I have made mistakes in my life that made me want to go back in time and undo them. Sometimes you can, but sometimes you can’t go back and reverse the damage. Taking on a reverse mortgage is one mistake that is very difficult to undo. I don’t like reverse mortgages. I don’t like many forms of debt, but reverse mortgages are one of the worst forms out there.
According to the Department of Housing and Urban Development:
A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence or fail to meet the obligations of the mortgage.
If you don’t have to make any payments, it shouldn’t be too difficult to meet the obligations of the mortgage. Also from the HUD website:
What’s the difference between a reverse mortgage and a bank home equity loan?
With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home, sales price or FHA’s mortgage limits, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you may borrow.
Reverse mortgages provide seniors with plenty of equity and limited income the ability to tap their equity to meet the needs of daily life. Basically, they didn’t want grandmothers to eat dog food if they had a lifetime of filet mignon tied up in home equity. Selling the family home is sacrosanct, so the government developed a program to allow seniors to tap their home equity. As you might imagine, loaning seniors money when they have no ability to repay has potential for abuse and predatory lending. Fortunately, the market is heavily regulated by HUD.
Reverse Mortgages Worry Regulator
Updated June 27, 2012, 6:55 p.m. ET — By MAYA JACKSON RANDALL
WASHINGTON—A U.S. financial regulator warned that new rules may be needed to address hidden dangers in reverse mortgages, the special loans that enable cash-strapped seniors to borrow against the equity in their homes.
Deceptive marketing practices, complicated loan terms and misleading marketing materials are some of the problems the Consumer Financial Protection Bureau highlighted in the $90 billion industry, which is expected to grow in popularity as tens of millions of baby-boomer homeowners grow older and struggle to pay for retirement.
Any new regulations would affect industry leaders such as Quicken Loans and Wall Street financial firms like Guggenheim Partners and Knight Capital Group Inc., which own companies that make reverse mortgages. Large banks such as Bank of America Corp. and Wells Fargo & Co. have left the market amid rising defaults and declining home prices.
Nearly 10% of reverse-mortgage borrowers are at risk of foreclosure because they have failed to pay taxes and insurance, according to the CFPB’s study, mandated by the 2010 Dodd-Frank financial overhaul.
With falling house prices, many reverse mortgage holders found themselves underwater and unable to tap the housing ATM through reverse mortgages. Since they had no real financial interest in the property, many seniors see no need to pay the taxes and insurance. In their minds, it’s the bank’s problem, and when on a fixed income, house taxes and insurance are a major financial expense.
Reverse mortgages, targeted at homeowners over 61 years old, are similar to home-equity lines of credit. But instead of a monthly payment, repayment is deferred until the homeowner leaves the home, dies or fails to maintain the property, pay homeowners’ insurance or property taxes.
The upfront fees, interest and closing costs can be much higher than on home-equity loans.
This is why the industry pushes them so hard.
While there are no required monthly payments on a reverse mortgage, the interest is added to the loan balance each month, and so the rising loan balance can grow to exceed the value of the home.
This is the aspect of reverse mortgages I despise. Once people start tapping their equity, lenders and their compound interest will consume most or all the equity in the home before the senior dies.
Compound interest grows like cancer. if there are no payments, as there aren’t in a reverse mortgage, if given enough time compound interest consume everything. Would you like to spend your retirement worried about running out of money? Let’s imagine a few scenarios and see how you feel about this.
I could’ve used that money
Imagine your late 60′s, your children are stable and prosperous, so you decide you are going to blow a little of their inheritance. It’s your money, you can do what you want with it; besides, the kids don’t need it.
So you take out a reverse mortgage, or worse yet a HELOC, and you spend a little money. You don’t go overboard and spend your house, but you do spend enough that you feel worried that you might need it for yourself someday, so you stop using it.
After a while you forget about the loan since you aren’t making payments, and you go about your life. Years go by, and your in your mid 80s, and you want or need some elective medical procedures that require you to come out of pocket. You remember the old credit line and you dig for a statement. You open one up and realize the debt grew as fast as your house went up in value. You still have a little equity, but the debt cancer consumed everything you once had. You can’t afford your operation and you languish in discomfort in your final days — all because you took on that invisible Ponzi debt early in your retirement.
Riding the equity wave onto the rocks
Or imagine you are of retirement age, and you rationalize how you worked hard all your life so you deserve a few indulgences. You become a Ponzi accustomed to your great new life. This works great as long as you manage your debt in a sophisticated manner, right?
