Reverse Mortgages: avoid like gluten and sharks (1 Viewer)

[joey]

this is the worst financial instrument this side of whole life insurance.

My aunt mentioned she has a whole life policy. I know nothing about them. Why are they bad Dr. Death?

Post 34 had a great summary of whole life insurance.

Signed,

term life insurance holder

 

[cstu]

The original purpose envisioned for reverse mortgages was to provide a steady income stream for retirement. But in 2011, 73 percent of such borrowers took a lump sum payment instead.

Ok, I had no idea about this and thought that a reverse mortgage meant you receive income and were able to stay in your house until you die. It defeats the entire purpose behind a reverse mortgage (lifelong security) to take a lump sum.

 

[cstu]

Poor ROI

Not sure I get this.

If your goal is to have a place to live until you die and get a little bit of income while you're alive then you're effectively getting an infinite ROI since you can't take it with you.

 

[Sand]

The original purpose envisioned for reverse mortgages was to provide a steady income stream for retirement. But in 2011, 73 percent of such borrowers took a lump sum payment instead.

Ok, I had no idea about this and thought that a reverse mortgage meant you receive income and were able to stay in your house until you die. It defeats the entire purpose behind a reverse mortgage (lifelong security) to take a lump sum.

If the ROI of the payment is poor it might make sense to take it as a lump and invest it. That said I doubt that's why so many take the lump sum.

 

[Todem]

The original purpose envisioned for reverse mortgages was to provide a steady income stream for retirement. But in 2011, 73 percent of such borrowers took a lump sum payment instead.

Ok, I had no idea about this and thought that a reverse mortgage meant you receive income and were able to stay in your house until you die. It defeats the entire purpose behind a reverse mortgage (lifelong security) to take a lump sum.

And that is where most are making awful financial decisions.

Unfortunately there are so many bad people in the industry and even the tightest of regulations will not deter fraud and plain bad advice. Especially in the mortgage industry which is not regulated and supervised nearly as tight my industry (securities industry).

The entire point of someone using a reverse mortgage is to create another monthly check. When a reverse mortgage is the absolute last resort (which in my book it is) typically the people using it do not outlive the monthly payments on the property. And never....ever take a lump sum. They will just blow the money. Only for a medical emergency would you typically take just a drastic measure of a lump sum reverse mortgage.

The industry itself is a hotbed for fraud. Easy to see. But if someone has a trusted adviser and can get a with a legit reverse mortgage company/bank it can be a useful tool in the most dire income stream situation.

 

[fourd]

this is the worst financial instrument this side of whole life insurance.

My aunt mentioned she has a whole life policy. I know nothing about them. Why are they bad Dr. Death?

Fees Which fees are you referring to?Hidden fees What are the hidden fees?

Dodgy and complicated rules Such as?

Withdrawal penalties Do you mean the cash surrender value is lower than your premiums in the eearly years?

Poor ROI Compared to what?

Interest charged on withdrawls You can withdraw up to your basis without taking a loan, taxed as FIFO

Shrinking dividend structure What have interest rates done? Dividends by necessity will be reduced as well. Again, what are you comparing it to?

Not recommended to combine insurance and investments

They call them a rich man's Roth, it's primarily for those who can't contribute to a Roth because of income, but still need places to hide money. Im not as anti whole life as I am anti reverse mortgages, but imo anyone not in the highest of income brackets should buy term life and invest elsewhere.

I am not advocating for whole life here, just want to ask a few questions. As to not combining insurance and investments, if you are putting a financial plan together it is combined no matter what type of life insurance one decides to use. It all works together.

 

[Doctor Detroit]

this is the worst financial instrument this side of whole life insurance.

My aunt mentioned she has a whole life policy. I know nothing about them. Why are they bad Dr. Death?

Fees Which fees are you referring to?Hidden fees What are the hidden fees?

Dodgy and complicated rules Such as?

Withdrawal penalties Do you mean the cash surrender value is lower than your premiums in the eearly years?

Poor ROI Compared to what?

Interest charged on withdrawls You can withdraw up to your basis without taking a loan, taxed as FIFO

Shrinking dividend structure What have interest rates done? Dividends by necessity will be reduced as well. Again, what are you comparing it to?

Not recommended to combine insurance and investments

They call them a rich man's Roth, it's primarily for those who can't contribute to a Roth because of income, but still need places to hide money. Im not as anti whole life as I am anti reverse mortgages, but imo anyone not in the highest of income brackets should buy term life and invest elsewhere.

I am not advocating for whole life here, just want to ask a few questions.

