Reverse Mortgages

Discussion in 'Sun City General Discussions' started by CMartinez, May 31, 2018.

  1. CMartinez

    CMartinez Active Member

    Hi folks, Just left a board meeting, at which there were about 35-40 people. Some were realtors, one was a mortgage servicer who could not speak as they were not a Sun City resident, and almost the rest were there for one reason - Reverse Mortgages.

    Let us start with what a reverse mortgage does. It allows the homeowner to collect on their equity in the form of a monthly payment back to the homeowner, allowing the interest and the balance to accumulate until such time as the homeowner passes or the homeowner outlives their money, whichever comes first.

    Now think of having equity in your home and you need it to make ends meet. Perhaps doctor bills have piled up, maybe you have used all of your savings to pay for medical needs of a spouse, which has passed, or you need the money just to be able to meet your basic living needs.

    The difference between a reverse mortgage and taking out a new or second mortgage is the payments. With a reverse mortgage, the payment come to you. No need to qualify for a new loan as the house is its own value. Most times, the reverse mortgage is loaned to about 80% of value, so in case of another market downturn, no one is left in the cold. With a new mortgage or a second mortgage, a borrower would need to be able to qualify for the new payments. When you are down to nothing to draw on, you will not qualify for a new mortgage because your income it too low. When the owner dies the home transfers to the mortgage company, to collect their fees and resell the property. This is when the RCSC collects a PIF. Then when the house is resold, the RCSC collects another PIF.

    Sun City needs to honor the needs of its residents and put together a special Board Policy to address the waiver of the PIF for those applying for reverse mortgages only. Sun City will see another PIF collection when the house is sold again, so in essence, the RCSC does not lose out in the long run. It is a double collection of monies on the same property, or as it was stated today at the Board Meeting, "double dipping".

    Most other adult communities have made special conditions within their Corporate Documents that allows for the residents to gain a reverse mortgage, without the added burden of a second PIF fee. Sun City and the RCSC needs to step up and meet the needs of its cardholders and address this issue.

    When a homeowner is in tears at the podium, asking for relief, do it. Do it because it is the right thing to do. Do it, because your cardholders need you to do it. Overall, I don't think will affect more than about 100 properties. Out of the $12M the RCSC has in its coffers, I am quite sure the amount of the forfeited, one time PIF will be negligible. Your residents are needing you to step up, do it. Does someone have to die because they had no resources and the RCSC refused to change its policy? How will that law suit shake out?

    Sun City is known for its community spirit, its willingness to help one another when there is a need. Folks, there is a need, and it is now.
  2. Cynthia

    Cynthia Well-Known Member

    Kudos for taking your time to attend the meeting and letting us know about more the issue. It is the right thing to do.
    CMartinez likes this.
  3. GCotten

    GCotten Member

    I hope those on this site that are concerned about reverse mortgages have done some homework regarding the formula that is used to calculate how much a homeowner would receive. It does appear to be a lot less than what has been reported. Lets assume your home is worth 200k and it is paid off (no existing loan). Your age is 65. The on line calculations indicate you would receive around 86k or 43% of the value. The amount is based upon your age so the older you are the more you get. At age 90+ the amount you would receive is 128k or 64% of the value. Usually you can take all the cash or monthly installments. So the real cost of the reverse mortgage is your remaining equity at the time you get the money which appears to be as low as 36% if you are 90+ years old and a high of 57% if you are 65 years old. In todays market the value of homes is increasing so the remaining equity is increasing all to the lenders benefit because they get the increased equity when you depart this world. The only thing you hear about the equity the lender gets is the reverse if the market were to go bad and values became less. When a lending program stands to gain 36% to 57% on a seniors home with no appreciation some people would have less than gracious names for this activity. I am no expert on this topic but just doing the numbers it seems to me to be something less than it appears to be. If someone has better numbers than what I have laid out please correct me.
    CMartinez likes this.
  4. CMartinez

    CMartinez Active Member

    Gary, thank you for the real numbers, and I agree, the profits make it beautiful for the mortgage company. But, if its the only option you have to get some real money in your pockets, and people are lining up a the podium with tears in their eyes, because they have no other option, do you still tell them "no"? I get it is a profit driven tool for the mortgage company, and people need to go in with their eyes wide open, but if you are living a subsistence of a life because you can't qualify for any other kind of loan, who is the RCSC to say NO to this kind of financial arrangement. I still believe it is a minor player in the mortgage market. It is no better than payday loans, but yet folks still line up to get the money at outrageous rates. Is it up to the RCSC to decide who is and who is not entitled to do such a gamble? If there were children these folks could borrow from, do you think they would to avoid this costly loan? These are questions I am truly looking for answers to, not just going off the cuff on this.

