Reverse Mortgages Information

[Charpress]

Misinformed? This is a Financial Freedom illustration from their Affinity Business Unit, not my numbers.

It is from a year ago when interest rates were higher, sure. But the point is nobody would buy into any part of this particular reverse mortgage.

If you want me to post the illustration, I sure will. The major point is you have a $600,000 house with an offer to free up $206,086.00 for the client. Believe me, I wish the numbers had been better because it was almost embarrassing to show this.

As for the 8.8%, I'm sure it is lower now. But this was THEIR illustration and it was based on the "expected interest rate" for the Advantage Combo 75. Interest rates for conventional mortgages at that time were well under 7%. So, just try to sell someone a reverse mortgage that frees up 1/3 of their equity and charges 2% above market as well.

But back to the point of this thread: I would like the numbers to work and I would like to offer reverse mortgages. After this particular case and several others equally bad from nine to twelve months ago, I stopped even suggesting that people have me look into reverse mortgages for them.

 

[LGilmore]

Having looked very hard at RM's a few years back, I think for alot of cash poor, asset rich (a relative term) they are a great idea. AARP has a very good website with alot of information. For the consumer, they are a good deal. Now if you're asking what's your slice and are unhappy about it, that's different.. isn't it?

I did find it is a heavily regulated field with limits on costs. I also found some guys are smart and just took less to handle the paperwork and make it up in volume. It is very similar to selling a home and the largest cost is the HUD insurance garantee. You also don't have to take the max value out either.

I think it is an excellent product for many seniors who don't have cash flow. You can take a chunk and buy an annuity. When the senior either passes or moves to assisted living.. the home is sold and all that has to be repaid is the balance withdrawn. OR if the value of the home is less than the balance owed, the slate is wiped clean. That is what the insurance upfront pays for.

Would I want to sell reverse mortgages? not so much, I don't like that kind of paperwork, plus the feds look for a separation between who sells the RM and who sells the annuities...

Are they for everybody? No, but very few products are for "everybody".

I did one for my mom and it works just fine. If the day comes and the loan value is greater than the home value.. no worries. Actually, I am more worried that the home value will be greater and I will be the one son who has to do all the &&*&^ work to prep and sell it so it can be an "equal" share amongst my sibs.... "who'll cut the wheat..etc, etc. but I'll eat the bread" (sorry a kids tale from the old days)

the RM is a perfect solution for a Sandwich generation family. Now with Mom taken care of, the kids college costs can be dealt with.

 

[MAPDJim]

Misinformed? This is a Financial Freedom illustration from their Affinity Business Unit, not my numbers.

It is from a year ago when interest rates were higher, sure. But the point is nobody would buy into any part of this particular reverse mortgage.

If you want me to post the illustration, I sure will. The major point is you have a $600,000 house with an offer to free up $206,086.00 for the client. Believe me, I wish the numbers had been better because it was almost embarrassing to show this.

As for the 8.8%, I'm sure it is lower now. But this was THEIR illustration and it was based on the "expected interest rate" for the Advantage Combo 75. Interest rates for conventional mortgages at that time were well under 7%. So, just try to sell someone a reverse mortgage that frees up 1/3 of their equity and charges 2% above market as well.

But back to the point of this thread: I would like the numbers to work and I would like to offer reverse mortgages. After this particular case and several others equally bad from nine to twelve months ago, I stopped even suggesting that people have me look into reverse mortgages for them.

So you use interest rates from a year ago and use an example from a product that's less than 8% of what the markets uses. So instead of the 60+% of the home value that many get (92% of the market uses this product) from the HECM with a now updated 3.10 interest rate you use....nevermind. Try and keep up to date before you knock something.

 

[MAPDJim]

I think it is an excellent product for many seniors who don't have cash flow. You can take a chunk and buy an annuity. When the senior either passes or moves to assisted living.. the home is sold and all that has to be repaid is the balance withdrawn. OR if the value of the home is less than the balance owed, the slate is wiped clean. That is what the insurance upfront pays for..

The Lender has a form that the client must sign stating that we are not recommending they take a reverse mortgage to put in an Annuity. There are a few circumstances this might be appropriate but few for sure.

Financial Freedom and I think many others give you up to a year to sell the home so at least there's no pressure

 

[LGilmore]

The Lender has a form that the client must sign stating that we are not recommending they take a reverse mortgage to put in an Annuity. There are a few circumstances this might be appropriate but few for sure.