You don't know the answers already? One of the biggest complaints of whole life is the lack of transparency in fees, cancelation rates, and commissions not to mention fees can rise over time, usually buried in a voluminous mailer. I can post several resources detailing these. The Wall Street a Journal did a couple of nice articles explaining the pitfalls. Probably 1000 articles out there.

 

[fourd]

this is the worst financial instrument this side of whole life insurance.

My aunt mentioned she has a whole life policy. I know nothing about them. Why are they bad Dr. Death?

Fees Which fees are you referring to?Hidden fees What are the hidden fees?

Dodgy and complicated rules Such as?

Withdrawal penalties Do you mean the cash surrender value is lower than your premiums in the eearly years?

Poor ROI Compared to what?

Interest charged on withdrawls You can withdraw up to your basis without taking a loan, taxed as FIFO

Shrinking dividend structure What have interest rates done? Dividends by necessity will be reduced as well. Again, what are you comparing it to?

Not recommended to combine insurance and investments

They call them a rich man's Roth, it's primarily for those who can't contribute to a Roth because of income, but still need places to hide money. Im not as anti whole life as I am anti reverse mortgages, but imo anyone not in the highest of income brackets should buy term life and invest elsewhere.

I am not advocating for whole life here, just want to ask a few questions.

You don't know the answers already? One of the biggest complaints of whole life is the lack of transparency in fees, cancelation rates, and commissions not to mention fees can rise over time, usually buried in a voluminous mailer.I can post several resources detailing these. The Wall Street a Journal did a couple of nice articles explaining the pitfalls. Probably 1000 articles out there.

I asked you for your answers to those questions.

 

[Juxtatarot]

I wonder what percentage of the 73% have most of the lump sum money paying off an existing mortgage. I can see it making sense for retirees who were struggling making mortgage payments and needed some relief.

 

[Doctor Detroit]

Obviously you sell them, why don't you tell everyone about the commission and fee structure of the policies you sell?

I'll post the links later and we can compare notes.

 

[fourd]

Obviously you sell them, why don't you tell everyone about the commission and fee structure of the policies you sell?

I'll post the links later and we can compare notes.

Couldn't tell you what the commissions are as I haven't sold one in probably 15 years. On term insurance, about 90% of the first year premium. I assume you've read through a whole life policy before. And if someone wants to know what I'm paid on anything I sell they don't even have to ask. They know upfront as part of my disclosures.

 

[Orlando RMF]

So my MIL is a disaster. She's 61. She has 8 yrs left on a 1st mortgage and 22 yrs left on 2nd. 1st year Principal Balance is $45,221 at 5.875 rate and $87,000 for 2nd at 7.240 rate ... Plus another $25,000 in cc debt.

She's looking at a refi and consolidation. She can retire with decent benefits at 70.

I'm debating advising her to go bankrupt, keep what she has and go reverse mortgage after she retires, or do the refi. I don't know how she pays any mortgage after retirement though.

People not taking advantage of historically low interest rates blows my mind.

If she keeps the house, refi's, works until 70 to collect max SS, and works a part-time job after retirement she'll be fine.

Well her issue is while she is working right now she can afford the payment on both loans. The first mortgage is paid off in 8 years (age 69) and then she retires at 70 and can afford the 14 years at the lower payment. If she refinances at a 15 or 30 year term, her payment doesn't change that much, and it stays at the higher amount after retirement. I'm worried about her being able to afford the payment, not the better deal. Or am I looking at it wrong for her? It's a different equation when you're that close to retirement and have no savings.

So my MIL is a disaster. She's 61. She has 8 yrs left on a 1st mortgage and 22 yrs left on 2nd. 1st year Principal Balance is $45,221 at 5.875 rate and $87,000 for 2nd at 7.240 rate ... Plus another $25,000 in cc debt.

She's looking at a refi and consolidation. She can retire with decent benefits at 70.

I'm debating advising her to go bankrupt, keep what she has and go reverse mortgage after she retires, or do the refi. I don't know how she pays any mortgage after retirement though.

People not taking advantage of historically low interest rates blows my mind.

If she keeps the house, refi's, works until 70 to collect max SS, and works a part-time job after retirement she'll be fine.

Well her issue is while she is working right now she can afford the payment on both loans. The first mortgage is paid off in 8 years (age 69) and then she retires at 70 and can afford the 14 years at the lower payment. If she refinances at a 15 or 30 year term, her payment doesn't change that much, and it stays at the higher amount after retirement. I'm worried about her being able to afford the payment, not the better deal. Or am I looking at it wrong for her? It's a different equation when you're that close to retirement and have no savings.

