Banks Abandon Reverse-Mortgage Business

[obgyn65]

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

 

[chinaco]

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).

 

[FIRE'd@51]

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.

 

[chinaco]

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.

 

[GregLee]

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.

 

[FIRE'd@51]

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.

 

[chinaco]

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...

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.

 

[arebelspy]

More discussion on this topic for anyone interested here: http://www.early-retirement.org/forums/f28/reverse-mortgage-market-is-changing-56610.html

 

[FreeAtLast]

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.

 

[chinaco]

..
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]

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-we...rscores-trouble-in-reverse-mortgage-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).