Financial Freedom and I think many others give you up to a year to sell the home so at least there's no pressure

Yup, that is why I said the feds look at that relationship between the RM entity and who is selling an annuity. In that particular situation I cited... It works fine. But I agree, in not every situation is it the desired choice. As it is with any finanical product or products..

 

[Charpress]

So you use interest rates from a year ago and use an example from a product that's less than 8% of what the markets uses.

I figured that would be your response. Yeah, things are so much different now. The "product" was one of three choices these folks were given by Freedom Financial based on what they knew of the prospects. The other choices, instead of giving them $210,000 gave them $134,707 (FHA/HUD Advantage)and $94,275 (FHA/HUD Annual Adj). If someone wants a reverse mortgage to buy insurance, an annuity, or put in other investments, they are going to want the most cash possible. THAT IS THE SELLING POINT ALL THESE COMPANIES USE. The other company with the washed-up actor (not James Garner) has a TV ad with an older couple with big smiles on their faces, new car in front of the house, and shows them off on a cruise.

Why don't you run the numbers yourself with Freedom Financial for a man born 11/10/1934 and wife born 1/1/1940 with a zip code 70471 and $600,000 house with no mortgages to see what the current numbers are. I would be interested to see what you come up with.

One more time: I'm not trying to knock reverse mortgages and I don't have a particular mindset against them. I am just relating my own experience and am open to any changes for the better that may have come down the road in the last nine months.

 

[MAPDJim]

I figured that would be your response. Yeah, things are so much different now. The "product" was one of three choices these folks were given by Freedom Financial based on what they knew of the prospects. The other choices, instead of giving them $210,000 gave them $134,707 (FHA/HUD Advantage)and $94,275 (FHA/HUD Annual Adj). If someone wants a reverse mortgage to buy insurance, an annuity, or put in other investments, they are going to want the most cash possible. THAT IS THE SELLING POINT ALL THESE COMPANIES USE. The other company with the washed-up actor (not James Garner) has a TV ad with an older couple with big smiles on their faces, new car in front of the house, and shows them off on a cruise.

Why don't you run the numbers yourself with Freedom Financial for a man born 11/10/1934 and wife born 1/1/1940 with a zip code 70471 and $600,000 house with no mortgages to see what the current numbers are. I would be interested to see what you come up with.

One more time: I'm not trying to knock reverse mortgages and I don't have a particular mindset against them. I am just relating my own experience and am open to any changes for the better that may have come down the road in the last nine months.

When you want to discuss the 2 very least used products, the HECM annual and the cash account (advantage) and want to have a reasonable discussion about reverse mortgages it doesn't work.

When you want to discuss what 93% of the population uses, get back to me.

 

[Charpress]

I would like to discuss this further. If there is a more reasonable presentation of reverse mortgages that I can make, I would like to do so.

I assume by 93% you mean the great majority want guaranteed lifetime income rather than a cash payment. Obviously that is going to show better in any illustration since the company is paying out over time and betting on life expectancy.

I don't know if I agree that 93% want lifetime payout, but I certainly concede that maybe I do not present the alternative to a cash settlement strongly enough. The people who have approached me about reverse mortgages have stated they wanted the most cash possible as soon as possible. I went back and looked at illustrations I have done. The last illustration I did was about 4 months ago and was just as bad as the illustrations I did nine and twelve months ago.

So, if you are saying that proposing a lifetime stream of income works better as far as the equity somebody can tap into, then I am very interested. The sticking point for me has not been interest rates, it has been the look of disappointment on people's faces when they see they are not ever close to getting half the equity value of the home out. If that figure changes, then that is what I would like to present.

I do know that local seminars must be pushing cash settlements since their pitch is that you put half of the settlement into paid up life insurance to "buy back" the home. Maybe they are also doing it as annual premiums from an income stream. In general terms, as told to me by a client that attended one of these seminars, you get the income or cash from a reverse mortgage and the kids get the insurance proceeds to pay off the mortgage.

So, who can resist a pitch like that? You get something for nothing.

 

[MAPDJim]

I would like to discuss this further. If there is a more reasonable presentation of reverse mortgages that I can make, I would like to do so.

I assume by 93% you mean the great majority want guaranteed lifetime income rather than a cash payment. Obviously that is going to show better in any illustration since the company is paying out over time and betting on life expectancy.

