Reverse mortgages considered last resort
Originally designed to help cash-strapped older adults stay in their homes, reverse mortgages are tending to remain a loan of last resort.
A reverse mortgage is a special type of home loan available for seniors age 62 or older that allows a homeowner to convert a portion of their home equity into cash.
The loan is due, with interest when they die, move or sell the house.
With a reverse mortgage, the lender makes payments to the borrower either in a lump sum, a line of credit or monthly payments compared to them paying the bank each month like a traditional mortgage.
According to Nikki Dantzler, Uniontown attorney for the Pennsylvania Area Agency on Aging蘑菇视频 Fayette County office, reverse mortgages can be complex and there haven鈥檛 been many requests for them.
While reverse mortgages can be appealing to early retirees and others over the age of 60 who may have lost their jobs or are outliving their savings, the agency reported they can also be risky.
Rita Masi of the Fayette County Community Action Agency housing department, said the agency stopped offering reverse mortgages five years ago after receiving three or fewer requests.
Representatives of First Federal of Greene County and PNC Bank in Uniontown said the financial lenders are not offering reverse mortgages as well as at Frick Tri-County Federal Credit Union.
鈥淲e鈥檙e driven by what our members are requesting,鈥� said Phil Facchine, CEO of Frick Tri-County Federal Credit Union in Uniontown.
Facchine said most credit unions don鈥檛 offer reverse mortgages unless they have a trained expert in the field as with other specific loans.
According to Facchine, competition and demand also play a major role in the types of lending services a bank or credit union offers.
鈥淚t蘑菇视频 a big step to add a new product because you have to first develop the policies and then you fall under more (federal) regulations,鈥� said Facchine.
Although reverse mortgages are not offered by the credit union at this time, Facchine said it is a trend that is forthcoming and something that could be considered by in the near future.
鈥淢ore people are retiring too early and that蘑菇视频 a source of income for them,鈥� said Facchine. 鈥淭hey鈥檙e looking for another source of income and that would be an option.鈥�
A recent survey by MetLife Mature Market Institute found that people ages 62 to 64 now represent 20 percent of prospective borrowers.
Reverse mortgages are typically used to pay off a current mortgage, supplement retirement income or pay for healthcare expenses.
To qualify, applicants must own their home and it must be their primary residence and meet the minimum property standards established by U.S. Department of Housing and Urban Development (HUD).
The property must be a single-family or a one-to-four unit, owner-occupied dwelling.
If a married couple decides to take a reverse mortgage, the American Association of Retired Persons (AARP) recommends that both names are on the loan, noting that will allow either one can remain in the house without repaying the loan if the other spouse dies or enters assisted care.
The amount of money a person can borrow depends on their age, home value, the level of home prices in the area, the amount of any other loans outstanding against the borrower蘑菇视频 home and the current level of interest rates.
The loan payments are tax-free and don鈥檛 affect Social Security benefits; however, there is an origination fee, closing costs, and compounding interest on the loan principal.
In 2011, the Consumer Financial Protection Bureau (CFPB) counted 740,000 reverse mortgages nationwide.
Most reverse mortgages are insured by the Federal Housing Administration (FHA), under its Home Equity Conversion Mortgage (HECM) program.
The program is created and regulated by the U.S. Department of Housing and Urban Development (HUD).
While the borrower is not required to make any monthly payments towards the loan balance, they are required to pay annual property taxes, property insurance and maintenance.
If not, the reverse mortgage is deemed in default leaving the borrower in danger of foreclosure.
Unlike traditional home loans or second mortgages, there are no credit requirements to qualify for a reverse mortgage.
There is also no restriction about how reverse mortgage proceeds can be used.
According to HUD, when the home is sold or no longer used as a primary residence, the cash, interest and other HECM finance charges must be repaid.
If the home is worth less than the balance, the difference is paid by the FHA mortgage insurance fund.
For the most part, AARP found that reverse mortgages are often considered a loan of interest for older retirees who worry about outliving their savings or who want to finance a comfortable lifestyle.
The agency reported that in 2012 about 58,000 reverse mortgages were in default.
The CFPB warned that borrowers were increasingly using reverse mortgages at younger ages to pay off debt before they retire.
It also said reverse mortgages 鈥渉ave the potential to become a much more prominent part of the financial landscape in the coming decades,鈥� as older workers brace for a shaky financial future.
New FHA rules on reverse mortgages go into effect in August that will allow the spouses of borrowers who die to stay in their home without the threat of foreclosure if they continue to pay taxes, insurance and association fees.
Currently, the full repayment of the reverse mortgage is due after the death of the borrower, forcing a widow or widower whose name is not on the mortgage to pay off the loan balance or enter into foreclosure.
The change defers that payment until after the spouse鈥�??s death.