AARP Has It Wrong About Reverse Mortgages!
AARP often says a reverse mortgage should be a last result. And while supporting a legislation bill regarding reverse mortgages introduced in Minnesota they sent out a message for their membership to contact Governor Pawlenty to sign the bill stating, “senior homeowners deserve to be protected from financial fraud that may lead to loss of equity or even foreclosure.” They are using scare tactics and giving false information!
A reverse mortgage is a mortgage that has special terms for those 62 and older to use their equity while they still own and live in the home. Income and credit aren’t considered to qualify and monthly payments are not required during the term of the loan. The loan is due when the home is no longer the primary residence of the borrower(s). When the loan is being paid off, the borrower or the estate keep any difference between the loan balance and the sale price. As a non-recourse loan, if the loan balance is higher than the sale price on the home, the lender is repaid the fair market value and the borrower doesn’t have to pay the difference. The loan documents spell out there is no personal liability to the borrower or their estate, unlike conventional mortgages that can get funds from the estate to cover the loan balance.
Let’s first talk about the statement “should be a last resort.” A last resort to what? You’re having a hard time paying bills; your retirement portfolio has been cut in half; you’re having to work longer or have to go back to work; there are some things you want to do but are short funds to fulfill those dreams or needs; home repairs are needed; and taxes are due; or your struggling to put food on the table. Maybe you could use extra funds for emergencies or peace of mind. You are lacking in security, independence, dignity and control during your retirement.
So when is the time to do a reverse mortgage? You wait and don’t do a reverse mortgage because AARP and others have said “the reverse mortgage should be the last resort.” Why are you struggling? Why do you do this to yourself? Why not have the peace of mind, security, independence, dignity and control that you deserve in retirement?
Doing the reverse mortgage now instead of later could be to your advantage. Monthly payments can be received to supplement your retirement income. Or cash flow can be improved if a current mortgage is being paid off because payments won’t need to be made. And if you chose the line of credit option, more funds become available in the future with the growth rate.
If you do a “forward” loan (if you can even qualify now with the tighter qualifications) you have to pay closing costs and then you make payments. What happens when “life happens” and now you can’t make payments – you can’t work, you’re trying to decide to pay medical bills or the mortgage payments. You’re now in a crisis.
Then when you decide it’s time to tap that “last resort” you’ll be paying closing costs a second time. And there is the possibility that now there won’t be enough funds from the reverse mortgage to pay off that loan. Your financial problem has gotten even bigger. And you may end up going into foreclosure.
So again I ask a last resort to what? Doing the reverse mortgage sooner than later could relieve a lot of stress now and in the future.
Now let’s consider the message AARP sent regarding the Minnesota legislation. Fortunately Governor Pawlenty vetoed the bill. Yes, senior homeowners (anyone for that matter) should be protected from fraud. However this bill would not have protected seniors, it would have negatively impacted them and possibly eliminated the reverse mortgage option in Minnesota. (Read the details on this by visiting our website www.RMSIDAC.com and the What’s New page.)
With a reverse mortgage, like any mortgage, line of credit, or other loan using an asset as collateral, one is USING the equity, NOT LOSING it. The difference with the reverse mortgage is one doesn’t have to make payments during the term of the loan but pays it off when they move, die, or sell. And because it’s non-recourse there is added protection over the other types of loans.
I’m not sure how the reverse mortgage could lead to foreclosure. With the reverse mortgage one doesn’t have to make payments so that risk of foreclosure is removed. There are risks of losing the home even without the reverse mortgage: If you don’t pay taxes, the county can foreclose; if you don’t have insurance, and there is damage to the home you could be without your home.
The reverse mortgage actually often helps seniors keep their home FROM FORECLOSURE. Because income and credit are not considered to qualify, the reverse mortgage can be done to pay off the current mortgage, eliminate mortgage payments and save the home from foreclosure.
If AARP really cares about seniors they will stop using scare tactics and giving false information. They will get the facts by becoming educated and then help seniors by providing accurate information.
© 2009 Beth Paterson https://bethsreversemortgageblog.wordpress.com 651-762-9648
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Beth's Reverse Mortgage Blog 
Agreed, AARP should be on the seniors’ side and help them to get more info about reverse mortgage, not scare them away!!
Very good article, Beth. There is so much misinformation about reverse mortgages. This is a product that could help so many seniors if they understood how it works. Our agency does what it can to inform and educate people about reverse mortgages because it’s a great way to pay for needed home care services. Keep up the fight!
Greetings,
It would seem prudent to note that a reverse mortgage is not a fit for couples where one needs more in home care than the other can give.
If a reverse mortgage was put in place to provide the money for those expenses, then after the ill person passes away, the remaining “community spouse” would have no or little money AND no place to live.
Please be careful about making it appear that the shoe fits all senior’s feet!
Sincerely,
Carol
Carol, you are right the reverse mortgage is not for everyone. As a senior advocate I have never implied that the reverse mortgage is right for every situation. However I do believe that everyone including the senior and their family has the right to know the details and facts to determine what may be best for them and their situation.
In your statement about when using the reverse mortgage proceeds for home care you are misleading. The reverse mortgage is a great tool for keeping seniors in their homes and paying for home care whether a single person or as a couple. An additional benefit for them is the reverse mortgage is not considered income so the borrowers may still receive public benefits such as Medicaid or other county benefits in addition to the reverse mortgage. They can also receive VA benefits if they qualify. Depending on the circumstances, Medicaid could cover the home care costs, the reverse mortgage could be used for things not covered by Medicaid and for the needs of the community spouse.
When the ill person passes away the community spouse would still have a place to live as they CAN STAY IN THE HOME because the loan is not due and payable until the home is no longer their primary residence or on the 150th birthday of the youngest borrower. This means they can still have a roof over their head without having to make monthly rent payments.
