Can someone explain the reverse mortgage issue?

Discussion in 'Sun City General Discussions' started by Emily Litella, May 15, 2018.

  1. Emily Litella

    Emily Litella Well-Known Member

    Can someone explain the facts around the issue?

    I read something a couple of weeks ago in the Independent about sales in SC having to be cash sales? The article confused me more.

    Thanks.
     
  2. CMartinez

    CMartinez Member

    Hi Emily,

    A "reverse mortgage" is a way to refinance your home, collect the equity in equal monthly installment payments to the owner. The mortgage does have to be paid back, usually by the estate of the owner, in the form of a deed transaction making the lien holder first in line to collect the monies owed. This is where the process is getting ticklish for the owners in Sun City, and the RCSC. Supposedly, this action of requiring another PIF fee and transfer fee to be collected, has the mortgage companies refusing to do "reverse mortgages" in Sun City. Jan Ek, the GM, has said, and has now written to HUD, advising a reverse mortgage will not cause a PIF fee transaction or transfer fee at the beginning of the loan. There are some people who do have significant equity in their homes and want to live out their lives comfortably by using the equity from the homes as income in the form of a monthly payment to cover things such a medical costs, family needs, or for whatever reason the money is needed for.

    A standard HUD/FHA loan was never in question, it is these reverse mortgages and how they can cause ownership problems which is causing the issues. Can you outlive your home loan? Yes. Are they cheaper to get then, say, a straight refinance? Yes, in most cases. Are reverse mortgages right for everyone? No. You could leave debt for your heirs if the house value falls below a guaranteed level, or you, yourself, could be foreclosed on if the value of your home drops below a certain level. With the volatility of property prices, most reverse mortgages lend to about 80% of appraised value. The loan is then structured to pay out a set amount of dollars for a set amount of years, accruing a larger balance with time.

    This is my understanding of how a reverse mortgage works. I hope this helped.
     
    Last edited: May 16, 2018
  3. Emily Litella

    Emily Litella Well-Known Member

    Yes, this was very helpful. Thank you for taking the time to explain it.

    The way I understand it, I think any time the property changes ownership, a PIF fee is due to the RCSC. A friend who passed last year's son (who is almost 55), would have to pay the PIF to have the property changed into his name (it's a beneficiary deed). Then if he sells it, the new owner would have to pay another PIF.

    The way it is now in the case of a foreclosure, the bank would have to pay the PIF to have the property go back to them. Is this what Jan Ek is correcting by letting the foreclosure company/bank know that in this special case RCSC will not charge a PIF? Will this be sufficient?

    Thanks.
     
  4. CMartinez

    CMartinez Member

    Jan Ek has written to the HUD/FHA office asking for their clarification. She has made every effort to let the HUD office know the RCSC is amenable to this situation. It is now up to the HUD/FHA office to take the bull by the horns and get a favorable response from them. Jan and the RCSC has done everything they can do to alleviate the fear of this situation. This should be more than sufficient.
     
  5. BPearson

    BPearson Well-Known Member

    Good explanations gang. Help me out here Carole: If memory serves me, while we were on the board the whole housing market collapse was in full swing. Banks were taking back record numbers of foreclosures. In many cases the banks would pay the RCSC the transfer fees and PIF, though some would not. No rhyme or reason, but it turned into a windfall for the RCSC, because as soon as they sold them on the open market they got another PIF hit.

    Ultimately this is/was the nexus of the problem that has been kicking around now. The RCSC was looking for this practice to continue while the HUD/FHA offices weren't interested in assuming any liabilities should the home go into foreclosure at death. Been nearly a year struggling over changing the language we operate under or at least reaching a clarification on what happens down the road. Hopefully we are near resolution. The RCSC doesn't need the double dipping on PIF and clearly there are those in the community who need to able to take the equity out of their homes.
     
  6. CMartinez

    CMartinez Member

    Yep, the number of foreclosures were staggering, and with change of deed or deed in lieu, the RCSC collected another PIF fee. This is where I believe the difference to be. With a reverse mortgage, the names on the deed stay the same, only the mortgage company changes. Which is why I suspect with a reverse mortgage, there would be no need for a new PIF or transfer fee. Now, once the mortgage is paid off, however that manner may be, and the deed would change hands, then the PIF and transfer fees would apply.
     

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