Reverse Mortgages Information

Mar 17, 2008

  1. Charpress
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    I discuss reverse mortgages briefly in seminars and use the topic as a hook in mailings.

    The company I use for reverse mortgages basically gives me estimates on what a senior can get based on age, value of the home, and the home's location (zip code).

    There is no commission of any type. Basically, the idea is that once a senior has cash freed up, they might use you for investment advice as to where the cash should be parked.

    In every case I have run, the results stink. Typically, someone close to 70 is lucky to get around 50% of stated equity and the interest rates are about 1.5 points higher than a standard mortgage. Once I sit down with someone and show them the figures, I cannot in good conscience recommend a reverse mortgage --at least with the cases I have seen so far.

    Here's the question: Senior American Funding is running ads talking about making $15,000 in commissions monthly through them with "no license required in most states." Anyone have any experience either with this particular company or with reverse mortgages in general?
     
  2. Mr. Bill
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    Not specifically. Here's how it likely works - you will perform certain acts that are under the line with respect to RESPA, so you wouldn't need a license. Thinks like taking financial information, getting their information, those are okay. Most mortgage brokerages will offer anywhere from 25% to 35% (I believe) of the commission payable, that's probably where they're coming up with the $15,000 per month.

    I have to agree with you about "reverse mortgages suck" - for probably 99% of the people out there. They are completely oversold, and the "consultation" is worthless. The upfront fees are despicable!
     
    Mr. Bill, Mar 17, 2008
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  3. MAPDJim
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    I'm not sure where you are getting your info from but today's interest rate for a HECM 125 is 2.91 and it goes as high as 3.85 for other HECM loans. I'm pretty sure the 15 year and 30 yr "forward" mortgages are higher.

    As far as how much they get it's never less than 50% of the appraised value (within the area's lending limit).

    Someone who is 72 in Waterbury CT with a home valued at $200,000 could get $141,200 in a lump sump or monthly payments or left in a line of credit where it can grow.

    Part of the problem with the reverse mortgage industry is people are uniformed and try to tell seniors how it works. Especially the media.
     
    MAPDJim, Mar 17, 2008
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  4. Charpress
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    OK, here's a big part of the problem, and it is probably (no, definitely) zip code related. My zip codes are generally going to show Gulf coast locations. Need I say more?

    The last figures I ran for someone at 70 came back with not much over 50% of the equity, large up front fees deducted from the net to the client, and interest at 7%.

    It didn't look good, obviously.

    This is why I'm interested in other companies, although deep down I think the answers are going to be the same since the rates are pretty much controlled by federal agencies.

    And yes, I do realize that most of the free lunch seminars push life insurance as the logical place to put some of the reverse mortgage proceeds. This gives heirs a way to buy out the mortgage if they want the house. Still, I have to go with the 99% suck factor Mr.Bill states (maybe more like 85%).

    The only sound selling point for reverse mortgages I can think of is the 80 year-old client who wants in-home care but is faced with the nursing home unless home equity is freed up.

    But I'm very open to other possibilities if others here have more favorable experience with RMs.
     
  5. MAPDJim
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    Again you have the wrong software or information. The percentages are the same all over the country and it is based on age. The lending limit amounts are based on zip codes.

    So my 72 year would get the same percentage on his house no matter where he lives. The amount would probably be different becase lending limits are based on zip codes.

    There is a fixed product that virtually nobody uses and it's at about 6.8% today. Again that is rarely used.

    Before you make assumptions about whether it sucks or not, do your homework. A reverse mortgage is not for everyone but let me tell you this. The reason the closing costs are so high is because of the government mandated MIP (mortgage insurance premium). It is 2% of the appraised value of the home, up to the lending limit.

    Even with that for someone who bought a home for $20,000 or even less to pay $10,000 in order to get $140,000 and never have to pay it back it's a no brainer.

    Think about it. Their home went up in value 1,000% and they are giving up 5% of the home equity to change their lives dramatically.

    The programs are exactly the same no matter where you get them so you obviously have been misinformed.

    Funny to see insurance agents knocking another industry. Glass houses my friend.
     
    MAPDJim, Mar 17, 2008
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  6. Crabcake Johnny
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    Watch statements like "never" pay it back. There are scenarios when the home owner may have to pay it back:

    1) Maintenance on the house is not kept up properly
    2) Home becomes devalued
     
  7. MAPDJim
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    The home can be worth $0 and you don't have to pay it back while you are living in the home. When you die and your estate gets $10 for the home sale the bank takes the $10 and calls it even. That is what the insurance is for...it is a non recourse loan.

    The people I've been doing it for have been doing reverse mortgages for over 5 years and never heard of anyone losing their home for not fixing it up. If your wall falls in or your roof blows off...you better fix it but other than that they aren't keeping an eye on you. Not sure how they'd even know this happened.

    1) pay your taxes
    2) live in the home 1 day more than 6 months a year
    3) fix the roof or walls if they fall in
    4) keep homeowners insurance

    All things people do anyways.
    You do these things and there is nothing to worry about.
     
    MAPDJim, Mar 17, 2008
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  8. Charpress
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    For those of you sending me PMs: thanks, but please understand this formum's software does not allow me to respond until I have more posts.

    I started this thread not to knock reverse mortgages but to see if others are having better experiences than I am having.

    I would like this to work and I would like to be able to offer reverse mortgages as a viable option to clients.

    I have been using Financial Freedom (the company endorsed by James Garner) which basically just takes some basic information and presents an illustration in 3 columns: FHA/HUD monthly advantage, FHA/HUD annual adj, and Advantage Combo.

    The house presented was worth $600,000 and the age of husband is 74 while wife is 68. I realize that wife's age is the key number.

    The amount available as a "lending limit" in the first 2 columns is $200,000. The finance fees in the first 2 columns is $10,625 and $3,900 for the third. The "net available to you" is $118,122, $79,524, and $206,086 respectively for each column.

    The request was for cash settlement, not a credit line or stream of income. That is the choice I would guess 90% of clients would want.

    So, what's wrong with this picture? Would you take out a mortgage that looked like this?

    It gets better. The illustration show that at 8.8% interest the $210,000 "loan" has a balance of $600,000 in 14 years.

    Nothing like a really good illustration to be able to sell someone a product.
     
  9. Crabcake Johnny
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  10. MAPDJim
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    I am amazed that you keep throwing out numbers that are so far off. The expected interest rate for the cash account (non government insured) is 6.28. After 14 years the amount owed is 444,000, not 600,000. Where you get the 8.8 percent from I do not know. I am using Financial Freedom software. Depending on which part of the country you are in most people don't use the cash account loan. I believe 92% of the reverse mortgage loans out there are the HECM, government insured loans. Again the HECM 125 has an interest rate today of 2.91%.

    More often than not people leave money in the credit line as it grows equal to what the interest is on the portion of the use right out of the gate.

    In 14 years you can expect the home to have gone up in value as well. (not alwys going to be this type of market)

    The reason I keep responding to this thread is this. It's hard enough to battle the very misinformed media. To have people throwing out numbers that are flat out wrong just compounds the marketplace even further. If you care to have a conversation to help clear up any misinformation you have I'll be glad to speak with you.

    860-501-1380
    Jim
     
    MAPDJim, Mar 17, 2008
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