Go with a 15 year refi in the mid 3's it is an interest savings of over $300 a month. Pay off loan at what she pays currently and in 8 years she will pay down more than an additional $30k. Not sure what the equity is, but she could sell and get something more reasonable for just herself?

 

[Thunderlips]

So my MIL is a disaster. She's 61. She has 8 yrs left on a 1st mortgage and 22 yrs left on 2nd. 1st year Principal Balance is $45,221 at 5.875 rate and $87,000 for 2nd at 7.240 rate ... Plus another $25,000 in cc debt.

She's looking at a refi and consolidation. She can retire with decent benefits at 70.

I'm debating advising her to go bankrupt, keep what she has and go reverse mortgage after she retires, or do the refi. I don't know how she pays any mortgage after retirement though.

People not taking advantage of historically low interest rates blows my mind.

If she keeps the house, refi's, works until 70 to collect max SS, and works a part-time job after retirement she'll be fine.

Well her issue is while she is working right now she can afford the payment on both loans. The first mortgage is paid off in 8 years (age 69) and then she retires at 70 and can afford the 14 years at the lower payment. If she refinances at a 15 or 30 year term, her payment doesn't change that much, and it stays at the higher amount after retirement.

I'm worried about her being able to afford the payment, not the better deal. Or am I looking at it wrong for her? It's a different equation when you're that close to retirement and have no savings.

What your ### needs to be doing is trying to figure out any way..ANY WAY to keep her from being in a position where she'd have to move in with you.

 

[Leeroy Jenkins]

So my MIL is a disaster. She's 61. She has 8 yrs left on a 1st mortgage and 22 yrs left on 2nd. 1st year Principal Balance is $45,221 at 5.875 rate and $87,000 for 2nd at 7.240 rate ... Plus another $25,000 in cc debt.

She's looking at a refi and consolidation. She can retire with decent benefits at 70.

I'm debating advising her to go bankrupt, keep what she has and go reverse mortgage after she retires, or do the refi. I don't know how she pays any mortgage after retirement though.

People not taking advantage of historically low interest rates blows my mind.

If she keeps the house, refi's, works until 70 to collect max SS, and works a part-time job after retirement she'll be fine.

Well her issue is while she is working right now she can afford the payment on both loans. The first mortgage is paid off in 8 years (age 69) and then she retires at 70 and can afford the 14 years at the lower payment. If she refinances at a 15 or 30 year term, her payment doesn't change that much, and it stays at the higher amount after retirement.I'm worried about her being able to afford the payment, not the better deal. Or am I looking at it wrong for her? It's a different equation when you're that close to retirement and have no savings.

What your ### needs to be doing is trying to figure out any way..ANY WAY to keep her from being in a position where she'd have to move in with you.

Hello exactly!!!!

 

[johnnycakes]

I had someone try to sell me one of these once. I think he was a Muslim.

 

[cstu]

So my MIL is a disaster. She's 61. She has 8 yrs left on a 1st mortgage and 22 yrs left on 2nd. 1st year Principal Balance is $45,221 at 5.875 rate and $87,000 for 2nd at 7.240 rate ... Plus another $25,000 in cc debt.

She's looking at a refi and consolidation. She can retire with decent benefits at 70.

I'm debating advising her to go bankrupt, keep what she has and go reverse mortgage after she retires, or do the refi. I don't know how she pays any mortgage after retirement though.

People not taking advantage of historically low interest rates blows my mind.

If she keeps the house, refi's, works until 70 to collect max SS, and works a part-time job after retirement she'll be fine.

Well her issue is while she is working right now she can afford the payment on both loans. The first mortgage is paid off in 8 years (age 69) and then she retires at 70 and can afford the 14 years at the lower payment. If she refinances at a 15 or 30 year term, her payment doesn't change that much, and it stays at the higher amount after retirement.I'm worried about her being able to afford the payment, not the better deal. Or am I looking at it wrong for her? It's a different equation when you're that close to retirement and have no savings.

So my MIL is a disaster. She's 61. She has 8 yrs left on a 1st mortgage and 22 yrs left on 2nd. 1st year Principal Balance is $45,221 at 5.875 rate and $87,000 for 2nd at 7.240 rate ... Plus another $25,000 in cc debt.

She's looking at a refi and consolidation. She can retire with decent benefits at 70.

I'm debating advising her to go bankrupt, keep what she has and go reverse mortgage after she retires, or do the refi. I don't know how she pays any mortgage after retirement though.

People not taking advantage of historically low interest rates blows my mind.

