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Reverse mortgage market is changing
Old 06-19-2011, 12:10 PM   #1
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Reverse mortgage market is changing

I have seen comments on the board that went something like "...and if things got really bad, I could get a reverse mortgage...".

Reading this story, the comments and a few related stories on the web site, I believe it is time to rethink whether that will be a viable "Plan B" (or C or D or E) down the road.

Wells Fargo, Largest Reverse Mortgage Lender to Exit Retail Business [Update] | Reverse Mortgage Daily



This comment on the linked article, from a Wells employee, gives some insight into why these banks are pulling the plug, rather than sell off the units (T&I = taxes and insurance):
"...Wells had over 2500 loans in T&I default which we had been trying to "work through" to avoid foreclosure. However, HUD told us to pull the plug and we will have to do so. The reputational cost to Wells Fargo will be very high with the negative publicity of seniors being evicted by sheriffs while the TV cameras roll, being shown on the evening news with a newscaster in front of a Wells Fargo Bank branch. Painful.

Coupled with the the inability of HUD to develop T&I risk analysis tools on the front end, Wells Fargo management saw this as a program that did not sustain homeownership and increased risk to us and the communities we serve."
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Old 06-19-2011, 12:40 PM   #2
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Quote:
Originally Posted by Htown Harry View Post

This comment on the linked article, from a Wells employee, gives some insight into why these banks are pulling the plug, rather than sell off the units (T&I = taxes and insurance):
"...Wells had over 2500 loans in T&I default which we had been trying to "work through" to avoid foreclosure. However, HUD told us to pull the plug and we will have to do so. The reputational cost to Wells Fargo will be very high with the negative publicity of seniors being evicted by sheriffs while the TV cameras roll, being shown on the evening news with a newscaster in front of a Wells Fargo Bank branch. Painful.

Coupled with the the inability of HUD to develop T&I risk analysis tools on the front end, Wells Fargo management saw this as a program that did not sustain homeownership and increased risk to us and the communities we serve."
Good post. I'm aware of one senior about to be foreclosed on over T&I. I believe it was Countrywide that made the initial RM. Financial Freedom is the holder of the loan now.
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Old 06-19-2011, 02:10 PM   #3
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Good post. I'm aware of one senior about to be foreclosed on over T&I. I believe it was Countrywide that made the initial RM. Financial Freedom is the holder of the loan now.
Of course this raises another question if folks could not afford the T&I did it make more sense to sell out? In the absence of a reverse mortgage they would still be evicted by a tax sale, (if they did not pay the taxes). Insurance of course is a gamble they could take.
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Old 06-19-2011, 02:46 PM   #4
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Seems like they need an escrow account like a regular mortgage. The payout would be net after T&I.

Maybe it wasn't a ripoff from their side if the profit wasn't enough for them to stay in the business. Didn't these things usually have high fees?
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Old 06-19-2011, 03:52 PM   #5
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Do investors offer "private" reverse mortgages ? I ran AARP calculator for a $100k house for a 70 year old person.

Homeowner gets a lump sum of 50% upfront - and I guess live in house until you die.

The investor basically gets house for 1/2 off - and T&I paid. If you assume average person who hits 70 lives to 80, you basically double your money in 10 years.
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Old 06-19-2011, 05:35 PM   #6
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Seems like they need an escrow account like a regular mortgage. The payout would be net after T&I.
I suspect if there was money to be made from this market then HUD would have been bribed persuaded to let them use "innovative new methods" to keep up with T&I. However I bet the banks have noticed that the seniors wouldn't be getting enough revenue to bother applying for a reverse mortgage, or else the debt they'd run up would be more than the value of the home.

Isn't it Texas that lets seniors defer property taxes until probate? Not that this would work with a senior who already needs a reverse mortgage... probably nothing in their estate to probate.
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Old 06-19-2011, 05:42 PM   #7
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Texas allows deferment until death + 6 months. However, I am not sure the banks go along with this. I have always heard that the house had to be paid off as the banks would not allow the deferment.

http://tax.co.denton.tx.us/Forms/Wha...x-Deferral.pdf
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Old 06-20-2011, 04:47 AM   #8
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It appears that Fannie Mae winds up with many of them.... and got scr3wed (the taxpayer got scr3wed).


Reverse Mortgages


IMO - Reverse mortgages generally look like a bad deal anyway. Heavily tilted toward the interests of the lender (investor that closed the deal).

If one is in the position where they need to spend the equity in their home... I believe a planned exit is a better strategy.

As is the usual case, advance planning (and action) is required.... not a last minute decision in the middle of a money crisis.

The problem is that to many people, their home is a psychological security blanket, to others there are emotional ties. But if they need the money... there is little choice in the matter. If they end up in a real bind and fall behind on their taxes, it could be taken for back taxes or lose value because the owner does not have the money to keep it up.
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Old 06-20-2011, 12:44 PM   #9
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The investor basically gets house for 1/2 off - and T&I paid.
The homeowner gets any proceeds of the sale beyond the RM ... at least that was what dad and I looked at a few years ago. Problem was the FEES ... upwards of 10% (as I recall). He did a cash out refi instead (at a rock bottom interest rate).

If the lender escrows 10-15 years of T&I there would be nothing left for the borrower.
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Old 06-20-2011, 02:19 PM   #10
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If the lender escrows 10-15 years of T&I there would be nothing left for the borrower.
It'd work better, IMO, as an ongoing escrow, taken from the stream of payments (much like a regular mortgage).
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