I don't know if I agree that 93% want lifetime payout, but I certainly concede that maybe I do not present the alternative to a cash settlement strongly enough. The people who have approached me about reverse mortgages have stated they wanted the most cash possible as soon as possible. I went back and looked at illustrations I have done. The last illustration I did was about 4 months ago and was just as bad as the illustrations I did nine and twelve months ago.

So, if you are saying that proposing a lifetime stream of income works better as far as the equity somebody can tap into, then I am very interested. The sticking point for me has not been interest rates, it has been the look of disappointment on people's faces when they see they are not ever close to getting half the equity value of the home out. If that figure changes, then that is what I would like to present.

I do know that local seminars must be pushing cash settlements since their pitch is that you put half of the settlement into paid up life insurance to "buy back" the home. Maybe they are also doing it as annual premiums from an income stream. In general terms, as told to me by a client that attended one of these seminars, you get the income or cash from a reverse mortgage and the kids get the insurance proceeds to pay off the mortgage.

So, who can resist a pitch like that? You get something for nothing.

I think we should put this thread to rest.

The 93% I am speaking of is the percentage of people who choose the HECM government reverse mortgage. The cash account is not one of these but the annual you spoke of is. The annual is rarely used as well.

Of the 93% of people who choose the HECM the vast majority use the monthly adjusting, not the annual.

As far as people pushing life insurance as a way to pay for the home for their kids I'd be surprised this is happening on a wide spread basis. The media loves a good (bad) story and seeing I follow all the misguided reports by the media (that I can find) I have yet to see that angle reported. The average age of someone getting a reverse mortgage is about 70 so it would be pretty expensive to get a 2nd to die policy and have money left over.

People who have million dollar plus homes who use the cash account may do something like that because they can get more from the cash account than the HECM. But again they are in the vast minority.

There are scammers in every business industry and I have no doubt there are those people in the reverse mortgage industry as well.

But if anyone you know gets approached to do a reverse mortgage for the sole purpose of buying insurance or an annuity tell them to run the other way. While in some circumstances it may be appropriate, they are rare overall.

Again let's put this thread to rest. If you are interested in truly learning more accurate and up to date info call me at 860-501-1380 anytime from 9AM-8PM EST.

 

[Charpress]

I tried running through the original figures on the AARP reverse mortgage calculator. With a $600,000 home, the results were the same as the illustration from last year. So I tried again, but with a $300,000 home with these results:

• YOU COULD GET
  HECM
  HomeKeeper
  1) A single lump sum advance of
  $130,009
  $52,203
  2) OR a creditline account of
  $130,009
  $52,203
  that grows larger each year by
  3.58%
  0%
  so, if unused, available credit
  in 5 years would be
  $154,988
  $52,203
  in 10 years would be
  $184,766
  $52,203
  3) OR a monthly loan advance for
  as long as you live in your home
  $718
  $409
  4) OR any combination of lump sum at closing, creditline
  account, and monthly advance
  
  
  Pasted from <http://www.rmaarp.com/estimates.asp>
  AND:

YOU COULD GET
HECM
HomeKeeper
1) A single lump sum advance of
$182,233
$52,331
2) OR a creditline account of
$182,233
$52,331
that grows larger each year by
3.58%
0%
so, if unused, available credit
in 5 years would be
$217,245
$52,331
in 10 years would be
$258,985
$52,331
3) OR a monthly loan advance for
as long as you live in your home
$1,006
$410
4) OR any combination of lump sum at closing, creditline
account, and monthly advance


Now, you may ask, what is the difference between these two calculated results, other than the $50,000.00 difference in the lump sum advance or the 50% increase in the monthly loan advance? The first one is a Gulf coast zip code and the second is the California zip code where Freedom Financial is located. I don't know whether AARP is using HECM 125 or 150.

The point is, my figures or AARP figures or whatever figures, the zip code makes a huge difference. In the first zip code the owner is not even getting 50%. I could probably cherry pick zip codes to make the difference even bigger. When I made it a $600,000 house instead of a $300,000 house the figures did not change in the Gulf coast zip. It went up to $1,225 monthly in the CA zip code. I assume they must cut off the maximum value your house can be worth according to your zip code since CA went up some and the Gulf coast stayed the same. So, someone in the Gulf coast is screwed several different ways on reverse mortgages and I was not "throwing around" baseless figures. Maybe you need to "keep up to date" on the impact zip codes have before making your own statements of fact.