If she keeps the house, refi's, works until 70 to collect max SS, and works a part-time job after retirement she'll be fine.

Well her issue is while she is working right now she can afford the payment on both loans. The first mortgage is paid off in 8 years (age 69) and then she retires at 70 and can afford the 14 years at the lower payment. If she refinances at a 15 or 30 year term, her payment doesn't change that much, and it stays at the higher amount after retirement.I'm worried about her being able to afford the payment, not the better deal. Or am I looking at it wrong for her? It's a different equation when you're that close to retirement and have no savings.

Go with a 15 year refi in the mid 3's it is an interest savings of over $300 a month. Pay off loan at what she pays currently and in 8 years she will pay down more than an additional $30k. Not sure what the equity is, but she could sell and get something more reasonable for just herself?

Should use that equity to pay off her $25k credit card debt that is like throwing $5k a year away.

 

[Chadstroma]

Widow's Reverse Mortgage 'Nightmare' Underscores Lifeline's Risksby Martha C. White

Arlene Hill needed a financial lifeline. She thought a reverse mortgage would provide it.

Now the 82-year-old widow is fighting to keep the home she has lived in for 45 years.

Regulators have long been concerned that reverse mortgages -- a type of home loan that allows older homeowners to access the equity in their homes and defer payment until they die, sell or move out - can put homeowners like Hill in financial peril. All too frequently, they say, brokers don't clearly outline the potential risks of such an arrangement and homeowners don't understand what they are buying.

Hill says that she was both confused about the terms of the reverse mortgage she took out on her Simi Valley, Calif., home and misled by a broker who was eager to close a sale.

In 2009, with her husband, Herb, unable to work after suffering a stroke and the onset of dementia and their $345,000 interest-only mortgage on their house due to require principal payments soon, Hill listened when a telemarketer cold-called her to pitch a reverse mortgage.


"I thought, 'Gee, that would be just wonderful,'" she told NBC News.

"If I lose this house, I have nowhere to go," says 82-year-old Arlene Hill, who has been fighting to keep her Simi Valley, Calif., home since her husband died three years ago. Jim Seida / NBC News
At closing, however, the deal got more complicated: In order to qualify for the loan, the broker told her, the Hills would need to pay $180,000 - roughly 90 percent of their savings - to reduce the debt on the home. And Arlene Hill would have to remove her name from the title so that they could qualify for a bigger reverse mortgage based on her older husband's age.

The broker assured her that she could easily be reinstated onto the title. "He said, 'Listen, we do it all the time.' He assured me of that," Hill said. So with the broker on the phone, "I sat there at the kitchen table along with … the notary, and my husband signed all the papers," she said.

Three years later, after Herb had died, Hill discovered the broker had failed to tell her that getting her name restored to the title would be costly and wouldn't happen automatically, as she had been led to believe. "I was just shocked and I called them and said, 'You must've made a mistake,'" she said.


Without her name on the title, she discovered, she no longer had any legal claim to the property. "I gave that money thinking I was going to be protected in my home," she said.

Hill is far from alone.

Sandy Jolley, a reverse mortgage customer advocate who is helping Hill fight against foreclosure, said she knows of many cases in which brokers gave prospective customers false assurances in order to close a sale.

"There are two things that happen in (loan) origination -- what's in the contract and what the agent tells them verbally that's not in the contract," she said.

Concern over ads
Although the roughly 628,000 reverse mortgages outstanding today make up only about 1 percent of the overall mortgage market, regulators are concerned about how they are sold to seniors.

The Consumer Financial Protection Bureau warned last month that ads for reverse mortgages often omit information and are misleading.

"Incomplete or inaccurate statements made in advertisements about reverse mortgages can pose serious risks to older Americans… because reverse mortgages are complex loans used by older, often financially vulnerable homeowners," it said after conducting a focus-group study of ads for the loans.

Consumer advocates say that while the loans are useful instruments in certain circumstances, brokers frequently target consumers who would be better off exploring other options.



"There's a really small, defined group of people where a reverse mortgage can work. The way they're marketed sounds like it's for everybody," said Ira Rheingold, executive director of the National Association of Consumer Advocates.

The most common misconception about reverse mortgages is a big one, said Norma Garcia, a senior attorney with the nonprofit Consumers Union. Many borrowers don't realize that a reverse mortgage is a loan that needs to be repaid.

The CFPB, which interviewed dozens of senior citizens for its study, said many also mistakenly believed that reverse mortgages are a government program or benefit and placed too much trust in commission-driven brokers.