    I personally would never recommend a reverse mortgage to anyone I know, as it is a fools paradise. But to those who are willing to gamble with the actuary and their profit margins, who are we to say it is okay to charge twice on the PIF fee? Do you know of anyway to get additional income at the age of 83, with only your paid for home as leverage? And, only social security as your income? What mortgage company will give you a loan you can't afford to payback? Who else do you turn to?

    "New rules, which launched in October, discourage homeowners from taking lump sum payouts by reducing the payment a borrower receives if they take the entire amount immediately. Homeowners who choose the lump sum option could see their payouts reduced by 10% to 18%, depending on underwriting factors. So the payout on a $140,000 reverse mortgage would go down to $125,000 or so if the borrower chooses a lump sum.

    Monthly payments usually work out better anyway, especially for those who live longer. Even if payments -- plus interest -- to the borrower exceed the value of the home, the payments keep coming. "You could live to 103 and still get payments," said Peter Bell, CEO of the National Reverse Mortgage Lenders Association (NRMLA).

    Yet it will still cost you. Reverse mortgages are expensive. There's a 2.5% origination fee on the first $200,000 borrowed for some loans, an upfront mortgage insurance fee of 2%, and a host of other fees that can push the extra costs to $15,000 or more for a $200,000 loan.

    In addition, lenders tack on interest charges every month, plus a servicing charge of up to $35 a month and an annual FHA insurance premium of 1.25% of the mortgage balance. At the current interest rate of about 5% for a reverse mortgage, plus the service charge and insurance, a lump sum mortgage balance of $100,000 would increase by about 6.6% a year and the debt would double in 11 years to $200,000.

    In addition, borrowers still have to keep paying annual property taxes, homeowners insurance and any homeowner's association bills, those recurring expenses that got many homeowners into trouble in the past.

    The new rules now require lenders to make sure borrowers have sufficient enough income from Social Security, pensions and other savings in order to afford both living expenses and these charges. If borrowers run a risk of defaulting, they are required to fund escrow accounts to cover the property taxes and other routine expenses on the home.

    One big issue the new rules don't address, however, is that many couples take out reverse mortgages in the name of the older of the two spouses, in order to maximize payouts. Cash benefits are based on a borrower's life expectancy. A 62-year-old, for example, may only be able to get a payout of about $140,000 on a $300,000 home, while a 73-year-old would get $147,000 and an 82-year-old $163,000, according to a National Reverse Mortgage Lenders Association calculator.

    When the spouse on the deed dies or moves into a care facility, lenders take possession of the home -- often leaving the spouse out in the cold.

    "We heard from a lot of surviving spouses getting evicted from their houses; lots of folks didn't even know they were taken off the deed and found out when their spouse died," said Jean Constantine-Davis, an attorney with AARP, which sued the Department of Housing and Urban Development, which oversees FHA, in a U.S. court to prevent the evictions of surviving spouses.

    The judge in the case found for the plaintiffs and asked HUD to find a solution. What that remedy may be has not been determined. HUD declined to comment because the case is not settled.

    "[Reverse mortgages] are counterintuitive and much more complicated than regular mortgages, which are complicated enough," said Constantine-Davis. "A lot of people sign them without thinking, 'I could be put out of my house.'"

    Last edited: May 31, 2018
  5. CMartinez

    CMartinez Active Member

    An answer to the spouse being foreclosed on: New rules as of 10/2017


    The mortgagor is each original mortgagor under a HECM mortgage and his or her heirs, executors, administrators, and assigns. The mortgagor is not required to be a borrower. A non-borrowing spouse is a mortgagor but is not a borrower. All mortgagors shall hold title to the entire property which is the security for the HECM loan. For purposes of this requirement, mortgagor includes a person with remainder or reversion interest.

    All non-borrowing spouses and non-borrowing owners of the property that will continue to hold title to the property which serves as collateral for the HECM must sign the mortgage as mortgagors, evidencing their commitment of the property as security for the mortgage.

    Reverse Mortgage Counseling
    All borrowers, eligible or ineligible non-borrowing spouses, and any non-borrowing owner must receive counseling.

    The Department of Housing and Urban Development published FHA’s final HECM rule today formally adopting policy changes previously implemented by mortgagee letter and also making additional regulatory changes.

    Among the existing policies codified in the rule are: performing financial assessments, deferring due and payable status for eligible non-borrowing spouses and limiting loan disbursements during the first 12 months after closing.

