An annuity should never be purchased using money from a reverse loan, but in the past there were times when a reverse loan borrower would unwisely do just that and sometimes these vulnerable seniors were (for lack of a less sensitive term) “robbed”.
But what has happened since then to protect seniors from this kind of scam?
In 1987 Congress passed the FHA Insurance and Uniform Lending practices and the FHA insurance bill that would insure Reverse mortgages.
The first reverse mortgage to be insured by FHA was in 1989 and they continue to oversee this program very closely as an added protection to seniors and since that time additional oversight has come from Housing & Economic Recovery Act, HUD, Ginnie Mae, the National Reverse Lenders Association and the Consumer Financial Protection Bureau.
Prior to this time, reverse loans were created and offered by other entities such as insurance companies in exchange for a portion of the equity of the borrower’s home when they passed away and at very high interest rates.
And quite often an annuity was tied to this transaction by obligating the borrower to use the funds from the reverse loan to purchase this insurance product.
Is this an acceptable suggestion for a senior to utilize in their “later” years?
In my previous post I mentioned that since the 1990’s, “Gray” divorce ( As senior divorce is often referred to) has increased. As a matter of fact it has tripled and more seniors are splitting up than in any previous time.
More often than not, the “wife” will want to continue to live in the home but is unable to qualify for a traditional loan due to lack of income and cash reserves.
So what happens if one of them wants to keep the home and continue to live in it?
More than likely they won’t have enough income to qualify for a traditional loan and even if they are going to receive spousal support, a lender will not use it for qualifying purposes because there will be no history of it’s receipt to the spouse who has been awarded support.
And what would be her option?
Depending on her age, the value of the subject property and if there are any mortgages on it, she may be able to qualify for a reverse mortgage, pay off the spouse and continue to live in her home.
Her only responsibilities would be to continue to pay property taxes, home insurance and any HOA fees and keep the home in good repair.
Reverse loans are a financial tool. A tool to leverage the longevity of a retirement portfolio, purchase a home, provide additional income for on going expenses and other aging concerns.
And it’s also an excellent tool that can help the pain of divorce be just a little bit less and allow one of the divorcing couples to remain living in their home and not be displaced.
My description is quite simplistic in this post and the borrower does need to qualify on their residual income, but overall using a Reverse mortgage as part an option to retain the property in a divorce is a very good suggestion and should be considered in the settlement process.
In my previous post, I discussed the negative image of the Reverse loan and where it came from and how we in the industry, are still plagued by this perception that is no longer true.
In spite of the amount of television ads and the many qualified resources for accurate information about the FHA loan program, there are still many people that continue to believe that they are a terrible option for a senior to use to access their equity.
And I have to wonder how many seniors chose not to take advantage of the HECM program when it would clearly benefit them, due to their fear and lack of credible information.
I do not work for a BIG Lender, I am employed by a Broker and I work independently from my home office and I always, always meet potential clients personally in-their-homes.
I do not advertise and neither does my Broker and I conduct my business 100% referral based. From former clients, Bankers, Trust and Elder Law attorneys and Financial Advisors. I have built relationships with them over the course of many years and they know that they can trust me to take excellent care of their clients.
That is how I transform mistrust and lack of credibility. And most importantly, I do not pester them to apply for the loan. It takes time to make a decision and it has to be the best one for the client. Not me.
However, an excellent resource for information that is accurate and correct is to chose one of the HUD Counseling agencies and request a telephone appointment for Reverse loan counseling. They generally charge between $125 to $150 for an hour session, but it’s worth it and will give a person a better grasp of the loan and how it may or may not benefit them.
Here is a link to HUD for a list of approved counseling agencies.
So “whatever you have heard”, don’t believe your neighbor, friend, hairdresser, financial advisor or anyone that is not qualified or knowledgeable about Reverse mortgages.
Because they simply do not know anything.
Only “what they have heard”.