In fact the reverse mortgage can provide funds for more care than selling and moving into senior care. Please read my Blog article “Be Educated About Your Options of Care And Financing The Care” and “Reverse Mortgage Finance Home Care.” And we have to consider that seniors want to stay in their home, read “I Want To Stay In My Home – Don’t Tell Me to Sell!”
I recommend that seniors should talk with an Elder Law Attorney, care manager, and home care agency who is familiar with reverse mortgages to help determine what is right for their situation especially when they may need home care.
Please also read my other Blog posts for a better understanding of how reverse mortgages have helped especially: “Reverse Mortgages Help Celebrate Independence” and “Reverse Mortgages Answer Prayers.” Also read “Is Your Opinion of Reverse Mortgages Denying Seniors.”
Beth,
I enjoyed your article; however, I’m glad you suggested in your reply to Carol that you recommend seniors talk with a professional who is familiar with Reverse Mortgages AND other senior resources.
#1 Before getting a Reverse Mortgage seniors should consider a benefit checkup http://www.benefitscheckup.org to see if there are benefits that will help defray costs and help their budget. Property tax freeze, Pharmaceutical programs (Medicare Part D and State Rx programs – you’d be surprised how many people did not sign up for Medicare Part D), utility assistance, etc. – every little bit helps.
#2 Also, many people are not aware that Medicaid Planning may help protect assets and allow people to qualify for Medicaid-based (or Medicaid waiver) programs such as Home Based Community Services (in-home care)or Medicaid benefits to pay for the care of a spouse in a nursing home (i.e. Community Spouse should not get a Reverse Mortgage to then privately pay for care of a spouse in a Medicaid certified facility). Too many seniors and their families are unaware of subsidized in-home care designed to keep people in their homes. I love the idea of a Reverse Mortgage to help supplement in-home care services when more care (than the program maximum service requirements allow) is needed.
But, I agree too, that a Reverse Mortgage should be considered BEFORE selling the home to move to an Assisted Living Facility or a Continuing Care Facility. As a second to last resort? As once the sale proceeds have been spent on “rent” and “fees”, the money is GONE, and so too may be your residence. Yet, for socialization and support, an Assisted Living or Continuing Care Facility might be right for them. And, of course, a Reverse Mortgage should be condered as a post-last resort(?) to foreclosure!!
That’s what makes Elder Care Planning so interesting! It’s definitely not one plan fit all.
Take care,
Wendy.
Wendy,
Thanks for your comments. There are so many options available, it is a matter of helping seniors and their families navigate them. I’m glad you shared the website for benefitscheckup. I will be adding this as a resource on my website as well as to the resource guide I publish.
I agree that people should explore all options before signing up for any one program; learn how the various programs may work together or the implications if you do one and not another one. For example, if one just needs help with taxes, a tax deferral program would be a great solution. Or if they just need a small home repair maybe a city or county program would be a good solution. However, if they have other current needs, i.e. credit card debt, or paying for food or medical bills, then the tax deferral program or city/county programs would not be a solution or the only solution. In most states one cannot have a reverse mortgage and a tax deferral program so the big picture needs to be considered. Maybe the tax deferral program or city/county home repair programs will solve an immediate problem but what happens when more money is needed? Or “life happens” and they don’t have enough funds to meet their needs?
While counseling is required for reverse mortgage borrowers and they are to help review other options, when looking at a reverse mortgage I feel it is necessary to work with an originator who is familiar with other programs, not “just sell” a reverse mortgage. I often ask questions to trigger their thinking process so they can be making the best decisions for themselves – I won’t make the decision for them. I have advised seniors and their families to explore other options before they proceed with a reverse mortgage. Many times they do decide the reverse mortgage is their best option and I know that I did the right thing for them and didn’t just jump at doing an application for them.
This kind of service is why we have satisfied customers, in fact we have 100% customer satisfaction from our survey and hear from our clients even after the loan is closed.
I really enjoy serving seniors and helping them stay in their home with the funds and services to do so.
what happens if the home is destroyed by fire
who gets the insurance
as the principal of the home gets higher
do you have to get higher insurance
how often do they do maintenance checks
in 10 years if they come out and say you need a new roof
will you lose your home if you can’t replace it
Thanks for your questions, Harry.
If a home that has a reverse mortgage is destroyed by fire the insurance check is made payable to both the borrower and the lender. Being the loan is secured by the home the expectation would be that the home would be rebuilt with the insurance funds. Lenders require that the insurance coverage be maintained at a level that will insure replacement of a damaged home.
If a home increases in value the lenders do require that insurance be increased to the level that is necessary to insure the higher replacement costs if a home were to become damaged.
According to the loan agreement signed by the borrower, it is the homeowner’s responsibility to maintain the home. Maintenance checks are done randomly. If a home is not maintained the lenders do have a right to foreclose due to the fact that the borrower would not be abiding by the terms of the loan.
I hope this helps answer your questions. If you have a reverse mortgage you can call your servicing company regarding specifics for your situation.
A lot of negative comments below. The reverse mortgage program has saved my parents retirement.
Myths:
Expensive
The bank owns the home
Heirs won’t inherit anything
The title/ownership remains in my parents name and if home values increase I will inherit the remainder of the equity.
My parents are saving $24k/yr by not having a mortgage payment, and I don’t have to worry about their financial situation. They don’t need my assistance, everyone wins.
If home values decreases or they live for another 30 years I’m perfectly happy not inheriting any $ or the home. I just wanted them to have a comfortable retirement.
Don’t believe all the negative comments without doing your research first. Like any other service and industry there are good lenders out there.
Thank you all, and best of luck.
Jessica Taylor