    HUD said it is still reviewing public comments and has deferred making final policy decisions on proposed interest rate cap adjustments; creating exceptions for exceeding the initial disbursement limit; post-closing property inspections; requiring counseling before signing a HECM for Purchase contract and/or making an earnest money deposit; and including utilities in the definition of property charges.

    The provisions of the final rule take effect on September 19, 2017
  6. GCotten

    GCotten Member

    Appreciate the information Carol. Fannie Mae also has a reverse mortgage program that purportedly has more benefits and higher amounts available. They may or may not have the same concerns regarding the PIF. We all understand that HUD changed their rules while RCSC rules have remained constant regarding this issue. I hope that we all still understand that HUD is the problem not RCSC. The "double dipping" has been occurring since the PIF came into existence and only now has it become an issue since HUD will not revert back to their former policy. By the way a good percentage of losses/expenses incurred in the process of a lender taking back a property through what ever means is paid by private mortgage insurance (MIP...PMI) or the SERVICER which is the lender that made the original loan. The possibility exists that HUD/FHA may in fact not incur the PIF expense at all.
  7. BPearson

    BPearson Well-Known Member

    The good, the bad and the ugly of reverse mortgages isn't the issue here; though i have to admit, you guys have a way better handle on them than i do. Carole is right, of the 53 people in the room today, the bulk were there because of the inability to get a reverse mortgage. It was exacerbated by comments by those in attendance who claimed that Westbrook Village, Sun City West and Sun City Grand all were willing to amend their documents to get past the apparent problem with HUD. No idea if that is true, but if it is, we as a community cannot bury our head in the sand and pretend its not a problem.

    One of the speakers was spot on when he suggested the board meet with a group of stakeholders to try and clarify the reasons for the quandary. He wondered aloud; was it because the RCSC would be losing so much money in the double dipping of a bank foreclosure and the ultimate sale after by the bank/lender? We had this discussion a month back or so about the board doing their due diligence. Rather than just accepting the RCSC's position they didn't need to change anything, the directors need to know the cost of a change. Is it $100k, $5ook or a million dollars a year? Is it 10 properties, 50 or 500 that would be impacted by allowing lenders to not pay the PIF at the point they took it back and subsequently sold it?

    As i have said before, the board doesn't always have to make the right decisions, but they need make informed decisions based on the best information available at the time. If they don't have those basic figures, just saying no at the jeopardy to members/residents may well result in legal actions suggested by at least one presenter today. And so i am clear, this need be a board decision/action, it is why they were elected.

    I will close with what i said at the meeting today..."people over politics" and "community over corporation." It was always how i looked at my obligations as a board member elected by the community.
  8. CMartinez

    CMartinez Active Member

    Gary, I suspect it would be with any loan. As soon as the name on the deed changes, no matter who it is or why, there is a PIF fee. I feel for these folks, as when the mortgagee does either pass, pay off the loan, or have it go into foreclosure, another PIF fee is due. It is double dipping, as the RCSC will get another PIF at the time the property is sold or an heir takes ownership. There is a way to identify a reverse mortgage by the documents being signed and coming into the RCSC. So this exclusion only need to be for the minimal amount of HECM loans processed.

    Bill is right, why not hold open meetings on the topic? If you are not willing to listen to a specific genre of speakers, then at least approve a version of the measure, and soon. There is only one more month before the board takes their two month hiatus. Don't play coy and try to hold meetings for September or October. Then defer to the new incoming board to make a decision. These people need to hear from us now, sooner rather than later.

    I can only feel for these folks who have to decide if they will have a roof over their head or make other significant sacrifices. No one should ever have to grovel for someone to understand there is a need and it needs to be addressed by the board, and soon.
  9. pegmih

    pegmih Active Member

    If & when my son inherits my house (there is a beneficiary deed) will he have to pay a PIF fee?
    If so, wouldn't it be better and cheaper to just have him inherit it?
    Also, how would I rescind a beneficiary deed?
  10. CMartinez

    CMartinez Active Member

    Hi Peg,

    The answer to your question, the short version, is talk to an attorney or a probate representative. Here is why : . "If real property is owned as joint tenants with the right of survivorship or as community property with the right of survivorship, a deed that conveys an interest in the real property to a grantee beneficiary designated by all of the then surviving owners and that expressly states that the deed is effective on the death of the last surviving owner transfers the interest to the designated grantee beneficiary effective on the death of the last surviving owner. If a beneficiary deed is executed by fewer than all of the owners of real property owned as joint tenants with right of survivorship or community property with right of survivorship, the beneficiary deed is valid if the last surviving owner is one of the persons who executes the beneficiary deed. If the last surviving owner did not execute the beneficiary deed, the transfer shall lapse and the deed is void. An estate in joint tenancy with right of survivorship or community property with right of survivorship is not affected by the execution of a beneficiary deed that is executed by fewer than all of the owners of the real property, and the rights of a surviving joint tenant with right of survivorship or a surviving spouse in community property with right of survivorship shall prevail over a grantee beneficiary named in a beneficiary deed." Arizona Revised Statutes 33-405.

