Reverse Mortgages Help Celebrate Independence

July 7, 2009

July 4^th we celebrate Independence Day in America honoring the day our country signed the Declaration of Independence. Signing the reverse mortgage documents is a way for seniors 62 and older to sign their own declaration of independence.

Independence is defined as “freedom from the control, influence, support, aid, or the like, of others.” This fits senior’s attitudes, they want to maintain control of their life, make their own decisions and not depend on others for assistance. They may be short funds for maintaining their lifestyle and sometimes they will eat cat or dog food because it is cheap and they do not want to rely on their children. Yet I’ll hear, “I want to leave my house as an inheritance to my children.”

Let me share a story of one of my clients, I’ll call them Ted and Anna. He was 91, she was 87. Being proud, they didn’t want to discuss their financial situation. However, their son-in-law finally talked to them about doing a reverse mortgage. When I met them and we started the reverse mortgage process, the children and I were told they were doing the reverse mortgage so they could put new linoleum on their kitchen floor. Once the loan was closed I was informed by their children that they had indeed put in the new linoleum along with new windows and they bought some new furniture. The kids were going to Ted and Anna’s and were told, “Don’t pull in the drive way, we just had it blacktopped.” When Ted and Anna went out to eat with their kids, they could pay for their kid’s meals too making them feel good that they could treat their children to a meal. Then one day the mother and daughter were sitting at the kitchen table and mom shared that before their reverse mortgage they used to go 3 days at the end of month without food or even milk because they would run out of money from their Social Security. As they were sitting there and looking at the paper, mom exclaimed, “Look, Depends are on sale, I can now stock up.”

While Ted and Anna were too proud to let their children know their financial situation and they didn’t want to depend on them to assist with their living expenses, once they signed the reverse mortgage documents they kept their independence and had funds for their needs and desires. This also improved their dignity.

Unfortunately while not wanting to rely on their children and wanting to leave their home as an inheritance to their children, seniors are doing without. This isn’t what their kids want – they don’t want their parents doing without so they can have an inheritance. Kids actually want their parents to have funds to remain independent.

Then we have the kids who are taking care of their parents by paying for groceries, meals when they go out, paying their bills, taking time from their busy schedules to clean their house, and helping meet their other needs. This can have a negative impact on these kids’ finances. Yet their parents don’t want to use the equity in their home and do a reverse mortgage now just so they can leave an inheritance for these kids. In essence the kids are using their funds to take care of their parents now in exchange for an inheritance after their parents are gone.

Neither one of these scenarios make sense. Why be insistent on leaving an inheritance to the kids while you’re doing without now? Why depend on your kids and use their money to take care of you today so you can leave them an inheritance? They want you to have your independence now and they aren’t looking for the inheritance when you need to funds now. Actually the best inheritance you can leave your children would be to take care of yourself so they don’t have to worry about you. Celebrate with a reverse mortgage

Improve your cash flow during your retirement – sign your own Declaration of Independence with a reverse mortgage – then celebrate your independence.

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49 Comments leave one →

poscashflow permalink

July 8, 2009 12:59 pm

This article highlights the attitude and associated problems which have led to the current economic instability. Using debt instruments and burning equity to fund living expenses and lifestyles just doesn’t make sense. Especially since most reverse mortgages are laden with excessive fees for the broker and origination lendor. The article would be more balanced had you discussed both sides.

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- Beth Paterson permalink*
  
  July 9, 2009 2:07 am
  
  The reverse mortgage is a financial tool to help seniors remain independent. One should always use their funds responsibly. Anyone who has a mortgage, no matter what their age, is using their equity to fund their living expenses and lifestyles. If one is selling they would be converting the equity into cash which would be used to fund their living expenses and lifestyle. Keep in mind that if they sell they somehow have to finance a new place to live. Please reference my post “I want to stay in my Home – Don’t tell me to sell!”
  
  Reverse mortgages are not laden with heavy fees – please read my post regarding closing costs: “Reverse Mortgage Closing Costs – High or Mythical?”
  
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- Pro Reverse permalink
  
  July 11, 2009 4:59 pm
  
  When senior homeowners no longer have funds to finance their living expenses even when these are not extravagant, they need to look at their practical options. In many of these situations the only significant asset may be the equity in their home. The choice of the senior to make use of this asset should be their free choice to make. The FHA reverse mortgage is a financial tool and is insured by the Federal government. Such a tool should always be encouraged to be used wisely.
  
  The long term costs of this financial instrument are very competitive with any other good mortgage and are regulated by HUD with no mark-ups of third party costs allowed.
  
  This FHA reverse mortgage product has no characteristics that are similar to what caused the mortgage and housing meltdown over the past few of years. It is irresponsible and misleading to suggest that the FHA reverse mortgage product will lead to any such danger. In fact there is no documentation stating the FHA reverse has these characteristics – this attitude is solely based on unfounded fear.
  
