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 ST. LOUIS POST-DISPATCH
11.17.2009 • TUESDAY
Older adults • Despite the scare
tactics, reputable banks can help
seniors remain in their homes.
BY MARK UNANGST
Much has been written about reverse mortgages. Some articles strictly speak to the facts; others, like a recent report issued by The National Consumer Law Center, focus on scare tactics and innuendo.
Reverse mortgages offer seniors living on restricted incomes the opportunity to use their homes as equity if they need extra cash. It is a valuable financial option when a senior is short of cash and wants to remain in his home.
Today's economic environment has increased demand for this option. A reverse mortgage is useful because it allows seniors to remain in their homes while receiving cash in the form of a lump-sum payment, monthly income or a line of credit. The proceeds from a reverse mortgage are not considered income for tax purposes, and they do not affect Social Security or Medicare benefits.
Reverse mortgages are the most transparent of financial loans. The loan-making process was created to limit hyperbole and unfilled promises. Each applicant is required to receive extensive counseling with certified counselors employed by a nonprofit or public agency approved by the U.S. Department of Housing and Urban Development before the actual loan process is started. The counseling is extensive and typically lasts an hour or more. Family members and authorized legal representatives are welcome.
The counselors are duty bound to give the prospective borrower every reason not to take out a reverse mortgage. The prospective borrowers are encouraged to ask questions. The counseling must be completed before a reverse mortgage application is started, and the prospective borrowers must submit a certificate that they attended a counseling session.
Reverse mortgages are not for everyone. But when they can be helpful, they can make a big difference in a senior's life. Cash is freed up for medication, household expenses and other financial demands. It can mean the difference between a comfortable retirement and one filled with stress and difficult choices. Decades ago, seniors would have had to sell their homes or secure a line of credit using their home as collateral. While it might mean that family members may not receive as large an inheritance, the homeowners may have peace of mind in their senior years.
Reputable companies don't take advantage of older adults seeking a reverse mortgages. There is full disclosure of all fees, including a one-time mortgage insurance premium and a monthly servicing fee. The origination fee is negotiable up to 2 percent. The fees are the comparable to what a borrower would find on an FHA mortgage, and they are spelled out. There are no hidden fees.
Reverse mortgages are considered nonrecourse loans, which means a lender may seek reimbursement based only on the value of the home. If that amount is not enough to retire the loan, the lender has no further recourse to other available assets or income of the borrower or his heirs. Thus, the maximum amount due on a reverse mortgage is the market value of the home at the time of repayment. If the home is sold to settle the debt and the sales proceeds are more than the loan amount, that equity will be paid to the original borrower or to the estate.
Reverse mortgage contracts should be entered into only after careful evaluation and examination. Prospective borrowers should consider all available options. For those seniors living on fixed incomes with their only major asset a debt-free home and who are in need of additional and continuing retirement income, a reverse mortgage may be appropriate and most welcome. We advise all our clients to call us to receive materials on reverse mortgages, examine carefully and fully all the materials available, schedule an appointment for counseling with an independent adviser and, only when you are certain you are ready, meet with us to complete the process.
For more than 55 years, we have provided integrity in everything we do. We are one of the most respected and trusted lenders in the county. Our experience in offering reverse mortgages is no different. We are proud of the service we provide to seniors and feel confident that they are well informed and very pleased with both the process and the end result.
Mark Unangst is senior vice president at Clayton-based Gershman Mortgage, an independent, full-service mortgage banker.
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