    So, what does all of this legalese translate to? It will depend on how the Beneficiary Deed was executed and recorded. I was a paralegal, in the State of Colorado, but I have not gotten certified for the State of AZ. In reading what the state statue indicates, plus the additional statutes, it could go in several directions, depending on too many things to guess at. I wish I could help with a definite answer to your questions, but you will be better served by a good probate rep.
  11. aggie

    aggie Active Member

    Peg- Time to seek a bit of legal advice. Who drew up the beneficiary deed document as they should have checked this out for you at that time. I do believe a PIF is due because changing title to your son upon your death would mean a 100% change in ownership.

    As far as reverse mortgages, I do hope something is done and quickly for those like the gentleman that spoke at the BOD meeting. Many can't access the equity in their homes because they can't meet the guidelines for payments on a refinance or home equity loan. Not having a house payment and then getting a check from the lender each month would mean so much to many just making ends meet. Property taxes, the annual RCSC assessment, basic utilities such as water/sewer, electric, gas, trash and insurance won't go away. Prescriptions, food and clothing shouldn't be seen as luxuries.

    Is it possible to build in a up front charge for the PIF when the reverse mortgage loan is written and it can be refunded if it is never needed?
  12. CMartinez

    CMartinez Active Member

    Aggie, I did some light reading (136 page document) on the new HUD Red Line Book. The changes to the reverse mortgage and how it is handled came about due to a change in 10/2017. Prior to the changes, if the husband died, the borrower, the mortgage company could come in, do a foreclosure and force the spouse out of the home. New rules come down in 2017. Now the rules state the owners will be registered as "mortgagees". So, the husband, the wife, and heirs, if any, will be placed on the deed together. So, the husband dies, the mortgage company lets the surviving spouse continue in the property, until such time the spouse, other mortgagee, passes. Now the heir has the property. So, let's look at this. The new deed comes through, and all of the names are the same, and it hits the RCSC. They could require a PIF fee due to the deed changing in structure and adding or deleting a name. So, PIF one. Lets say mortgagee #1 dies, the husband. Now the deed will be amended again, by the mortgage company to stay compliant with the new rules. PIF #2. Next, Spouse needs to go to an assisted living facility, and leaves the house, and now the deed is in the heirs name. Another deed change, PIF#3. The house is sold and the new buyer now has to pay another PIF. The same property has now had 4 PIF charges. All of these PIF charges are charging against the estate, which could still have some money available left from the original mortgagee. HUD does not have any desire to get involved in estate planning nor should it.

    If other communities have figured out how to abate the PIF charges for their reverse mortgage applicants, then so should the RCSC. As it is, HUD has taken a lead in making sure there is an escrow for the taxes, maintenance fees, assessments for HOA's or the RCSC fees, plus other fees associated with the property. Now that I have had the opportunity to read as well as listen to the folks groveling for help, it is just time to do it.

    I really don't think it will affect a whole lot of properties, so the amounts are not tremendous. RCSC has $12M in reserves, it will get the PIF fund when the house is sold anyways. Why keep beating the bleached bones of this horse, just get this done for the sake of these people really needing this type of assistance. As Nike used to say, JUST DO IT!
  13. Cynthia

    Cynthia Well-Known Member

    If I am the only person on my deed (no mortgage involved) and I have a beneficiary deeded person, then when I die would that beneficiary need to re-deed and pay a PIF? Or can a dead person stay on the deed?
  14. Ida Eisert

    Ida Eisert Member

  15. CMartinez

    CMartinez Active Member

    Ida, if you read the previous statements by Gary and myself, we both agree these are not the best financial sense from an outsiders point of view. I get that. What I am talking about is the people that have no other resources, and WANT this for their remaining years. If you cannot afford to get a conventional loan or second mortgage because you don't qualify for the payments, and you are living a subsistence existence, then this may be your only solution. If you would have heard the 83 year old man with tears in his eyes, who is flat broke, and this is what he is asking for, why should the RCSC put up additional roadblocks? Why should a homeowner have to pay two, three or four PIFS because the RCSC won't let it go through. The RCSC will get their money once the home sells again anyways.

