The Psychology Behind the Recovery

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Th e M Rep o RT | 23 Feature homeowner can augment monthly income from Social Security and retirement savings and stretch out his or her total finances for a longer time. Potential borrowers can use the nu62 website to work through different financial scenarios. Though the CFPB questioned the practice, MacNally says there are scenarios in which it makes sense for homeowners to use reverse mortgage proceeds to pay off existing debt, including the existing mortgage, or to help purchase another property. CFPB Cautions A June 2012 CFPB report to Congress questions the wisdom of using the pro- ceeds from a reverse mortgage to pay off an existing mortgage, pointing out that once the funds are used, they're gone. The report says the original intent of the mortgages was to help borrowers meet expenses in retirement but that most borrowers at the time were taking the full amount in lump sums, paying off other debt, or earning less than they were paying in interest on the loans—meaning the funds would quickly be depleted, leaving the borrower and his or her heirs without any equity in the property. The CFPB also cites the higher costs of the loans compared to traditional lines of credit. Recent changes have lowered costs for borrowers but have increased the complexity of their choices. Even with the lower costs, HECM costs can be higher than other types of loans. However, MacNally points out that the borrower can mitigate some of the expenses by accessing only the needed credit rather than the entire amount. One of the complexities is the different ages of spouses. If only one is age 62 or older, only that person can be on the reverse mortgage, according to Linda Sands, branch manager at Luxury Mortgage, based in Stamford, Connecticut. If that person dies, the mortgage immediately becomes due. If the surviving spouse cannot qualify for a new mortgage, he or she could be forced to sell the home. If both are over 62, they can hold title together, and no payments are due until the last borrower leaves the home, dies, sells, or lives elsewhere more than 12 months. A few other drawbacks homeowners don't always realize, according to Sands include: • Interest is not tax deductible until the loan is paid off. • Proceeds may impact Medicaid eligibility, so the borrower may need advice from a financial expert before agreeing to the loan. (HECM proceeds don't affect the amount of Medicare or Social Security proceeds the borrower receives.) • Second homes and investment properties are not eligible. Looking Ahead L enders that want to enter or expand their reverse mortgage business need to make sure potential borrowers are properly informed—over and above what the government requires—be very transparent in disclosures, and provide clear information on all aspects of the program, MacNally says. However, she also cautions reverse mortgages aren't for all lenders—they need to have expertise in the product and in advising seniors. Lenders have to have the right personal- ity to deal with seniors, who tend be scared about any possibility of losing their home and who are apprehensive about anything but "plain vanilla" financial instruments, Sorenson adds. "They've been working their entire lives," she said. "The idea of putting on additional debt is scary." Stand Out as an Industry Leader and Present Your Company in the Premier Publication in Mortgage Banking. Upcoming MReport Editorial Advertise now! Call 214.525.6700 or connect with us online at April Feature: The Affordability of Housing The sub-prime market has almost gone the way of the dinosaur, credit continues to tighten, and lending standards have become increasingly more rigid leaving some to wonder if America has awoken from the dream of homeownership. Special Section: Home Warranty Systems Guide Bonus Distribution: » REOMAC Annual Education Summit & Expo » Legal League 100 Servicer Summit » Five Star Government Forum "Counseling may be insufficient to counter the effects of misleading advertising, aggressive sales tactics, or questionable business practices."

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