Reverse mortgage borrowers need to know facts first

BARBARA BOXLEITNER / FLORIDA WEEKLY The reverse mortgage was created for senior homeowners to borrow against home equity. For older people who have equity in their home and need income, the reverse mortgage may be the answer.

But borrower beware, experts say.

A reverse mortgage is a loan that allows homeowners 62 and older to convert their home equity into tax-free income. They don’t have to sell the home or assume a new monthly mortgage payment, according to Financial Freedom, a reverse mortgage specialist. They may receive a lump sum, monthly amount, line of credit, combination of monthly and credit or another combination of the aforementioned.

Federally insured or government sponsored, the loan is repayable under different conditions, such as when the homeowner sells the residence or moves out of it. The repayment amount can’t exceed the home’s value.

NUÑEZ With the sluggish economy in recent years, many seniors have opted for the reverse mortgage. The volume of reverse mortgages has doubled from 2005 to 2008, according to the National Consumer Law Center’s October report, “How Reverse Mortgage Lenders Put Older Homeowners’ Equity at Risk.” The consumer law expert claims, “During 2008 more than 100,000 seniors used reverse mortgages to tap more than $17 billion in home equity.”

“We haven’t seen too much of that,“ Odette Embury, senior vice president for Calusa National Bank in Punta Gorda, said about the reverse mortgages. “You need to have equity in the property.”

Still, Mrs. Embury said, “It’s a good source of income, to help supplement income.”

The reverse mortgage can be helpful to senior homeowners on a limited income, experts said. “They’re looking for additional extended income,” said Jim Thiel, Realtor at Century 21 Sunbelt Realty in Punta Gorda.

Typically, older seniors will receive more money because of the long time spent in the home and less money owed on the residence. That additional income can be a relief in many cases, yet there is a growing concern that seniors need to be careful about committing to the reverse mortgage.

Florida long has been a popular retirement destination, even for working people planning to retire. In September, Money magazine designated Port Charlotte as the Best Place to Retire. Last year, U.S. News & World Report tabbed Punta Gorda among the Top Ten Places to Retire Healthy.

The National Consumer Law Center describes the reverse mortgage abuse that can be directed at unsuspecting seniors. The document cites “brokers and loan officers out to put the most money in their own pockets, and in the coffers of lenders and investors.”

According to the report, some seniors have been persuaded to get the reverse mortgage when it wasn’t necessary. A California couple, retirees in their 80s living comfortably off their pensions, took out a $100,000 reverse mortgage only to realize later they did not need it. They have filed a lawsuit against the reverse mortgage pitchman and an attorney who collaborated to get the couple to pay more than $20,000 for an insurance program.

Thomas Ryan Associates real estate consultant Paul Nuñez said lenders attach incentives, such as unnecessary annuities and insurance, which the National Consumer Law Center called “overpriced and inappropriate financial products and services.”

In addition, the fees of a reverse mortgage can be steep. Financial Freedom identifies an origination fee, third-party closing costs, insurance and monthly servicing fee. “They don’t understand the fees that go with originating a reverse mortgage,” Mr. Nuñez said. “They’re a lot of upfront fees.”

He also cited fluctuating interest rates. Some start in the single digits but reach double digits before too long.

Often, seniors receive little or no counseling prior to agreeing to the loan, and the repercussions can be devastating. Since paperwork has already become more complicated than in years past, the many variables of a reverse mortgage make it particularly worthy of thorough review.

Mr. Nuñez is consulting with Burnt Store Isles homeowners. He said the married couple, both in their 80s, own a single-story pool home of more than 2,000 square feet. The home had been on the market some time ago and more recently was on the Multiple Listing Service expired list. “It’s a very, very nice home,” Mr. Nuñez said.

The couple has been relying on Social Security income and a reverse mortgage. Health issues plague both seniors. The husband wants to sell the home because he foresees the day when they will not be able to drive to go to the grocery store and other places. He is hoping they can go into an assisted living facility.

“He’s gotten his out of necessity,” Mr. Nuñez said. “The more he has to borrow to maintain the home, the property, taxes and insurance, the more he’s going to have to pay off when he does sell that home.” ¦