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Canny Ways to Use Reverse Mortgage Money

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 10th, 2017

More than 1 million senior homeowners have now taken out reverse mortgages. There’s a good chance you might, too, once you reach age 62. But the question of how to use the money from the loan is just as important as the question of whether or not to get the loan in the first place.

A laundry list of celebrity spokespeople have tried to explain how these “backwards” loans work. Here’s how the most recent one -- gravelly voiced actor Tom Selleck -- explains it in a commercial for a reverse lender: “A reverse mortgage loan is a simple idea really -- you turn your home’s equity into cash and you pay it back when you leave the house.”

Reverse mortgages are making a comeback from their hottest years in 2007, ‘08 and ’09, when more than 100,000 loans were made every year. According to the National Reverse Mortgage Lenders Association (NRMLA), 45,000 of these home equity conversion mortgages have been recorded so far in fiscal 2017, most of them through the Federal Housing Administration.

That tips the total to over 1 million since the first ones were originated back in 1990. There’s a good bit of equity to tap, too: NRMLA puts total equity for homeowners 62 and older at $6.3 trillion as of the first quarter of this year.

How much can you get with this type of loan? It depends on a number of factors, but it could be as much as 50 percent of the built-up equity in your home.

What to do with the money? You could always take it to Vegas and bet it all on red. But there are a lot of better ways to use the proceeds. NRMLA recently devoted an issue of its magazine, Reverse Mortgage, to the topic. They advertised 25 ways to use your home equity, with a few extra ideas thrown in for good measure.

NRMLA members were asked by the magazine how their clients put their money to use. Many of the answers are pretty obvious: Pay down debt, replace a salary, pay off a first mortgage, send a grandchild to college. But others are pretty clever.

One of the biggest fears about reverses is that they are just another way for the bank to repossess your house. Or as Selleck puts it, “Like you, I thought that reverse mortgages had to have some kind of catch -- just a way for banks to get your house. Right?”

They’re not, as the commercial assures. But in fact, foreclosures are possible with reverse mortgages if the owner-borrower doesn’t maintain the property or pay the taxes and insurance. So one use for the money is to create a set-aside fund to pay the taxes and insurance.

“One of the heaviest burdens for older homeowners is paying property taxes and insurance,” notes Jon Maiolatesi, a loan officer with 1st Financial Reverse Mortgages in Michigan. He describes an older couple living on Social Security: “The monthly budget was tight, but they made it work from month to month. However, twice a year when the property tax and insurance bills arrived, there was often not enough in the checking account to cover them.”

When the couple pursued a reverse mortgage, they found they could arrange for a Life Expectancy Set-Aside (LESA) to pay the taxes and insurance. Funding the LESA does reduce the balance of funds available to you immediately, but it also prevents foreclosure.

Here’s another smart idea: People who take out reverse mortgages generally want to stay in the house a long time, since they have to repay the loan once they move out (or once the home is no longer their principal residence). So why not use the proceeds to redesign your living space to make it responsive to your needs as you age?

Pete Mendenhall, a sales director at Liberty Home Equity Solutions in Coppell, Texas, tells of a widow whose home needed a lot of repairs, even before it could be retrofitted for things like grab-bars and wider doorways.

“Universal design updates allowed (the client) to live more comfortably, with increased wheelchair mobility, and to age in place with dignity. Universal design and other types of upgrades would also help with resale value when the time comes.”

Proceeds can also be used to build living space for an aging parent or a caretaker. You can even use the money to buy a new home.

Dennis Loxton, a sales manager with Liberty in Fort Wayne, Indiana, says one of his borrowers used her equity to do what’s called a “HECM for Purchase.” The borrower used a Home Equity Conversion Mortgage (HECM) on the new home to provide 50 percent of its purchase price. The balance was paid in cash from the proceeds of the sale of her existing house plus other assets, so there were “no monthly repayments thereafter,” said Loxton.

-- Freelance writer Mark Fogarty contributed to this report.

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Celebrities and Mortgages: A Natural Match?

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | November 3rd, 2017

Would you buy a mortgage from Kevin Costner?