You do well until house prices crash again, your credit lines are cut off, and you lose your home. If your lucky one of your children is welcoming. If they’re not, your life really sucks.
Recognizing the cancer debt
At some point, seniors who take on reverse mortgages recognize them for what they are: a malignant financial cancer. These debt tumors grow until they crowd out home equity. There is no cure, and the tumor cannot be removed without selling the house. The only cure is prevention.
It’s worse than gambling
Nearly everyone who has gambled in Las Vegas has had a time when they lost more than they wanted to. Depending on how irrational you get, the financial pain can be mild or extreme. But when you lose in Las Vegas, your done. It’s over. The loss doesn’t get any worse. Your mistake doesn’t haunt you for the rest of your life. Reverse mortgages are different. If you make a mistake and take on a reverse mortgage, the losses of equity due to compound interest go on and on and get bigger and bigger.
It must be horrible to realize you have a financial leak you can’t plug without going back to work or selling the house to pay off the debt. Your debt will continue to grow until you die.
The loans represent a small corner of the national mortgage market, with only about 2% to 3% of eligible households using them, according to the CFPB. But studies show demand is growing, expanding the pool of 580,000 currently outstanding, according to Reverse Market Insight, a data provider and newsletter on the industry.
I am relieved to discover that so few of these financial cancers are growing on seniors. 
Peter Bell, head of the National Reverse Mortgage Lenders Association, said better consumer education is necessary, and he shares concerns about misleading advertising and scams, adding that most consumers who have the loans are satisfied.
Seventy percent of borrowers are taking out the proceeds as a lump sum, as opposed to a line of credit or stream of payments, according to the bureau’s study. Such a move could result in borrowers having trouble paying taxes and insurance on their homes, which could put them at risk of default.
That is the worst possible scenario. The big lump sum spends fast, and once it’s gone, it’s gone. The debt will live on — and grow — forever.
Monica Newton, a 68-year-old resident of Chireno, Texas, said she has had troubles with unexpected bank fees and charges on her reverse mortgage, but she said in general the product is “really good for old folks” who aren’t concerned about leaving their homes to their kids or other family members.
Ms. Newton used cash to purchase her home for about $140,000 and decided to take out a reverse mortgage about five years ago when she needed extra money to cover retirement expenses. She said she is worried about being able to keep her house maintained to her lender’s standards.
One more thing to worry about in retirement. I think I will pass. I hope you will too.
He left some behind
Sometimes Ponzis were at least trying to keep their debts under control. The former owner of today’s featured property still imploded, but he didn’t max out his borrowing to match the full appraised value. If the bank gets their asking price on this one, they will not lose money. That’s a first.
- The former owner paid $117,500 on 10/4/1996 using a $112,000 first mortgage and a $5,500 down payment.
- On 3/31/1998 he refinanced with a 110,700 first mortgage actually paying down the balance.
- On 2/28/2005 he refinanced with a $170,000 first mortgage.
- On 12/16/2005 he refinanced with a $220,000 first mortgage.
Apparently, that was too much. The lender foreclosed and bought the property for $229,500 at auction.
Aliso Viejo Overview
Median home price is $334,000. Based on a rental parity value of $542,000, this market is under valued.
Monthly payment affordability has been improving over the last 7 month(s). Momentum suggests improving affordability.
Resale prices on a $/SF basis increased from $241/SF to $242/SF.
Resale prices have been falling for 12 month(s). Price momentum suggests falling prices over the next three months.
Median rental rates increased $33 last month from $2,215 to $2,249.
Rents have been rising for 12 month(s). Price momentum suggests rising rents over the next three months.
