Every now and again ReverseResource.com receives email and/or comments.  The following comment was left in the contact us section.  My response follows:

I would like to state that we are very unhappy with the reverse mortgage that my parents took out from WSFS Bank in 1990. It is a shared appreciation loan that gets 82% of the value of the home. My mother is about to go into a home and the house value is around 2,000,000. My mother will not have the income from the reverse mortgage and needs the money for the nursing home. Not only is WSFS getting a ridiculous interest rate of 11.75% they are going to walk away with another $300,000 - $700,000. This is criminal and immoral to allow these kinds of contracts. Fannie May no longer honors these clauses in their contracts for that very reason. However, when I spoke with Bob Bell at WSFS about the contract he not only was rude but did not see anything wrong with this and no reason he should renegotiate the contract that my parents signed. My father not only was not in his right mind…he died of a brain tumor! It would appear to me to be predatory lending. What does your organization do to protect seniors against lenders with only their profits and self interest at heart and why do you support banks that rip off consumers equity in addition to the huge interest rates they charge? Do you have any recommendations for recourse? Thank you for your response.

Christine Carlton

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Mortgage Lenders Network USA Inc. became the third company in a month to stop issuing loans as U.S. housing sales slowed and defaults by borrowers rose.The company, known as MLN, is “not currently funding loans or accepting new applications,” according to a statement on its Web site. Middletown, Connecticut-based MLN, which caters to borrowers with low credit scores, said it is “exploring strategic alternatives” for its wholesale unit, which typically means a company is seeking new backers or a buyer. MLN also handles billing and collections for $15.6 billion of loans.

Lenders including Ownit Mortgage Solutions Inc. and Sebring Capital Partners LP that specialize in “sub-prime” mortgages closed operations and cut staff in 2006 as more loans to high- risk customers soured. Nationwide, late payments on sub-prime loans rose during the third quarter to 12.56 percent of the total, the most since the first quarter of 2003, the U.S. Mortgage Bankers Association said.

“What you’re seeing is a shakeout as it relates to the lower-tier mortgage players,” said Rui Pereira, a managing director in the residential mortgage group at Fitch Ratings.

Ownit, based in Agoura Hills, California, and the 16th- biggest issuer of sub-prime home loans, filed for bankruptcy court protection last week. Sebring, of Carrollton, Texas, closed in December. Morgan Stanley bought mortgage lender Saxon Capital Inc. for $706 million early last month and announced plans to slash 170 jobs.

MLN opened a decade ago with seven people. It grew to employ 1,800 people as falling interest rates early this decade spurred record mortgage applications. As recently as Dec. 8, Chief Executive Officer Mitchell Heffernan said in a statement that MLN was “actively accepting loan submissions” and that the company “continues its growth and expansion.”

Heffernan and General Counsel Steve Olearcek didn’t return calls for comment.

Closely-held MLN is the 15th-biggest issuer of sub-prime mortgages, with $3.3 billion of loans in the third quarter, according to the industry publication National Mortgage News. Sub-prime mortgages are made to people with low incomes, a track record of missed payments or limited credit histories.

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Despite the fact that we have enjoyed a long period of relatively low inflation, the cost of living continues to rise. A growing number of seniors living on limited or fixed incomes now find themselves house rich but cash poor. Confronted with mounting cash-flow shortages, many of them have been faced with the unpleasant prospect of having to sell a beloved family home.

Reverse mortgages were developed as one way to address this problem. A reverse mortgage provides funds to seniors, either in a lump sum or over time, using the equity in their homes as collateral. Unlike traditional mortgages or equity loans, which borrowers are required to repay, reverse mortgages require no monthly repayments. The total loan balance, including accumulated interest, is repaid when the home is sold or the last surviving borrower dies.

According to the National Center for Home Equity Conversion, the first known reverse mortgage was issued in 1961 by a banker in Portland, Maine, to the widow of his high school football coach. Reverse mortgages were later used in other areas of the country as well, but it was nearly 20 years before their existence received widespread exposure and government endorsement. Today, there are many types of both federally insured reverse mortgages as well as privately funded programs.

There are more features, restrictions and requirements to reverse mortgages than I have room to list here, but many resources are available to help you learn more.

The Web sites of the U.S. Department of Housing and Urban Development (www.hud.gov) and the AARP (www.aarp.org/revmort ) are good sources of information. The AARP has produced a free guidebook titled, “Home Made Money,” that you can download from its site or you may order it by calling 1-800-209-8085.

