Like many retirees, Marlene Laffoon, 73, watches in dismay as
both her home’s value and her investments slide southward. And yet
everyday costs for this former bookkeeper aren’t falling
correspondingly.
Elizabeth Rhodes – Seattle Times
Like many retirees, Marlene Laffoon, 73, watches in dismay as both her home’s value and her investments slide southward. And yet everyday costs for this former bookkeeper aren’t falling correspondingly.
So Laffoon’s spirits rose last month on an unexpected windfall of good news: Loan amounts on reverse mortgages have been increased, and the fees decreased.
A reverse mortgage allows homeowners 62 or older to borrow up to $417,000 of their home’s equity to use any way they wish; the old limit was $352,790. They don’t have to repay it as long as they stay in the home.
Laffoon promptly asked her reverse-mortgage officer, Jerry Dawson at Frontier Bank in Everett, Wash., how much cash she could get if she took out a new reverse mortgage to replace the one she got several years ago.
“I really don’t want to touch anything in my investments now, and yet I can’t wait 10 years to have something to draw on,” says Laffoon.
As the economy unwinds, Dawson says he’s increasingly been hearing from older homeowners who are anxious about their finances and looking for cash.
“I’ve taken five applications in the last two weeks for that very reason,” says Dawson.
In Mountlake Terrace, Wash., Golf Savings Bank reverse-mortgage officer Chris Anderson also is seeing increased interest. Some is coming from older workers.
“They’re concerned their job will be gone, and their chances of finding a new job over age 62 aren’t good,” says Anderson. “They want to be able to put a reverse mortgage in motion. It does take away the anxiety knowing there’s an option, whether you need to take it or not.”
Reverse mortgages have been growing in popularity for some years now, with more than 100,000 homeowners nationally taking them out so far this year. They’ve been offered by private lenders, by quasi-governmental mortgage backer Fannie Mae and by the Federal Housing Administration.
Following the turmoil in the mortgage industry, both private-lender and Fannie Mae reverse mortgages have either ceased or cut back substantially, says Darryl Hicks, associate director of the National Reverse Mortgage Lenders Association in Washington.
That leaves the FHA as the biggest player on the block. It recently announced the new across-the-board national $417,000 limit for its reverse, called Home Equity Conversion Mortgage, or HECM for short.
A borrower’s age and home equity determine the amount of money available. There are no income or credit score requirements, and a homeowner who’s already had a reverse mortgage can get another.
The FHA requires counseling for those considering a reverse so they clearly understand the pros and cons.
The Urban League of Metropolitan Seattle is one of the approved counseling agencies. A. Linda Taylor, its housing director, says there are a lot of misconceptions about reverse mortgages, which counseling clears up.
A common fallacy: Homeowners who get a reverse are signing their house over to the government or a loan company. That’s incorrect; they still own it.
Another one: Owners will have monthly mortgage payments. That’s not true, nor can the seller (or the seller’s estate) ever owe more than the total loan amount (including interest, which can be either variable or fixed).
And finally, a reverse may not be the best solution for a cash-strapped homeowner.
As for Marlene Laffoon, she doesn’t have a pressing need for cash right now, so she’s taking a line of credit.
“There’s always the old washer and dryer,” she said. “You don’t know when they’ll go.”
CONSIDERING A REVERSE MORTGAGE? HERE’S HELP
– A reverse mortgage, which allows homeowners to cash out some of their home’s equity, is available to those 62 and older who own and occupy a single-family house, a condominium, town house, co-op, manufactured home or two- to four-unit building. (Some limitations may apply.)
– Consumer Reports magazine suggests homeowners educate themselves by visiting these Web sites:
– AARP, at www.aarp.org/money/revmort/, has thorough information about reverse mortgages, plus a calculator that allows homeowners to estimate how much money might be available to them.
– The National Reverse Mortgage Lenders Association, at www.nrmla.org, has mortgage information, plus a list of approved lenders who subscribe to its code of ethics.
– Housing and Urban Development, at www.hud.gov, has information plus a list of HUD approved housing counseling agencies.
– Federal Trade Commission has information on its site, www.ftc.gov, as do some banks’ sites.