Market rating = 8
Proprietary OC Housing News home purchase analysis 
12 HEADLAND Pl Aliso Viejo, CA 92656
$274,800 …….. Asking Price
$117,500 ………. Purchase Price
10/4/1996 ………. Purchase Date
$157,300 ………. Gross Gain (Loss)
($9,400) ………… Commissions and Costs at 8%
============================================
$147,900 ………. Net Gain (Loss)
============================================
133.9% ………. Gross Percent Change
125.9% ………. Net Percent Change
5.5% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$274,800 …….. Asking Price
$9,618 ………… 3.5% Down FHA Financing
3.62% …………. Mortgage Interest Rate
30 ……………… Number of Years
$265,182 …….. Mortgage
$80,079 ………. Income Requirement
$1,209 ………… Monthly Mortgage Payment
$238 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$69 ………… Homeowners Insurance at 0.3%
$276 ………… Private Mortgage Insurance
$277 ………… Homeowners Association Fees
============================================
$2,069 ………. Monthly Cash Outlays
($182) ………. Tax Savings
($409) ………. Equity Hidden in Payment
$11 ………….. Lost Income to Down Payment
$54 ………….. Maintenance and Replacement Reserves
============================================
$1,544 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$4,248 ………… Furnishing and Move In at 1% + $1,500
$4,248 ………… Closing Costs at 1% + $1,500
$2,652 ………… Interest Points
$9,618 ………… Down Payment
============================================
$20,766 ………. Total Cash Costs
$23,600 ………. Emergency Cash Reserves
============================================
$44,366 ………. Total Savings Needed
——————————————————————————————————————————————-
We're sorry, but we couldn't find MLS # S703064 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
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$270,000 23412 PACIFIC PARK Dr Unit 33J |
0.23 miles 2 bd / 2 ba 1,100 Sq. Ft. |
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$270,000 24 PAMPLONA |
0.37 miles 2 bd / 1.75 ba 1,121 Sq. Ft. |
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$299,900 41 TULIP Pl |
0.57 miles 2 bd / 2 ba 1,000 Sq. Ft. |
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$340,645 21 MAYFAIR #41 |
0.58 miles 1 bd / 1.5 ba 1,129 Sq. Ft. |
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$229,000 22681 OAKGROVE #336 |
0.79 miles 1 bd / 1 ba 850 Sq. Ft. |
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$237,500 24391 AVENIDA DE LOS NINOS #42 |
0.89 miles 2 bd / 2.5 ba 1,050 Sq. Ft. |
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$335,000 35 SOBRANTE |
1.02 miles 2 bd / 2 ba 1,000 Sq. Ft. |
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$235,000 27271 NICOLE Dr |
1.09 miles 2 bd / 1 ba 948 Sq. Ft. |
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$259,900 27345 RYAN Dr |
1.09 miles 2 bd / 1 ba 948 Sq. Ft. |
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$220,000 26701 QUAIL Crk #49 |
1.2 miles 1 bd / 1.5 ba 1,100 Sq. Ft. |
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27 Responses to “Reverse mortgages are a really, really bad idea”
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It seems like there are no short of ways to make people spend money. What a difference two generations have made in this country.
The home has become the nest egg, instead of savings, bonds, stocks, and precious metals.
If houses are to serve as American’s retirement nest egg, then we should enact laws to stop people from raiding this nest egg with HELOCs and cash-out refinances. People can’t indiscriminately raid their retirement accounts, but they can raid the housing piggy bank.
It’s not the same thing. The deal with a retirement account is the government has “generously” forwent the taxes on that income until you retire. If you take it out before then, you have broken the “deal,” and get whacked with the taxes plus a 10% penalty for being a pain in the ass.
Now…if the principal of a mortgage payment was tax-deductible, as well as the interest, you’d have a case. But as it is, any money you put towards equity in a house is after taxes, and — thank God — the government has no business telling you how and when you can spend it.
Reality of Foreclosures to Reverse Delusional Asking Price Increases
After falling flat in May, asking prices went up in June, and rent prices continued to see significant increases, according to reports from Trulia released Tuesday.
Asking prices on listed homes made a 0.3 percent month-over-month and year-over-year increase in June, according to Trulia’s price monitor. Quarter-over-quarter, asking prices rose by 0.8 percent. When excluding foreclosures, asking prices moved upwards by 0.8 percent from May to June and by 1.7 percent from June 2011. Asking prices are said to lead sales prices by about two to three months.
“We saw asking prices start to rise in February and predicted that other home price indexes would report sales price increases this summer for those homes – and they have,” said Jed Kolko, Trulia’s Chief Economist. “Since February, asking prices showed solid gains in four out of five months, including in June, so I expect to see the sales-price indexes show further increases in the months to come.”
On a seasonally adjusted basis, 44 out of the 100 largest metros saw yearly gains in asking prices, and 84 out of the 100 largest metros had quarterly increases for asking prices.
The metro with the biggest yearly gain in asking prices was Phoenix, where prices rose by 18.9 percent. Florida metros took the next three spots, with Miami coming in at second (+16.1 percent), Cape Coral (14.9 percent) third, and West Palm Beach (9.6 percent) fourth. Denver was fifth and had a 7.2 percent increase.