One of the provisions of a reverse mortgage is that the homeowner or his estate will never be liable for more than the home’s value, even in a falling real estate market. However, a family member wishing to keep the home after a parent’s death must repay or refinance the debt, but might have difficulty doing so in such a situation. Also, if the homeowner wishes to move and buy another home after spending the proceeds of the reverse mortgage, there may not be sufficient equity remaining in the home to be able to do so.

The decision to obtain a reverse mortgage should only be made after exploring all other options, thoroughly investigating all of the various features, requirements and costs, and especially communicating with your family.

The Department of Housing and Urban Development requires seniors to attend counseling sessions before issuing a federally insured mortgage.

Chris Kehl, vice president of Kennebunk Savings in York, Maine, feels, as I do, that a reverse mortgage should not be the first option a cash-strapped senior should consider. Although he acknowledges that reverse mortgages can sometimes be the best solution to alleviate serious financial problems, he has seen situations where they were the cause of emotional consequences that did not surface until years afterward.

Some alternative strategies he has used include the use of interest-only, fixed-rate home-equity loans to provide cash to homeowners who have had the ability to make modest monthly repayments.

Many states offer assistance for seniors who cannot afford to pay their property taxes. New Hampshire residents can check eligibility requirements by contacting the Department of Revenue Administration at (603) 271-2191 or visit www.revenue.nh.gov and click on “Low and Moderate Income Homeowners Property Tax Relief.” Maine has a program to partially refund property taxes or rent paid on a primary residence.

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The reverse mortgage market, catering to seniors over the age of 62, is one of the sectors that offers expanded career opportunities for dedicated professionals interested in helping seniors age in place by tapping into the equity in their homes.

DATELINE: BRAINTREE, MA…
Harbor Mortgage Solutions recently announced the appointment of Robert Barry as a Reverse Mortgage Consultant, based out of their Braintree, MA office, located at 100 Grandview Avenue.

Founded in 1978, Harbor Mortgage Solutions, through its Senior Homeowner Division, is dedicated to providing customized service for seniors by obtaining the best possible solution for each individual client every time.

Barry is well suited for his role at Harbor Mortgage Solutions as he educates qualified seniors about reverse mortgages, having had 20 years of experience in the insurance and financial services industry as a Purchasing Manager and Contract Specialist.

A graduate of Boston College with a B.A. in Business Administration, Barry received his M.B.A. from Suffolk University in Boston. He is a member of the Purchasing Managers Association of Boston, and has also served as a former President of Canton Youth Soccer.

Barry currently resides in Canton, MA.

The Reverse of Traditional Thinking
A reverse mortgage, essentially the opposite of a traditional or “forward” mortgage, can enable seniors to tap into accumulated equity without having to face ongoing payments. Unlike traditional mortgages where borrowers make monthly payments, in a reverse mortgage the cash flow is reversed, and the lender makes payments to the borrower, enabling borrowers to use the tax free cash they receive in any way that they wish.

There are no minimum income, asset, or credit qualifications to meet and no effect on Social Security or Medicare benefits. The property must be the primary residence of the borrower and properly insured and maintained, with real estate taxes kept current. As long as the borrower continues to live in the property the loan can never be called. Repayment is required if the home is sold, or when the last borrower permanently leaves the property, or passes away. At that time, the heirs can sell, or refinance, the property to pay off the loan.

Once the province of a few small banks and private lenders, the great majority of reverse mortgages today are provided through government-sponsored programs, namely the HUD/FHA Home Equity Conversion Mortgage (HECM) and the Fannie Mae Home Keeper (HK) programs.

Harbor Mortgage Speakers Bureau
Area Councils on Aging, Visiting Nurse Associations, home healthcare providers, civic organizations, and church groups are invited to contact Harbor Mortgage to schedule an educational presentation to learn about alternatives available to senior homeowners, including ways to unlock the equity in their homes.

Customized Harbor Mortgage Solutions
Specializing in conventional residential and reverse mortgages, Harbor Mortgage Solutions, Inc. is located at 100 Grandview Road, Suite 105 in Braintree, MA. George A. Downey, who is now joined by his son Christopher Downey, founded family owned and operated Harbor Mortgage Solutions in 1978.

Assisted by a staff of experienced mortgage professionals, Harbor Mortgage Solutions is dedicated to providing customized service, obtaining the best possible solution for each individual client every time. An equal opportunity lender licensed in Massachusetts (license #MC0041) and Rhode Island (license #20041821LB), Harbor Mortgage Solutions is a member of the Massachusetts Mortgage Association, the National Association of Mortgage Brokers, and the National Reverse Mortgage Lenders Association, strictly subscribing to their rigid code of ethics. Harbor Mortgage Solutions is also an Educational Subscriber of the Massachusetts Chapter of the National Association of Elder Law Attorneys.