Reverse mortgage borrowers are required to undergo financial counseling, but advocates say it is inadequate, often consisting of a cursory discussion over the phone that provides little opportunity to ask questions. Hill said she perceived it as "just a formality."

A victory for surviving spousesElder advocates have been pushing the government to intervene on behalf of surviving spouses who are pushed out of their homes after being removed from the title. In June, they scored a victory when the Department of Housing and Urban Development — the government entity that insures the reverse mortgage market — changed its policies to help surviving spouses who aren't on the title avoid foreclosure.

"Instead of foreclosing, (lenders) can assign these mortgages to HUD and file an insurance claim," said Craig Briskin, a partner in the law firm of Mehri & Skalet, PLLC, and co-counsel on class-action litigation representing surviving spouses. "It basically means HUD will take over these loans and not foreclose."

It's not clear whether the policy change will allow Hill to remain in her home. The company that holds her loan, Nationstar Mortgage LLC, which does business in the reverse mortgage market as Champion Mortgage Co., said it was "currently reviewing the impact HUD's letter will have on (the company's) portfolio" in response to a query about whether its non-borrower-surviving-spouse policy would change. The original lender, Generation Mortgage Co., did not return calls seeking comment.

Consumer advocates say the new HUD policy is a start, but note that it doesn't address the confusing marketing that entraps many homeowners in the first place, including ads that fail to clearly spell out repayment terms or use phrases like "tax free."

As a result, many seniors believe that a reverse mortgage covers property taxes and homeowners' insurance, which it doesn't, said Sarah Mancini, a lawyer who works with Atlanta Legal Aid and the National Consumer Law Center. Failure to pay either or both can trigger foreclosure proceedings.

'A ticket to the good life'The CFPB found that much reverse mortgage marketing also downplays the costs and gives the impression that it's fine to use the proceeds for vacations or other splurges. "They're often marketed as a ticket to the good life," said Garcia, the nonprofit attorney.

Failing to understand the high stakes involved in taking out a reverse mortgage is often the ultimate pitfall, advocates say, because by the time a foreclosure letter arrives in the mail, paying off the loan is often impossibly expensive.

In Hill's case, it would have cost $108,000 just to be added onto the mortgage document after her husband's death, because the amount of the loan was based on his age, not hers.

Instead, Hill has spent the remainder of her nest egg fighting to keep her home and now, with just $1,200 a month in Social Security income, she fears for her future.

"Everything is just in limbo right now," she said. "At my age I just wanted to live in my home and just live in peace. It's just been a nightmare."

http://www.nbcnews.com/business/consumer/widows-reverse-mortgage-nightmare-underscores-lifelines-risks-n385711?google_editors_picks=true

 

[Chadstroma]

So basically pissing away any wealth you may have accumulated before your ungrateful kids waste it?

There are other downfalls beyond that. If you don't understand and play by the rules of the reverse mortgage- you are kicked out of your house. If you don't pay the insurance and/or taxes- you are out. Fees and interest can be very high.

Know the rules before you play any game. As long as you pay your taxes and insurance.....your never going to have to pay it back as long as you stay in your home.Pretty black and white.

You obviously have not dealt with a lot of elderly people in financial matters and have not seen how some of these reverse mortgages are sold. I have.

As a matter of fact I have. There are a lot of sharks out there. I know exactly how they are being positoned by the thieves in the industry. But for a well informed eldery client working with a legit professional it is a viable option for the right client/situation.Obviously? Lmfao. Ok man. Did you even bother to read my first post? I was very clear it is useful for the right situation and client.

Dont lecture me. Been managing hundreds of millions of dollars for 17 plus years now. I know exactly who it an and cannot benefit.

Unfortunatley a lot of people who get burned by them or any other financial product are misinformed, have no fianncial professional they can lean on and are abused, it seems to be the American way for most of the country and makes my job very difficult (and yet easy as a real honest advisor can stick out like a sore thumb among the scum in the industry).

I reside in the state of Florida and go through extensive compliance training on senior abuse. In fact i have been able to spot it and derail it several times for my clients.

Anyway.

Somehow you took that personally and still did not catch the point of the post. Amazing.

I got the point you obviously said I don't know anything about how these are sold and have not dealt with elderly clients.

I responded to that. You obviously don't anything about me, my professional credentials and my 2 decades of experience in being a Portfolio Manager/Wealth Manager/Financial Planner.

Amazing.

No, the point was that elderly people often are easily confused over basic financials let alone a product like a reverse mortgage that is anything but basic. So, you still missed the point and decided to take it as some personal attack.