Despite these gains, Trulia warned that some of these top performing metros will start moving in the opposite direction.
“The huge price gains we’ve seen in Miami and Phoenix are not built to last. These increases will shrink or reverse as the backlogged foreclosures in these metros hit the market,” said Jed Kolko, Trulia’s Chief Economist. “In contrast, Denver, San Jose and Austin, which were spared the worst of the housing crisis, have strong price growth and strong job growth without a foreclosure overhang. Their recent price gains are less dramatic than Miami and Phoenix but are less at risk. Slow and steady wins the housing recovery.”
Prices for rent made a 5.4 percent jump in June compared to the year before, according to Trulia’s rent monitor. Out of 25 markets, 24 saw yearly increases in rental prices, with Las Vegas as the exception.
San Francisco posted a 14.7 percent yearly increase, making it number one for having the largest rent increase. Oakland came in at second with an 11.2 percent increase, followed by Denver (10.9 percent), Miami (10.5 percent), and Boston (10.3 percent).
Fixed Rates See New Bottom
The search for a new low is still on as fixed-rates continue to break record-lows week after week. According to Freddie Mac’s survey, fixed rates fell again following reports showing a slowdown in consumer spending and the manufacturing industry.
The 30-year fixed-rate mortgage fell to 3.62 percent (0.8 point) for the week ending July 5. Last week, it averaged 3.66 percent, and last year at this time, it was 4.60 percent.
The 15-year fixed-rate dropped down to 2.89 percent (0.7 point) from last week’s 2.94 percent. A year ago at this time, the 15-year FRM averaged 3.75 percent.
The 5-year ARM remained unchanged from last week at 2.79 percent (0.6 point). Last year, the 5-year ARM averaged 3.30 percent.
The 1-year ARM also broke a record-low and averaged 2.68 percent (0.5 point). Last week it averaged 2.74 percent, and last year, the 1-year ARM was 3.01 percent.
“Recent economic data releases of less consumer spending and a contraction in the manufacturing industry drove long-term Treasury bond yields lower over the week and allowed fixed mortgage rates to hit new all-time record lows,” said Frank Nothaft, VP and chief economist for Freddie Mac.
Nothaft explained that that consumer spending in April was revised from a 0.3 percent gain to 0.1 percent and was unchanged in May, while manufacturing shrank in June for the first time since July 2009.
Bankrate’s survey also saw declines this week, with the average 30-year fixed mortgage rate hitting a new low of 3.87 percent, falling from last week’s 3.89 percent. The 15-year fixed fell to 3.13 percent, down from 3.16 percent last week.
Bankrate uses data provided by the top 10 banks and thrifts in the top 10 markets, and Freddie Mac’s survey includes about 25 lenders from five regions.
“That is the worst possible scenario. The big lump sum spends fast, and once it’s gone, it’s gone. The debt will live on — and grow — forever.”
The reason most people take out the reverse mortgages is because they then buy an annuity that will pay them for the rest of their lives. Tax planners are big on this, so they recommend that anyone who gets a reverse mortgage takes lump sum and puts it into an annuity. Not saying its right or wrong…just FYI
According to the article, “Seventy percent of borrowers are taking out the proceeds as a lump sum.” If that is true, then most people are not taking out reverse mortgages for the annuity.
If tax planners are convincing seniors to take out a reverse mortgage to invest in an annuity, that is even worse. Reverse mortgages are loaded with junk fees, and annuities are even worse. Such an arrangement is a double hit to the senior and a double commission to the retirement planner. I think that makes it doubly wrong.
Most of the tax preparers that moonlight as financial planners are pushing this type of garbage. It’s how they supplement their income between April 15th – Dec 31st.
Irvine Renter -
Tell me where else a person can get a pension for life- Annuity.
Yes it pays a FP comp but you are incorrect, where else ?
Bonds stocks. think beforeyou post
When bank interest and bonds are in the toilet, like now, rental properties, REITs, and instruments tied to real estate cashflow provide the only stable returns available. Eventually, CD savings rates and bond yields will improve and money will be better invested there than in real estate, but right now, RE cashflow is good place to be.
Real estate returns are not stable in real terms. Interest rates will rise, but not real rates, which are all that really matter.
Sometimes it is better to invest for wealth preservation rather than wealth accumulation.