For additional information on services offered by Harbor Mortgage Solutions please call 781-843-5553 or 800-599-8700, or visit www.HarborMortgage.com.

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Janis Laycox has joined Wells Fargo Home Mortgage, the nation’s leading provider of residential mortgages, as a reverse mortgage specialist to serve the Fallon Fernley branches.

In this role, Laycox will work exclusively with senior homeowners seeking a reverse mortgage, a home financing program that allows homeowners to utilize the equity in their home to supplement their retirement income. Janis Laycox will be based in Wells Fargo Home Mortgage’s Fallon and Fernley bank branch offices, and will serve customers statewide.

Prior to joining Wells Fargo Reverse Mortgage she served as a mortgage consultant at the Reno Wedge Parkway office.

“We are excited to have a reverse mortgage specialist on our team who will be able to focus on the needs of our senior customers in Nevada,” said Julie Hill, Reverse Mortgage Sales Manager, of the Reno Mae Anne office. “Reverse mortgages are quickly gaining in popularity among senior homeowners, so we are pleased to offer Janis’s expert consultation.”

A reverse mortgage is a loan that enables senior homeowners to convert part of the equity in their home into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. Reverse mortgages are generally limited to individuals 62 years and above whom own their homes free and clear of debt, or have only a small loan balance remaining.

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HUD AWARDS OVER $12 MILLION TO HELP THE ELDERLY AND PEOPLE
WITH DISABILITIES CONTINUE TO LIVE INDEPENDENTLY AT HOME
WASHINGTON - Housing and Urban Development Secretary Alphonso Jackson
today announced $12.1 million in Service Coordinator grants to provide more
than 6,000 low-income frail elderly and residents with disabilities in federally
supported housing with assistance to identify and receive health care, meals
and other critical support services.

“This Administration is helping older Americans and those with disabilities get
the housing they need and these grants will help provide the services that will
enable them to remain in their homes, connected to their communities and
friends, rather than face premature institutionalization,” said Jackson.

The grants are directed to owners of privately owned multifamily housing
developments that receive money from HUD to house low-income individuals.
The owners or their management companies then either hire or contract service
coordinators with backgrounds in providing social services, especially to the frail
elderly and people with disabilities, to assist their residents with special needs.
The grants pay the salary, fringe benefits, and related administrative expenses
associated with employing a Service Coordinator. Service Coordinators help
residents obtain supportive services provided by community agencies. These
services enable frail elderly and disabled residents to live as independently as
possible for as long as possible in their homes.

HUD notes that as the U.S. population ages and the number of older Americans
grows, there will be an increased need for programs to help the elderly continue
living independently in their homes.

According to the U.S. Census Bureau, there were 35 million people age 65
years or older in the U.S. in 2000, and it estimates that by 2050 that number will
climb to 80 million.

Projects in 26 states will receive the Service Coordinator grants:

State
Total Grant Amount

Alabama
$89,513

Arkansas
$520,821

California
$1,488,961

Colorado
$389,308

Connecticut
$1,391,985

Florida
$355,265

Georgia
$905,969

Idaho
$237,584

Illinois
$410,950

Indiana
$194,093

Iowa
$337,277

Kansas
$129,391

Maine
$180,975

Maryland
$295,712

Massachusetts
$241,670

Michigan
$555,232

Minnesota
$363,375

New Hampshire
$253,610

New Jersey
$128,923

New York
$475,353

Ohio
$2,015,197

Pennsylvania
$166,420

Tennessee
$228,869

Virginia
$370,833

West Virginia
$216,282

Wisconsin
$162,281

Total
$12,105,849

HUD is the nation’s housing agency committed to increasing homeownership,
particularly among minorities; creating affordable housing opportunities for
low-income Americans; and supporting the homeless, elderly, people with
disabilities and people living with AIDS. The Department also promotes
economic and community development, and enforces the nation’s fair housing
laws. More information about HUD and its programs is available on the Internet
at www.hud.gov and espanol.hud.gov.

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Equity release schemes such as a reverse mortgage have been around for years, but the baby boomer generation is creating unprecedented demand for a financial product that helps ensure a comfortable retirement.Renowned as being spenders rather than savers, the so-called boomers are proving to be only too happy to borrow against all or some of their home to finance their retirement lifestyle.

In its simplest form, a reverse mortgage is a loan that allows seniors — generally those aged 55 and above - to borrow against the equity in their home, thus providing additional funds to support themselves in retirement.

