The Reverse Mortgage!
Just like low-interest, low-down-payment loans were several short years ago, Cable TV is loaded with dozens of pitches directed at seniors for this long-established, but still confusing, loan product.
In a nutshell, a Reverse Mortgage allows a Senior Citizen, minimum age 62, to draw out equity from their current home for any reason. This Home Equity Conversion Mortgage (HECM) need not be repaid to the lender until the home is sold, or the owner permanently moves out, or dies.
According to a story by Real Estate Writer Mary Ellen Podmolik in last Friday's Chicago Tribune, many senior citizens use the equity for long-term care expenses or insurance. Some use if for vacations or other items. A few for Home Repair, in preparation for the eventual sale of the home.
But many experts, including U.S. Comptroller of the Currency John Dugan, fear that older homeowners may be particularly vulnerable to aggressive marketing by Reverse Mortgage lenders, much the same way those with blemished credit and low saved down payments fell prey to unethical sub-prime lenders during the peak of the housing boom a couple of years ago.
Many of these mortgage products lend at high rates of true interest, with higher fees than traditional home equity loans which require periodic repayment. Often times, loan terms are non-traditional, and confusing, even to those familiar with other mortgage products. However, Reverse Mortgages are guaranteed by the Federal Housing Administration.
In 2008, more than 115,000 Reverse Mortgages were written across the U.S., compared with less than 22,000 written five years earlier. Over 11,600 Reversed Mortgages were written in April, 2009 alone, according to data by the National Reverse Mortgage Lenders Association.
These increases come amidst a sluggish housing market in most U.S. Cities, including Chicago and its suburbs, in which some home values, and the resultant equity against which to draw, have fallen by 18% or more. However, other assets held by seniors, including 401K Accounts, IRA's, and Pensions, have also fallen considerably in value, making the Reverse Mortgage all the more attractive, and sometimes necessary.
Senior Advocacy Lobbyist AARP is concerned that some Reverse Mortgage Lenders have resorted to high-pressure, too-aggressive practices for selling these loan products, and that these products may not be a strong match for everyone. Comptroller Dugan wants to make sure these lenders adhere to lending compliance standards, and warns more, tighter legislation may be necessary.
Please read our post today via BlogChicagoHomes.com.
DEAN & DEAN'S TEAM CHICAGO
I think it is a good idea to have the option of a mortgage that will allow a senior to draw from their equity.
But hopefully we have learned the potential nightmares that can happen if this area of the mortgage industry is not regulated.
Taking advantage of seniors is an extremely low thing to do.
We need to stay on top of this and make sure it is a fair deal for seniors.
Reverse mortgages are not the best options for some. However, when the need is there, reverse mortgages offer a lifeline to enable independent living. We like to ability to use a reverse mortgage to purchase a more appropriate primary residence. Many senior can upgrade their housing and their quality of life with this product.
Borrowers need to be well informed and should consider other options. They should carefully consider the costs involved.