IR, this company (the one that wants to eminent domain your underwater mortgage) stole your loan owner term….
http://mortgageresolutionpartners.com/
What rights will the loan owners have?
The trusts that currently hold the mortgage loans will have the right to receive the fair market value of the loans. This includes the right to a trial to determine the fair value of the loans if the trusts disagree with the government’s valuation.
That’s funny. I think they were actually referring to the investors who really do own the loans, but it is amusing to see “loan owners” in print elsewhere.
I still smile when reading or using the term “loan owner.” So apt.
All that people really need to know and understand about why reverse mortgages should be avoided at all cost is revealed in the following statement:
“the government developed a program”
Thanks for shedding some light on this subject. It’s one I’ve been thinking about on-and-off for the last few years.
Let’s say a couple of married seniors have been living in the same house for nearly 40 years. Let’s say that this house is their home. Let’s say they plan to live in it until they die. Let’s say they own the house outright. However, let’s say these seniors are concerned that their house is currently significantly overvalued.
Now let’s say in the hope of increasing the inheritance they will pass on to their children, they were to reverse-mortgage their house located in, say, Irvine (to cite an example you have often given of a city which has residential real estate that you have argued is currently overvalued), and were to buy residential real estate in an area that they believe is currently undervalued, say, in Las Vegas (to cite an example you have often given of a metropolitan area which has residential real estate that you have argued is currently undervalued).
Assuming they negotiated patiently and carefully to avoid being gouged with high fees (which may not actually come to pass, but let’s assume it were to), might it be prudent for them to reverse-mortgage their house in Irvine and to invest the proceeds in Las Vegas residential real estate, in the hope of increasing their children’s inheritance while simultaneously allowing them to remain in their home?
Or is this idea somewhat akin to borrowing money from the bank to, say, invest in the stock market? In other words, are the proceeds from the reverse mortgage in Irvine likely to be so relatively low compared to the likely returns from investing the money in Las Vegas residential real estate, that without- say- a properly functioning crystal ball, this would this almost invariably be a poor choice?
In other words, are the folks offering reverse mortgages essentially like “Fast Eddie’s Used Cars” (No credit? No problem!!!) or “Ricky’s Rent-to-Own Furniture” dealers (Enjoy this beautiful living room set for just $42/month!).
Bottom Line: are the folks offering reverse mortgages usurious money lenders who should normally be avoided?
“Bottom Line: are the folks offering reverse mortgages usurious money lenders who should normally be avoided?”
I think the problem is both with the product and the way it is sold. The product itself is designed to consume equity. It is literally a financial cancer. Added on top of that, the product is loaded with junk fees.
In the scenario you described, the couple would be far better off to sell the house in an overvalued area and buy a much less expensive house in an undervalued area. They could take the difference and invest in conservatively to supplement Social Security. Ordinarily, I would say they could put the money in the bank, but since the federal reserve is stealing from seniors to bail out the banks, that option isn’t what it used to be.
Thanks for your quick response.
/// The product itself is designed to consume equity.
That’s tautological. Perhaps you meant, “The product itself is designed to *voraciously* consume equity. ” In other words, I think you are arguing it’s a form of usury. Right?
/// It is literally a financial cancer.
I like that metaphor, but how can something figurative such as “a financial cancer” be literal? This seems to be a contradiction in terms. Perhaps you meant, “Although apparently benign, it is a malignant or an aggressive or a virulent financial cancer.”
/// Added on top of that, the product is loaded with junk fees.
Which, you seem to be implying, cannot be negotiated down to a reasonable price. Right? However, for purposes of this discussion I stipulated, “Assuming they negotiated patiently and carefully to avoid being gouged with high fees (which may not actually come to pass, but let’s assume it were to)…” Therefore, your point is moot.
/// In the scenario you described, the couple would be far better off to
sell the house in an overvalued area and buy a much less expensive house in an undervalued area.
Perhaps from a purely financial perspective they would be better off, but as I indicated, “Let’s say a couple of married seniors have been living in the same house for nearly 40 years. Let’s say that this house is their home. Let’s say they plan to live in it until they die.” Therefore, this suggestion is untenable.
Bearing the above in mind, do you still believe …
Bottom Line: the folks offering reverse mortgages usurious money lenders who should normally be avoided.
I am not going to characterize the people. I will leave that to you. I’m sure there are many good people who underwrite reverse mortgages just as there are good people who work for tobacco companies. I do think the product is bad for the reasons I described above in detail.