No repayments are required during the loan term. Instead, the debt and interest builds up over time and may be repaid by the beneficiaries of the estate when they sell the home.

Research group Datamonitors says most people take a lump sum of between $40,000 and $50,000 and splurge on a new car or holiday.

Others elect to take a few hundred dollars extra each week to support a more comfortable lifestyle.

Declining pensions

According to Jon King, the chief executive of the United Kingdom based Safe Housing & Income Plan (SHIP) group, the global phenomenon of increased demand for equity release schemes is driven by longevity and declining government pensions.

“As people are living longer they need to fund longer retirements. In many countries house prices are up strongly and the home makes up a major part of people’s retirement nest egg,” he says.

Business manager of Mariner Financial’s equity release product, Daniel Burke, attributes a changing attitude to inheritance as another reason behind the popularity of the product.

Where once it was a given that the next generation would inherit the family home, many of those probable beneficiaries would rather see these people enjoying life.

“A lot of the kids of baby boomers want their parents to have a retirement and to have a life. They recognize that their grandparents might not have enjoyed their retirement and don’t want the same of their own parents,” he says.

Kieren Dell, Executive Director, Senior Australians Equity Release Association of Lenders (SEQUAL), believes the key to the growth rate of loans is the baby boomers. .

“Whereas the frugals didn’t take the loan unless they really needed it, for the baby boomers it is not a last resort. Their attitude is: my house is part of my asset base for retirement, how do I access it?,” says Dell.

“The baby boomers, who are now moving into retirement, have a different attitude to their retirement and lifestyle to their parents. They are focused on enjoying their life after years of working and want to travel, renovate, buy a new car and live their life to the full. To maintain this lifestyle, they require more than is provided by the age pension, and more than their superannuation savings will fund,” says Dell.

How much a person can borrow depends largely on their age, the value of their home and how much equity they have in it.

Limits on loans

Most lenders limit the loan to valuation ratio (LVR) to around 15 percent for people aged 65, increasing the maximum LVR as the borrower’s age increases.

In some cases, up to 45 percent will be lent on the value of the property for those aged 80 and over. Others will only lend 25 percent regardless of the value of a property or age of a person.

Tighter lending controls follow some unfortunate practices in the United States and the UK in the 1980s which saw hundreds of retirees left without a home before their time was up, as greedy lenders sought to recover debts on loans which probably should never have been taken out in the first place.

A number of safeguards have now been introduced by most lenders — which are reinforced by the likes of SHIP and SEQUAL — which prevent home owners from ever owing more than the value of their home or being moved out of their home before they die or move out of choice.

In another move to remove other nasty surprises, some lenders offer a fixed interest rate option for customers who want to safeguard against any future interest rate increases.

Greg Tanzer, the executive director of consumer protection at the Australian Securities and Investments Commission, urges anyone considering a reverse mortgage to get independent financial advice. This advice will help decide whether the product is likely to be able to meet the applicant’s needs now and in the future. ASIC also recommends asking an independent solicitor to check the contract and explain the fine print; and for the applicants to discuss their intentions with their family.

To work out how much the debt may grow over time, it may be worth using one of the many calculators available. See: www.fido.gov.au and www.aarp.org/money/revmort/

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A reverse mortgage borrower may encounter many financial hazards in taking out a reverse mortgage. First, reverse mortgages are very expensive while promising an uncertain amount of benefits. For example, a typical reverse mortgage may provide to the consumer a $300 per month payment with a monthly compounded interest rate of 1%. Over the course of ten years, the borrower will receive $36,000, but by that time she will owe almost $70,000-almost twice as much as she has received.

In addition, reverse mortgages have complex contract terms that are confusing and can greatly impact the overall cost of a reverse mortgage to the borrower. This report examines the effect of some of these terms on some California reverse mortgage borrowers and looks at the danger to borrowers when lenders or third parties involved in arranging reverse mortgages do not fully disclose a loan’s terms and fees. One example involves a lawsuit filed by the San Mateo County Public Guardian which, on behalf of Berta Grey, an 83-year old woman, alleged that Transamerica Corporation unfairly and unconscionably charged her what was in effect a shared appreciation fee. This fee gave Transamerica an automatic 50% interest in the difference between the base value of the home when the loan was signed and the appreciated value of the home when the loan terminated, even though the fee bore no relation to the amount she actually borrowed. Additionally, the cost of Berta Grey’s reverse mortgage soared when she was required to purchase an annuity in conjunction with her reverse mortgage. An annuity is an insurance product financed out of the home’s equity to provide monthly payments to the borrower immediately or after a certain number of years. The San Mateo County Public Guardian alleged that Transamerica charged Berta Gray the cost of the annuity immediately and that interest began compounding on that fee even though she was not due to receive any payment on the annuity until six years after the loan began, at age 89. Under this arrangement, if Ms. Gray died before the six-year period ended, her estate would see no benefit from the annuity purchase, although she had paid in full for it.