This isn’t quite a rhetorical question. The Academy Award-winning actor and director is the lead investor in a new venture in the mortgage space called Lender Price. The Pasadena, California-based firm doesn’t make loans, but supplies key technology that figures out how much you’ll be charged for a mortgage.

And Costner joins a surprisingly long line of celebrities involved in the mortgage business. The list includes the current president of the United States, who migrated over to the home loan field after making his fortune in real estate. But there are many actors and sports figures who have made the jump after they achieved celebrity.

Are celebs just figureheads, or do they really know something about housing finance?

Costner talks a pretty good game. He made an appearance at last year’s Mortgage Bankers Association’s annual conference, and says Lender Price has a “vision and strategy for mortgage lending transformation through a technologically superior digital POS and PPE platform that offers unprecedented business analytics.”

While that statement sounds as though it was written by the company’s marketing director, the jargon was pretty much absent during a one-on-one conversation.

“The mortgage industry is eager to embrace the promise of digital disruption, and Lender Price is strategically positioned to fulfill on that promise,” said Costner during an interview. “For an investor like me, who wants to be in on the early stages of a business poised to transform an industry that is critical to the U.S. economy and touches the lives and financial aspirations of millions of citizens, Lender Price is ideally positioned.”

President Donald Trump’s real estate background is famous. What is less commonly known is that he launched a mortgage brokerage company -- Trump Mortgage (what else?) -- just before the mortgage market imploded.

According to an analysis in the Washington Post, his venture folded after just 18 months in business. Among other things, its spring 2006 launch was a case of bad timing. The market tanked in the fall of 2008. And what was even more untimely was that his product line included subprime mortgages.

Trump didn’t really have any hands-on impact on the business, but it was a failure nonetheless.

Mortgages, of course, are a pretty logical hop for a real estate mogul like the president. Most often, you can’t sell a house without financing.

Other celeb housing connections often make sense as well -- after a closer look. For example, Academy Award-nominated actor Edward Norton has shown an active interest in affordable housing. That’s not surprising when you factor in that his grandfather was James Rouse, a towering figure in the field of affordable housing. Rouse was the creator of Columbia, Maryland -- arguably the country’s most successful planned community -- and the founder of the nonprofit Enterprise Community Partners.

Enterprise has been responsible for creating half a million affordable units since its inception. Norton actually worked in the company’s New York office for two years, and has been a director of the firm since 1998. He is now a lifetime trustee.

Some celebrities actually start their own housing businesses. Former Dallas Cowboys quarterback Roger Staubach is one. He launched The Staubach Company, a commercial real estate firm, in 1977. Now he is executive chairman of another real estate firm, JLL Americas, a company that took in $3.6 billion in revenue in 2011.

Trade publication National Real Estate Investor recently went looking for celebrities investing in commercial real estate, and it found a baker’s dozen of them. They include former New York Yankees slugger Alex Rodriguez, former tennis great Andre Agassi, and actors Brad Pitt and George Clooney.

Some mortgage firms hire celebs as spokespeople. Sports figures are especially popular in this role; stars like Reggie Jackson, Jim Palmer and Ozzie Smith can be seen at mortgage meetings around the country. One of the most popular endorsers was racecar driver Danica Patrick, who represented subprime lender Argent Mortgage years ago. At one industry meeting, some 800 mortgage execs stood in line to have their pictures taken with the racing star, who smiled for every photo.

As a side note, your intrepid columnist was once given the opportunity to race against Patrick in a video game. We sat side by side in mockup racecars with accelerator pedals and game screens in front of us. She beat the pants off of me, but softened the blow with the gift of a signed copy of her autobiography and a personally autographed hat.

And of course, besides athletes, any number of actors have served as spokespeople for mortgage companies. Actors of a certain age, in particular, have helped market reverse mortgages to seniors. Robert Wagner, Henry Winkler, Fred Thompson and Tom Selleck have all hyped these loans, which allow people to remain in their homes until they pass on or move out without having to make monthly payments.

-- Freelance writer Mark Fogarty contributed to this report.