Although it is probably common knowledge to many of those in the reverse mortgage business, I just had an epiphany.
Retail residential house prices in the USA are typically bid up high because buyers tend to buy based on emotion (“Honey, I just love this house! And we can afford the monthly payment as long as we both work.”). Money lenders generally profit from mortgages unless they need to foreclose on a house, which generally has been rare and still continues to be uncommon in most of the US.
I would guess foreclosures aren’t likely increase dramatically in the near future because it doesn’t seem politically feasible to both upset the banking cartel and toss too many voters out of their houses. But that’s merely a guess. I was caught by surprise when the US government essentially began giving money to the banking cartel for free.
On the other hand when the tables are turned, that is when the money lenders become the house buyers, they tend to buy based on cold, hard financial calculations. In essence, they tend to act like wholesale buyers who bid prices down. Furthermore, seniors often feel vulnerable and therefore may tend act to some degree like distressed sellers or in fact be distressed sellers. (“My aching hip is just killing me! And I’m addicted to these painkillers! I need to get a hip replacement now! I’m too old and tired to keep arguing with the folks at my insurance company!”)
I’m speculating that a house that may retail to a family for $500,000 (“Honey, I just love this house!”), may tend to wholesale to a money lender who offers a reverse mortgage for $250,000 (“We will need to discount the future value of this asset based on…”)
Regardless of whether or not reverse mortgages are inherently bad, in practice they probably almost always are, at least because of what I surmise to be a huge discrepancy between the retail price and wholesale price.
The old-fashioned advice which goes something, like, “If you own a house pay down your mortgage, the quicker the better” is as sound as ever. Also, the old-fashioned advice of, “Don’t borrow against your house, come hell or high water” seems just as sound.
Bottom Line: Don’t succumb to the temptation to increase your mortgage with a reverse mortgage, HELOC, or any other clever device that money lenders offer because they tend to profit by playing on people’s greed and ignorance.
I agree that reverse mortgages are a really bad idea – for the banks who lend the money. Given my belief that the housing bust has barely even begun, and that US house prices will decline another 60% to 80% by 2020 it is the banks who will be screaming when their reverse mortgages wind up being under water.
Unfortunately, those same banks will be asking tax payers for bail outs as these new losses threaten to throw them out of business.
I agree Seniors should sell their home and rent and not do a Reverse Mortgage
Their income is now low so they should be put into the proper cast system slot.
How dare they leverage their money and stay in their homes.
Little Johnny needs the money
Your ridiculous mis-characterization of the options available to seniors does not make the case that reverse mortgages are a good idea. First, seniors do not need to rent. They can simply sell and repurchase a less expensive property, perhaps even for cash. Second, this is not about preserving their children’s inheritance, it’s about preserving the senior’s own money for their own benefit.
Seniors who have not saved enough or acquired enough cashflow investments to support their desired lifestyles in retirement should sell their homes, perhaps buy a less expensive home for cash, and invest their equity in ways that provide them with a comfortable retirement. Seniors should not sign away their equity to line the pockets of bankers and peddlers of reverse mortgages and annuities.
That`s a good idea buying a cheaper home will
put them into the proper cast system slot.
Leveraging is for the upper class
Buying frenzies are indications of a top, not a bottom and future increasing prices in real terms. I guess I am finally understanding. The herd never learns and will forever be led to the slaughter.
Speaking of slaughter, how are your gold positions doing? If you knew the telltale signs of a market top, why didn’t you liquidate last August? I think it’s you that will never learn.
I agree with most of the negative comments about reverse mortgages. However, they can be a very useful tool for some people. Over regulating private money lenders in this arena is a bad idea though, for two reasons. 1. The loans are not backed by taxpayers. 2. People have the right to encumber their property (with full disclosure by the lender).
Example: Ninety year old widow living on an 80 acre farm, worth $3,000,000. She needed to move to a rest home and wanted time for her children to properly market the property. We committed a total of $500,000, disbursed at $100,000 per year, wit interest accruing to maturity. She sold the property four years into the loan, at $5,700,000. Under the current regulatory environment we would not make this, or any other owner occupied loan, let alone to seniors.
Brokers should be free to make the above kind of loans. Although, I would support a requirement for the borrower to obtain a letter from his or her attorney or CPA confirming that the transaction is in their clients best interest. Informed consent.
Unfortunately we are seeing homeowners who don’t qualify at banks, and seniors, being “protected” right out of their homes.