The New Reverse Mortgage isn’t what you think it is.
The Reverse Mortgage program was signed into law by President Reagan in 1987. The intent was to provide an instrument for senior homeowners to have a retirement “safety net”. He recognized that the skyrocketing inflation of the early 1980s made it almost impossible for those approaching age 62 to save enough for their eventual retirement.
The original program wasn’t perfect and the result was the reverse mortgage program left many seniors wondering if it wasn’t just another scam.
What’s the truth about The New Reverse Mortgage?
The New Reverse Mortgage has evolved into a program whose number one priority is to protect seniors and their family while providing the economic safety net promised by President Reagan.
A recent article on Bloomberg referred to reverse mortgages as an “icky” business in which celebrity spokespersons “set the stage for a potential foreclosure on an elderly widow or widower…”
In the case of a traditional mortgage, as long as the homeowner continues to make his mortgage payment and pays his property taxes and homeowner’s insurance he/she is not subject to lender foreclosure proceedings.
With a reverse mortgage although no monthly payment is required (the homeowner can however, pay as little or as much as they wish), the homeowner still has to keep their taxes and homeowner’s insurance current. And as long as they continue to occupy the home as their primary residence they will not be subject to lender foreclosure proceedings.
I keep hearing about Reverse Mortgage foreclosures?
There have been 971,000 HECM loans originated since April 2009. HUD reported 41,237 foreclosures since 1999 or approximately 4.2%. Certainly a higher number than the ideal, but nowhere near the numbers of the “liar loans” of the mid-2000s.
When is a foreclosure not really a foreclosure?
A closer look at HUD’s definition of “foreclosure” as it relates to reverse mortgages sheds a brighter light on the subject.
According to HUD: “We use the term ‘foreclosure’ when title is transferred through a foreclosure proceeding – either judicial or non-judicial. It does not always have an associated eviction. The most usual cause for default is death of the last surviving borrower so there is usually no eviction involved.”
In other words most of those “foreclosures” were really terminations that occurred when the last surviving borrower passed away. The heirs sold the home or transferred title back to HUD via a deed in lieu of foreclosure, which saved all parties thousands of dollars in legal fees by avoiding actual foreclosure proceedings.
The New Reverse Mortgage
In 2014 HUD changed the guidelines to allow non-borrowing spouses to remain in the home indefinitely. Under this new rule, all spouses have their tenure protected, reducing the risk for “those elderly widows and widowers”.
Old prejudices die hard, but for every reverse mortgage “horror story” there are countless seniors who are thankful they have a reverse mortgage giving them peace of mind in retirement.
The New Reverse Mortgage isn’t for everyone…but it could be!
If you’re still wondering if a Reverse Mortgage is the right solution for you but you’re not ready to sit down with one of our Reverse Mortgage Experts, then we’ll be happy to mail (or email) you Use Your Home to Stay at Home which is the official federally approved consumer booklet for those considering a reverse mortgage.
Thanks to Jack Guttentag, Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania for providing the research.
Some of this information first appeared on Huffingtonpost.com