Numerous other front-end and back-end fees can quickly drive up the cost of a reverse mortgage and are discussed in more detail in this report. These fees include origination fees, points, mortgage insurance premiums, closing costs, servicing fees, shared equity or “maturity” fees, and shared appreciation fees. The case of the San Mateo County Public Guardian v. Commonwealth Life Insurance illustrates how some of these fees generated allegations by a class of 1,505 borrowers that they were charged tens of thousands of dollars in artificially inflated loan fees. This suit was settled in 1999.

Reverse mortgage counseling, which is the main consumer safeguard against financial fraud and abuse against seniors, is required for some but not all loans. This means that the current system of reverse mortgage counseling is not enough to protect potential borrowers. Some of the major flaws cited in this report include situations where reverse mortgage counselors are not neutral parties because they are affiliated with the lender. Unfortunately, this practice is encouraged by the fact that Fannie Mae will purchase reverse mortgage loans from loan originators who themselves provide “counseling” to prospective reverse mortgage borrowers.

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There are many different reverse mortgage options: single purpose reverse mortgages, federally insured reverse mortgages, and proprietary (private sector) reverse mortgages. Each option has different pros and cons that need to be considered when looking into taken out a reverse mortgage.

Single-Purpose Reverse Mortgages

A single purpose reverse mortgage is the lowest-cost type of reverse mortgages to obtain, but as the name indicates it can only be used for one specified purpose. They are typically offered by state or local government agencies. These loans a great for individuals who need cash for a specific purpose like paying property taxes or fixing up there homes. Here are descriptions for several different types of single purpose reverse mortgages:

Property tax deferral (PTD) mortgages are reverse mortgages that provide loan advances for paying property taxes.

Deferred payment loans (DPLs) are reverse mortgages providing lump sum disbursements for repairing or improving homes.

Federally Insured Reverse Mortgages

A federally insured reverse mortgage is the only reverse mortgage insured by the Federal Housing Administration (FHA). These reverse mortgage are one of the lowest-cost multipurpose reverse mortgages currently available. Overall they typically provide the largest total cash benefits of all the reverse mortgage options. The proceeds from a federally insured reverse mortgage can be used for any purpose. These loans are also known as Home Equity Conversion Mortgages (HECMs).

Proprietary Reverse Mortgages

A proprietary reverse mortgage is a mortgage product owned by a private company. These type of loans are more expensive then the other reverse mortgage types and should be approached with caution. Anyone looking into these type loans should get a comparison with a similiar HECM. One benefit of proprietary reverse mortgages are the higher home value limits. So, if you live in a home that is worth a lot more than the average home value in your county, a proprietary loan may give you greater loan advances than a Home Equity Conversion Mortgage (HECM).

As with any financial decision, you should get professional help to help you decide which option is best for your situation. Reverse mortgage counselors can help you evaluate each of your options and help you make an informed decision.

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Web site provides list of reputable lenders

DEAR BOB: My parents are avid readers of your articles and have become quite the experts on reverse mortgages for senior citizens. But they live in a small town that has one bank, owned and run by an “old geezer” who has been there for 100 years. At least he seems that old. I know he charges high interest rates but he is so charming that most of the “locals” don’t bother to go to the nearest city about 50 miles away to compare loan terms. Where is the best place for my parents to get a reverse mortgage? Are reverse mortgages available at small-town banks? –Marsha W.

DEAR MARSHA: Yes, reverse mortgages are available everywhere, even in small towns. However, there are minimum property standards.

Purchase Bob Bruss reports online.

Perhaps you remember the angry West Virginia homeowner whose reverse-mortgage application was rejected because her only drinking water source is a cistern (for some reason she didn’t want to drill a well). Frankly, I don’t blame the reverse-mortgage lender for rejecting that loan.

Your parents will discover most banks do not originate reverse mortgages for senior citizens. But a major exception is Wells Fargo Bank.

The easiest place to find reputable reverse-mortgage lenders for your parents in their area is at www.reversemortgage.org. They should consider the FHA (HECM), Fannie Mae and Financial Freedom Plan reverse mortgages.

More details are in my special report, “The Whole Truth About Reverse Mortgages for Senior Citizen Homeowners,” available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant delivery at www.BobBruss.com.

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