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Hooray for Independence permalink

July 11, 2009 3:50 pm

Seniors have the same right to choose as any other citizen of the U.S.A. Their right to choose to refinance and take cash out, access a equity line, or to purchase a home with a traditional mortgage, in most cases, is taken away by the new restrictive lending rules and because their income, assets, etc has dropped since their working days.

If they don’t want to choose living with their children, renting, living in public housing, or having their home foreclosed on, then a reverse mortgage may just be the choice that is best for them.

We have a large group of savvy, independent, and intelligent seniors that want to make their own decisions about their future. They want the option to stay in their home, hire help to make their lives easier, and pay their taxes and insurance and pay their own way. They want to choose how to live their own lives.

Save these seniors from the Big Brother government making the decisions for them and promising to take care of them. That is not what most of them want. They live in a free country and have earned the right to choose. Save them from the politicians and groups that only are interested in making a name for themselves by restricting or eliminating reverse mortgages. The arrogance of those who think they know better than the seniors themselves is amazing.

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Steve Sharp permalink

July 12, 2009 6:46 pm

Postcashflow seems to be repeating some of the common myths about reverse mortgages that are prevalent these days: 1) Reverse mortgage originators are all unethical and greedy and will try to pressure senior homeowners into reverse mortgages even if it is clearly inappropriate, 2) homeowners, especially seniors, are unable to make responsible and sensible decisions about their finances and when given the opportunity for credit, will use it foolishly, and 3) reverse mortgage lenders and originators are charging seniors excessive fees and getting rich as a result.

All professions have some small percentage of members who do not perform to the standards of the mainstream industry but a high majority of reverse mortgage originators are ethical, honest, operate with the seniors best interests in mind and receive great job satisfaction from making seniors lives better. To infer that they are all dishonest, unethical, self serving and greedy is highly insulting and inexcusably and unjustifiably defamatory. In my opinion, the reverse mortgage industry has a significant percentage of originators who are willing to spend considerable time and even drastically reduce or waive their commissions if necessary in order to keep a senior in their home.

The view that reverse mortgages are “laden with excessive fees” is usually based on ignorance and comparisons with conventional forward mortgages or home equity loans. Reverse mortgage closing costs for a typical home include about 40% of the total as origination fees to compensate the originator, 20% pay for required third party fees such as appraisal, title insurance, etc. and the remaining 40% is paid to FHA as a required upfront mortgage insurance premium. A previous Beth’s Reverse MortgageBlog does an excellent job of explaining this in depth. The originator’s portion of the closing costs, the origination fee, is regulated and capped by FHA and is 2% or less of the property value. Compare this to a 6% real estate commission if the alternative of selling the house is chosen. The origination fee does not go straight into the representative’s pocket but first must be used to pay for business overhead expenses such as office rent, phones, licensing, insurance, payroll taxes, etc. Considering the time necessary in educating the homeowners, processing and closing the loan, I doubt if anyone in the industry considers their compensation as “excessive”. FHA also will not permit any so-called junk fees so third party fees are only those necessary to complete the loan.

While we would all agree that many homeowners have repeatedly refinanced out increasing equity in past years with forward mortgages and have used these funds to finance an expensive lifestyle unsustainable from their income alone, this is generally rare with senior homeowners that complete reverse mortgages. The examples in Beth’s Reverse Mortgage Blog of how senior homeowners are using their reverse mortgages are not pictures of seniors using reverse mortgages for lavish luxury spending, but for basic ordinary day to day living. There is no disputing that homeowners in their early 30’s should be working hard to increase their equity for the future and not “burning” it foolishly. However, senior homeowners have reached the future and they now may need to look to the financial resources they have accumulated in order to live a comfortable, secure but modest lifestyle. There is something wrong with a 40 year old borrower on their equity to sustain daily living expenses when they are in the peak of the income earning years, but it’s an entirely different concept when it applies to a senior homeowner. The senior homeowner typically has limited income and may need to start using their financial resources, including their home equity, in order to make ends meet for their remaining years. This may make perfect sense for senior homeowners. Squirrels don’t store nuts in the fall just to be saving with no purpose, but they need these resources to draw on later in order to make it through the winter. Poscashflow doesn’t seem to understand this concept. As a previous Beth’s Blog has explained, aging in one’s home may be the most practical, least costly and almost always, the most desirable alternative for most seniors.

In my opinion, senior homeowners are generally more sensible then their junior counterparts in making good responsible decisions about their finances. A reverse mortgage cannot be completed without the senior homeowner completing a mandatory counseling session with an independent HUD approved reverse mortgage counselor. Therefore, any senior who is not thinking sensibly or is being mislead by an errant originator, will hopefully be guided to a wise decision. In addition to the mandated counseling, seniors considering reverse mortgages should seek out advice from trusted family and advisors who are not burdened by pre-conceived ideas and willing to help the senior thoughtfully and thoroughly examine the pros and cons of a reverse mortgage. Some of the negative attitudes about reverse mortgages are based on the acceptance of ignorance and superficial views of some people who are not willing or capable of understanding and looking in more depth at the actual facts.

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