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Reverse Mortgages

Reverse Mortgages. AFCPE Extension Pre-Conference November 19, 2008 Susan E. Cosgrove, AFC Mississippi State University Extension Service. Reverse Mortgage. Introduced in 1989 Special type of home loan Home Equity Conversion Mortgage (HECM) Converts equity into cash.

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Reverse Mortgages

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  1. Reverse Mortgages AFCPE Extension Pre-Conference November 19, 2008 Susan E. Cosgrove, AFC Mississippi State University Extension Service

  2. Reverse Mortgage • Introduced in 1989 • Special type of home loan • Home Equity Conversion Mortgage (HECM) • Converts equity into cash

  3. Who’s Eligible • All owners must be at least 62 years of age for most Reverse Mortgages • All owners of the home must apply and sign loan papers • Owners of a single family one-unit dwellings are eligible properties

  4. How does it work? • A loan against your home • You do not have to pay back for as long as you live in the home • Can be paid all at once • OR, as a regular monthly advance • OR, at times and in amounts you choose

  5. How does it work? • Paid back, plus interest when the last living borrower dies • Or, sell your home • OR, permanently move out of your home • The amount you owe grows larger over time • As your debt grows larger, equity grows smaller • Still responsible for property taxes, insurance, and repairs

  6. Growth in Reverse Mortgages • Grew from nearly 8,000 in 2001 to more than 107,000 last year • The average loan amount grew 80 percent to $138,700 during the same time period • More than 450,000 HECMs have been since 1989

  7. Housing & Economic Recovery Act of 2008 Intended to help seniors by reining in fees and fraud associated with reverse mortgages

  8. Housing & Economic Recovery Act of 2008 - Provisions include… • Amount a senior can borrow were increased to $417,000 (ranged from $200,160 to $362,790)

  9. Housing & Economic Recovery Act of 2008 – cont. • Origination fee - - - • Cut to 2% of the first $200,000 borrowed • 1% for any amount after that • Cannot exceed $6,000 • Law does allow for cap to adjust based on annual percentage increase in CPI

  10. Housing & Economic Recovery Act of 2008 – cont. • Lenders prohibited from requiring borrowers to purchase insurance, annuities, other similar products, as a condition of getting a reverse mortgage

  11. Who’s A Target----Some Seniors Are Victimized • Seniors who are rich in home equity but poor in cash • Victim to salespeople who use high-pressure sales pitches and unscrupulous tactics to sign them up for the mortgages • paying exorbitant fees • buying unnecessary insurance policies --- annuities

  12. Unscrupulous salespeople looking for a quick way to make a hefty commission • Some salespeople call themselves "registered financial gerontologists" or certified senior advisers • Use aggressive sales methods • Enticing radio and TV ads, and direct mail • Sell other financial products that are unnecessary and come with hefty fees

  13. Unscrupulous Sales Pitch

  14. Unscrupulous Salesperson Recruitment

  15. Important Key Decisions • Choosing a Counselor • Considering Options and Timing • Estimating Leftover Equity • Picking an Interest Rate • Sharing the Decision

  16. Reverse Mortgage Counseling

  17. QUESTIONS?!?!

  18. Reverse Mortgages Developed by: Evelyn Edwards Vice President of Community Reinvestment BancorpSouth – Mid MS Region Updated by: Susan E. Cosgrove Family Resource Management Area Extension Agent Mississippi State University Extension Service

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