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Disaster Preparedness Key to Recovery

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | October 27th, 2017

Natural disasters rarely come with a warning. With the exception of hurricanes, most disasters sneak up on you. But there is plenty you can do to protect yourself and your family should a flood, fire, tornado or tropical storm head your way.

The key is preparedness. You probably won’t be able to prevent damage to your home or place of business. But if you are ready, you could recover far more quickly.

Here are a few tips. This list isn’t exhaustive, but follow these steps and you’ll be way ahead of the game:

-- Inventory. For insurance purposes, you will have to show what you lost. So take a fearless inventory. A list of every item in the house would be best, of course, with the date of purchase and the cost. But since that is all but impossible, use your smartphone or camera to photograph each room. Add a running commentary describing the major items.

-- Accounts. Make a list of all your bank, credit card, insurance and stock accounts, including account number, address, phone number and, if possible, the name of someone with whom you have interacted. Make sure you include the name of the company to which you send your house payments, the phone and account numbers and a contact person.

You will need this after the disaster passes to start rebuilding. Have it laminated so it can survive a flood if you have to escape through rising waters.

-- Documents. Maintain a duplicate set of key documents, including bank statements, tax returns, identifications and insurance policies, and keep them in a safe place. Store them in a waterproof container, away from the original set. To be extra safe, scan them into an electronic format such as a flash drive, or burn them onto a DVD or CD.

-- Devices. Keep a plastic bag of backup chargers, cables and headsets so you can grab it and run. Your phone or tablet may be the only way you will be able to communicate, so you’ll need to keep it charged.

-- Drugs. The older you are, the more medicines you likely take. So keep a stash, again in a sealable plastic bag, that you can grab at a moment’s notice. If not the actual meds, then at least keep a list of them, where they are being filled, doctor’s name, dosage and so on. Also keep a copy of your medical history, along with extra eyeglasses and hearing aid batteries.

-- Mortgage. If the event is designated a major disaster area by the president or your governor, there is plenty your loan servicer -- the company to which you send your payments -- can do to relieve your short-term burden. But you have to be proactive and call. They will try to contact you, but if you have been displaced, they won’t know where you are.

If your loan is secured by Fannie Mae, Freddie Mac or Ginnie Mae, your servicer can, on a case-by-case basis, extend forbearance and repayment plans for up to 12 months without prior approval. The same goes for people who reside outside the declared disaster area but work within it. Your servicers also can waive late fees and other penalties, and can suspend evictions and foreclosures for up to 90 days if you were already behind on your payments.

None of this will be reported to credit repositories, so your credit score won’t take a hit.

-- Other loans. After Harvey, federal and state banking regulators told bankers to work with borrowers in the disaster areas to adjust or alter loan terms. “Efforts to work with borrowers in communities under stress can be consistent with safe-and-sound banking practices,” said a memo from the Federal Reserve.

At the same time, the IRS amended its rules by allowing 401(k) plans and other employer-sponsored retirement plans to make loans and hardship distributions to Harvey victims without incurring any penalties. Similar relief was granted during previous disasters, including the Louisiana floods and Hurricane Matthew.

And in the wake of disasters, individual banks sometimes defer payments on consumer and business loans, waive ATM fees and offer discounted rates on home equity loans, lines of credit, renovation loans and construction loans. In the wake of Harvey, some banks and credit unions offered to help people get back on their feet and minimize their own potential losses by allowing borrowers to skip payments and extending the length of their loans.

One said it was open to restructuring entire loans. Another was deferring payments and adding them to the back end of the mortgage.

-- Scams. The unfortunate part of the human condition is that some people will always try to take advantage of others’ misfortune. According to the Federal Trade Commission, not long after Harvey cleared out of Texas, consumers started receiving fraudulent robocalls telling them their flood premiums were past due. Buyer beware of scam artists.

If you get such a call or letter, confirm that the company is legitimate. Telltale signs that it isn’t include grammatical mistakes, typos and names of affiliated business groups that you do not recognize or that cannot be identified.

Never be pressured to “act now,” and never give out your bank account or routing number until you have verified the outfit. And remember, mortgage help is free, so be particularly leery of anyone demanding payment or promising guaranteed results.

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