    I am definitely not a proponent of reverse mortgages, but the RCSC should not profit from those that need this type of loan.
  16. CMartinez

    CMartinez Active Member

    Cynthia, as far as I know, anytime there is a change in ownership that affects more than 50% of the ownership, there would be a PIF fee. I am not a probate attorney. I cannot say what specifically your document would or would not do, so I would tell you to contact whoever it was that prepared your documents and have them answer your question with certainty.
  17. BPearson

    BPearson Well-Known Member

    Ask yourself the options: Mid 80's, a small monthly social security check of $700 and a home paid for worth a modest $150K. You've already beat the mortality charts and every day is a bonus above and beyond what the actuaries said you would live. One little problem, with your living costs you have depleted your savings to nothing and that $700 social security check doesn't cover the monthly nut. You would never qualify for a mortgage on the home because your yearly earnings are what? $14,000?

    I guess at 80 something you could re-enter the workforce, but like most of us as we age, we have medical issues (by the way, that gets expensive too, to say nothing of the outrageous drug charges in this country). The other option (beyond a reverse mortgage is to sell the house, take the $140K after costs and put it in the bank. Of course with Sun City rents running in excess of $1000 per month (12K per year) that's gone in 10 years with inflation. Maybe with a little luck you can drop dead before you run out of money.

    Of course i am being sarcastic. No one is sitting at the keyboard encouraging people to run out and get a reverse mortgage. It is one of the many options people who have outlived their life expectancy and savings should be able to explore...except in Sun City AZ they can't. The board refuses to act on this issue that has been dragging on more than 1 year now. I would love to have a board member, past, present or future explain to me the logic of ignoring the pleas of those most desperate residents they represent.

    Someone please step up and tell me, other than the loss of a handful of properties the RCSC would "double dip" on PIF payments why you can't/won't act?
  18. aggie

    aggie Active Member

    Is it possible that the current lawsuit against the RCSC dealing with assessments and the PIF has made the BOD and Management hesitant to make any changes in policy? Doubt anyone in the know would address this until settled.
  19. BPearson

    BPearson Well-Known Member

    Anything is possible aggie, but much like when the suit was filed, the RCSC announced all of their PIF projects were put on hold till resolution. Oops, that quickly went by-the bye. Point being, the suit shouldn't impact what we do and when we do it. Worse yet is when there is a heartfelt plea from the mic at the board meeting and the answer is we are working towards making it right. Really?

    It was stated at the meeting that Westbrook Village, Sun City West and Sun City Grand had all re-worked their documents to overcome this problem. After the meeting someone suggested that wasn't the case. Thanks to Carole for digging this information out regarding the Sun City West solution. Here's two paragraphs from the article that pretty much clear up any questions whether they did or didn't:
    But thanks to the work of the task force and other players in the area, change has come to Sun City West and other similar communities, including Arizona Traditions in Surprise, Ariz. In Sun City West’s case, leaders simply added an exemption to their rules regarding the mandatory asset preservation fee to its bylaws.

    “The Asset Preservation Fee shall not apply upon involuntary transfers of a Residential Unit only to the foreclosing lender or the lender’s governmental guarantor (e.g., HUD) via foreclosure sale, trustee’s sale, deed in lieu of foreclosure, or similar mechanism,” the new rule reads. “Any other purchaser at a foreclosure or trustee’s sale for value is not exempt.”

    Any board member reading this need look in the mirror and question why Sun City West could get it done, but for some reason we are paralyzed. I guess losing the double dipping on foreclosures might mean slowing down the all-golf-all-the-time mindset we are trapped in on PIF expenditures eh?
  20. Ida Eisert

    Ida Eisert Member

    I believe "double dip" is a term that is being used loosely. The Mortgage Company becomes the flipper and they are using the Reverse Mortgage tool to get the type of loan guaranteed by HUD and they, of course, don't want to pay any costs that eat away at their bottom line. I believe that we even had regular flippers that wanted the fee waived because they thought it was a "double-dip". The Reverse is costlier and needs scrutiny. The Mortgage Companies should take this as the cost of doing business. Of course, the Mortgage Companies like this because it is a guaranteed loan from the gov. and some Real Estate Agents like this because it goes to their Bread and Butter. The poor seniors that get these are the ones paying through the nose. I am talking about the Mortgage costs. Like the rich getting richer and the poor poorer. This type of loan, in my opinion, becomes a hunting ground for other unsuspecting seniors thinking this is possibly a great deal. Wonder how good the Counselors inform before anyone takes out this type of Mortgage. I know of one right now having a problem because they took a Reverse. It is unfortunate that some outlive their finances but the reality is that RCSC is a corporation and fiduciary duty is to the Corporation and membership at large. There are agencies that provide assistance but finding them is not easy. That might be something to talk about; finding assistance for these folks in another way.

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