of losses in their investments. This is from data gleaned by Golden Gateway Financial here from usage data for its online reverse mortgage calculator.

However, on the other side of the equation, the company said, homeowners are seeing their home values drop, as evidenced by changes in the S&P/Case-Shiller Home Price Indices.

"For many older Americans, the time to act to stave off continuing losses is now," said Eric Bachman, founder and chief executive of Golden Gateway Financial. "Retirees who are unable to tap their investments or even return to work are turning to their home as their last line of defense, only to find its value is greatly diminished. This economy is effectively rewriting the financial rules of retirement."

According to the company, 46.1% of those researching a reverse mortgage during the fourth quarter had a forward mortgage on their property, compared with 51.4% in the first quarter, 53.4% in the second quarter and 53.8% in the third.

Golden Gateway said this data backs up its hypothesis about using a reverse mortgage to replace investment income.

The average home value slipped from $449,200 in the first quarter of 2008 down to $412,627 for the fourth quarter.

For older Americans considering tapping their home equity to help fund their retirement, a drop in home value corresponds to a similar loss in cash available through a reverse mortgage. The company advises potential borrowers already hurt by investment or job loss to consider locking in their home value now in order to avoid future declines in available equity.

"For these borrowers it makes sense to avoid selling stocks or other assets at or close to the bottom when a reverse mortgage allows them to participate in the potential upside of a rebound in property values," continued Mr. Bachman.

[tubebender]

We have never researched RMs but my nephew just sold my sister and her late husband home of 60 years and put it in a fund to pay her long term care. They bought the lot here in Eureka for $500 and cleared it in 1947 and built a modest home on it for $5,500 and moved in a year later. He died in 94 and she was able to care for herself until last year when she was 88. A year ago it would have sold for about $300,00+ and he was happy to get $220,000.

For years my accountants advised us to start 401Ks but we never had enough cash left after paying the mortgages on our rental property...

[Kid Shelleen]

Watch out for VERY HIGH FEEs !!!

[Myrddin]

I really don't care much either way. When my dad passed on, my sister urged my mom to sell her house and buy a smaller one near my sisters house. My sister plundered, gave away or sold most of the household contents in that process. That was accomplished without my knowledge and over my mom's objections. I drove 925 miles to San Diego to ensure my mom was set up comfortably in the new house before I was even aware of what happened. It was too late by the time I arrived. I made sure she was functional in the new house and drove directly back to Idaho.

[RVN Airplane Driver]

Watch out for VERY HIGH FEEs !!!

FYI...a large portion of the fees go to the gummint to insure that the RM recipient or the estate can never owe more than the home is worth. That also adds considerably to the amount of equity that is available to an eligible homeowners which more than offsets the fees.

[Joan Kerrey]

Is this as bad an idea as I think it is?

Not a bad idea if you don’t care about or don’t have anyone who might benefit from inheriting your home or it’s value.
Otherwise your beneficiaries will have to absorb the loan when they inherit the property, a tax on your kids and grandkids. It may be a reverse mortgage but it’s still a loan to be paid back when you die by whoever get’s the property.

[RVN Airplane Driver]

Otherwise your beneficiaries will have to absorb the loan when they inherit the property, a tax on your kids and grandkids. It may be a reverse mortgage but it’s still a loan to be paid back when you die by whoever get’s the property.

You said a tax on kids and grandkids...no...it's no different than any money owed that the estate is responsible for. Would it be a tax if the local bank had loaned the money for a conventional loan? A tax for our Kids and Grand Kids is what zero is doing to America.

[Joan Kerrey]

.it’s no different than any money owed that the estate is responsible for.

You’re right, not a tax. I used the word “tax” as an unwelcomed cost involved when kids inherit property. It isn’t free and clear when there is a reverse mortgage and often the kids must come up with money they don’t have to receive the property. Wrong word, right idea.

[RVN Airplane Driver]

You’re right, not a tax. I used the word “tax” as an unwelcomed cost involved when kids inherit property. It isn’t free and clear when there is a reverse mortgage and often the kids must come up with money they don’t have to receive the property. Wrong word, right idea.

Many times my clients use the RM as a vehicle to avoid having to go to their kids and ask for a monthly check. Most kids would rather their folks use a RM than write them a check to help them out...and the folks are usually reluctant to ask the children. With the looming inflation making all seniors money evaporate..RM's will become increasingly necessary and popular.

[Joan Kerrey]

.RM’s will become increasingly necessary and popular.

I see nothing wrong with it personally but interest rates and other costs seem a bit high. Other drawbacks are inheritance issues. But as you say, when kids are involved and know what the folks must do it’s probably better than giving the folks cash that most really don’t have anyway. This crisis is really going to affect the norms regarding past inheritance pratices and expectations.
Some older folks may be too embarassed to tell their kids and they’ll only find out after death. Expectation has generally been that the folk’s home is free and clear. It’s really sad that so many will still owe on their homes until death.

[SierraWasp]

I understand completely! I’m in the same position with my first wife!!!

[nomorelurker]

No that is wrong also. The 18 year old could receive the property by inheritance (separate property, not community under Texas law). Marry the 90 year old and at least technically qualify for the RM. The over 62 person need not be “on the deed”. Have you read too many mortgage broker memos?

[SoldierDad]

My thought exactly.

[Grampa Dave]

“Most people with a strong equity position in the home use the reverse mortgage to pay off the first mortgage. Since the owner need not make payments to the reverse mortgage, they tend to use their monthly income stream for other living expenses.”

Which is why I’m interested in the reverse mortgage.

[Grampa Dave]

My Trophy wife is my first wife.

[cherry]

I don't like these reverse mortgages....as I understand it, they cost quite a bit of money to setup, and, it is like throwing your legacy out the window....

okay, so who cares about a "legacy"?.....well I do.....my folks left what they could,not a zillion dollars but very much appreciated I can tell you that.....I want to do the same if not more for my children.....

when my 401K and Roths are shot, at least there will be the house.....

on a philosophical note, it used to be that generations looked out for one another....that grandma and grandpa as much as they could helped the youngun's with college, first house, etc etc.....in return, the youngun's looked after the seniors....

that seems to be gone down the drain now...

[cherry]

not only that, but a simple home equity loan would provide money for living expenses just as well as selling your mortgage outright....

of course, I realize that some people are in desparate condition and maybe the reverse is the only way they have....

[SierraWasp]

Dang! Ya “one-upped” me once again!!! (Grin)

[Mashood]

Check with your lender regarding the reverse mortgage. Most lenders underwrite their own form of reverse mortgages with different fee structures, policies, and timelines. The FHA Home Equity Conversion Mortgage (HECM) product is the most “safe” reverse mortgage on the market today... seniors are counseled prior to concluding the mortgage process.

[Mashood]

The “attractive” feature about the reverse mortgage is that you don’t make any monthly payments on the money you “borrow” or use AND you can live in the home until you die, sell or whatever.

[Chickensoup]

http://www.wimp.com/thegovernment

This is a very good 10 minute video on where our country is going. It discusses the different types of governments in the world. This is not political. Both parties are responsible for the shift in the type of government that represents us. Can WE stop that shift.

Never saw this before...it should be passed on...