Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Banks Abandon Reverse-Mortgage Business
Old 07-01-2011, 02:45 AM   #1
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
Banks Abandon Reverse-Mortgage Business

Just wanted to share this, in case some posters here have been thinking about a reverse mortgage as part of their ER strategy...

banks-reverse-mortgage-retirees-marketwatch: Personal Finance News from Yahoo! Finance
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-01-2011, 04:52 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Thanks for the link.

After doing a little research on the topic a few years back.... just to know what it is... I don't believe reverse mortgages are optimum (i.e., high cost) for the home owner.

They might make sense in certain situations... I tend to think of it as a last ditch, desperation move to free up cash relatively quickly.... at a hefty cost to the home owner! YMMV

This is how I look at it: One sells their home at a steep discount. Now that is the investment and risk premium for the investor. But for the Home Owner, they might look at it as rent. But only part of the rent! The Home Owner is responsible for home upkeep, Consider expenses like roof, HVAC, and other costly repairs, plus general upkeep, insurance, property tax, etc. If the conditions of the agreement are not met, the lender can take the home. So the cash out may be needed to just keep the house in good condition per the loan agreement.

There are many scenarios... but

IMO - I think (in most cases) the best approach is a planned exit and outright sale of the property. The homeowner eliminates the tax, insurance, and upkeep expenses and should get more cash in hand. But taking this approach requires would require one to plan it... homes are illiquid and can take some time to sell (and get a fair price).
chinaco is offline   Reply With Quote
Old 07-01-2011, 07:18 AM   #3
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,433
While it may not be the cheapest way to "borrow" money, I think of the case where one spouse requires nursing home care for the rest of his/her life. If there is substantial equity in the house, a reverse mortgage might be a relatively easy way for the other spouse to obtain funds to pay for the nursing home without diminishing current income.
__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 is offline   Reply With Quote
Old 07-01-2011, 07:56 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Quote:
Originally Posted by FIRE'd@51 View Post
While it may not be the cheapest way to "borrow" money, I think of the case where one spouse requires nursing home care for the rest of his/her life. If there is substantial equity in the house, a reverse mortgage might be a relatively easy way for the other spouse to obtain funds to pay for the nursing home without diminishing current income.

If one thinks they need to resort to selling the home to pay the NH... Medicaid funds may be available and not require it. Of course, one needs to check with their state Medicaid program.

LTC planning is not just LTCi.... People need to understand the rules in their state Medicaid program and plan accordingly.

The family home (in many states) is usually one of the few possessions that may be shielded... Need to check the rules

On current income... that is another Medicaid based rule. Need to check.
chinaco is offline   Reply With Quote
Old 07-01-2011, 08:51 AM   #5
Thinks s/he gets paid by the post
GregLee's Avatar
 
Join Date: Oct 2010
Location: Waimanalo, HI
Posts: 1,881
Quote:
Originally Posted by chinaco View Post
IMO - I think (in most cases) the best approach is a planned exit and outright sale of the property.
Since the main point of a reverse mortgage would typically be getting some money for your house without having to move out, I don't know how to interpret "planned exit" in this context. Suicide?

I'm not planning on getting a reverse mortgage now, but two years ago I was interested enough to get a quote. Figuring on the maximum loan available, $625,500, my wife and I could get an estimated $2100/month for the rest of our lives, continuing to live in our house.
__________________
Greg (retired in 2010 at age 68, state pension)
GregLee is offline   Reply With Quote
Old 07-01-2011, 09:06 AM   #6
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
 
Join Date: Aug 2006
Posts: 2,433
Quote:
Originally Posted by chinaco View Post
If one thinks they need to resort to selling the home to pay the NH... Medicaid funds may be available and not require it. Of course, one needs to check with their state Medicaid program.

LTC planning is not just LTCi.... People need to understand the rules in their state Medicaid program and plan accordingly.

The family home (in many states) is usually one of the few possessions that may be shielded... Need to check the rules

On current income... that is another Medicaid based rule. Need to check.
I was thinking in terms of a couple who had too many assets to qualify for Medicaid (probably the case for most, if not all, on this forum) but not the cash flow to easily pay for the nursing home. A reverse mortgage allows them to increase their cash flow by monetizing the equity in their house, rather than selling the home.
__________________
I'd rather be governed by the first one hundred names in the telephone book than the Harvard faculty - William F. Buckley
FIRE'd@51 is offline   Reply With Quote
Old 07-01-2011, 10:28 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Quote:
Originally Posted by GregLee View Post
Since the main point of a reverse mortgage would typically be getting some money for your house without having to move out, I don't know how to interpret "planned exit" in this context. Suicide?
I hadn't thought about it like that way... but I suppose it is your choice...

Quote:
Originally Posted by GregLee View Post
I'm not planning on getting a reverse mortgage now, but two years ago I was interested enough to get a quote. Figuring on the maximum loan available, $625,500, my wife and I could get an estimated $2100/month for the rest of our lives, continuing to live in our house.

Well, it is not quite that simple (financially)... One will have trailing expenses on the home for life and other expenses in the transaction. Plus one is not getting the full value of the home and has entered into a lifelong constraint (or give up the home early).

From my perspective, the primary reason for doing it is someone has a strong desire to remain in that particular home (or needs to for some reason).

My point -- It would be wise to compare all options available and make a decision (as opposed to assuming the RM is the best course of action). One obvious alternative is to consider selling it.
chinaco is offline   Reply With Quote
Old 07-01-2011, 10:28 AM   #8
Full time employment: Posting here.
arebelspy's Avatar
 
Join Date: Apr 2011
Posts: 625
More discussion on this topic for anyone interested here: http://www.early-retirement.org/foru...ing-56610.html
arebelspy is offline   Reply With Quote
Old 07-01-2011, 05:59 PM   #9
Full time employment: Posting here.
 
Join Date: Apr 2008
Posts: 702
There just might not be enough demand/volume for the "Big Guys" to stick with it.

In some ways it reminds me of a payday loan of a much larger dimension.
FreeAtLast is offline   Reply With Quote
Old 07-03-2011, 03:53 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Quote:
Originally Posted by chinaco View Post
..
The family home (in many states) is usually one of the few possessions that may be shielded... Need to check the rules

...
A little clarification on my comment above.

The family home (in many states) is usually one of the few possessions that may be shielded (for the spouse)... But it depends.... people need to check the rules in their state. Plus, if it is shielded, it will likely only be for a limited amount... IOW, all of the value of a McMansion may not be shielded... a modest home might. It is important to know the rules and plan accordingly.



Here is a FINRA alert about Reverse Mortgages. It does not pan them per se... more of a Caveat Emptor statement with an explanation and discussion.


FINRA - Investor Alert - Reverse Mortgages: Avoiding a Reversal of Fortune
chinaco is offline   Reply With Quote
Old 07-03-2011, 03:58 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
About the big banks exiting the market. It is my understanding that Fannie Mae wound up with a lot of these.

http://blogs.reuters.com/reuters-wea...gage-industry/

I may come as no surprise that just like MBS.... Fannie (since it is backed by you the tax payer) was willing to take these on and backstop the industry.

If the new rules or circumstances will be that banks have to hold some of these and not just extract a fee and sell it off.... it probably does not look as attractive. Especially with the deflation of home values.

Banks are only interested in this scenario: Heads we both win (bank and client), tails you lose or somebody else loses (the bank doesn't lose)!

What this probably means is that Reverse Mortgages just got a lot more expensive. Since the taxpayer will no longer absorb losses (hopefully).
chinaco is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


» Quick Links

 
All times are GMT -6. The time now is 11:05 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.