A reverse mortgage should be an income source of last resort. There are a lot of pitfalls with taking out a reverse mortgage in its current form, not the least of which are the high fees to the banks and mortgage brokers. Here are links to two articles describing some of the cautions and drawbacks of a reverse mortgage, and what will hopefully be done in the future to remedy the abuses:
http://www.wggb.com/2012/09/04/stronger-oversight-of-reverse-mortgages-needed-to-protect-seniors/
http://www.smartmoney.com/spend/real-estate/the-pitfalls-of-reverse-mortgages/

FACTS:

Established by Congress over twenty years ago, reverse mortgages are still a fairly new family of financial products. Though most seniors and retirees are familiar with reverse mortgages, a great many myths still exist that cloud the important and relevant facts. The list below will help you dispel the common misconceptions about reverse mortgages.

Common Reverse Mortgage Misconceptions:

1.) When you obtain a Reverse Mortgage; the bank owns your home.
False: You will maintain the title as long as you live in your home, keep it maintained according to FHA requirements, and pay your property taxes and homeowners insurance.

2.) Reverse Mortgages are very risky.
False: Reverse Mortgages are widely regarded as a safe financial product. The federal government has placed strict regulations and safeguards on Reverse Mortgages to protect seniors. Additionally, the National Reverse Mortgage Lenders Association (NRMLA) was created to develop and promote best practices in the Reverse Mortgage industry. Genworth Financial Home Equity Access Inc., is a member of NRMLA and strictly adheres to its Code of Ethics and Professional Responsibility.

3.) Your home must be paid off to qualify for a Reverse Mortgage.

False: As long as there is sufficient equity in your home, you may be eligible for a Reverse Mortgage, even if you still owe money on your existing mortgage. However, the existing mortgage balance must be paid off at closing. You may be able to use the funds from your Reverse Mortgage, or another source to pay off that balance.

4. )You could end up owing more than your home is worth when it is sold.
False: You or your heirs will not be required to repay more than the value of your home at the time of sale to repay the loan the loan even if your loan balance exceeds the sales proceeds.

5.) Reverse Mortgage proceeds are taxable and will affect your Social Security and Medicare.
False: Reverse Mortgage loan proceeds are not taxable because the IRS does not consider them as income. In addition, a Reverse Mortgage will generally not affect regular Social Security payments or Medicare benefits. However, certain need-based government aid programs, such as Supplemental Security Income (SSI) and Medicaid, may be affected. We recommend you consult with a qualitified professional to determine the specific rules.

6.) The bank takes your home upon your death leaving nothing for your heirs.
False: A Reverse Mortgage functions like any other mortgage with a lien placed on the property. When the loan becomes due it must be paid. Generally, you can pay off the loan balance two ways: You or your heirs can sell the home and use the proceeds or use other sources to repay the loan.

7.) There are restrictions on how you can use the money.
False: You can use the net proceeds of your Reverse Mortgage funds however you see fit—there are no limitations. However, if your home is in need of FHA-required repairs or you have an existing lien, judgment, or taxes that are due, those must be satisfied, either through the Reverse Mortgage loan proceeds or prior to obtaining a Reverse Mortgage. Whatever your circumstance, we recommend that you speak to a financial advisor.


Richard Russell
212-681-9888
mortgage@richlandequity.com

You say working with FHA to approve reverse mortgages? And how are you doing that? I didn't know that a brokerage firm was also a lobbyist. Curious to know how you plan to circumvent a law that doesn't exist.

Some brokers are trying to push reverse mortgages as the quick-fix for senior's financial concerns. Its the same pitch used to get people to re-finance fixed-rate wtih variable-rate mortgages so they could treat their homes like piggy banks and just keep taking cash out. Let me repeat myself, REVERSE MORTGAGES SHOULD BE AN ABSOUTE LAST RESORT FOR PEOPLE WHO ARE IN NEED OF CASH.

Did I say that loud enough? If you think your circumstances may be best resolved by a reverse mortgage, speak to a trusted broker, not some know-it-all who tries to push it on you without the slightest idea or notion of what would work best for you.

I quiet agree Steve, and I can see that Richard Russell's entire explaination was plagerism.

I wonder how many points Richard Russell makes off a reverse mortgage? Could be his motivating factor?

Quite*

Further, the 'points ' earned was also of concern here. After bringing this very fact up to FHA they replied that it is a fee subsidized by the government and not only does it NOT adversely effect the rate, terms or the 'product' in ANYWAY it in fact it is a 'wholesale channel, ergo: all is LESS expensive.

FHA prefers these firms to handle these programs to properly promote this to seniors as consumers attempting this directly with lenders, which is fine, are not made aware of all the aspects of the program AND alternative ones as Reverse may NOT be good for all that inquire, etc.

'Retail 'lenders are only interested in bottom line (profit; IRR, etc.) and NOT the consumer.

Good Night Arthur

Mom was approached by 2 different companies offereing Reverse Mortgages. They BOTH said that SHE COUL NOT GET A REVERSE MORTGAGE UNLESS THIS BUILDING WAS FHA APPROVED! The first wanted my mom & the business manager to split the cost of getting FHA APPROVAL. The sencond broker was willing to split the cost with the Building manager. We were led to belive for months that get FHA APPROVAL was a PIECE OF CAKE it was only at the last minute that we were told FHA APPROVAL is ot given for condo that were formally hotels.

Any dedicated profesional person\entity is all that is required to achieve the goal for Coop Reverse Mortgages.The 'widge't that creates commerse for those firms who are trying to reopen this channel is irrelevant. With the proper connections on the Board of Fannie Mae and other professional entities that are tangential to this effort will, in aggregate, assist in reopening this channel for Coops.

FHA approved Reverse Mortgages for Coops in 2008-10. The present governmental agencies who are responsible for this simply do NOT understand these asssts but they are the VERY assets that kept this local market 'stable' after Lehman due to the most Coop Board guidlines in approving purchasers. For example, 20-30% down NO,100% financing and all that 'sub prime financing' which occurred was not allowed for Coop Board approvals

Cooperatives are the most discriminated asset by all financial institutuions due to Dodd\Frank, et.,al

The comment about 'brokerage firm's' by 'Arthur' is a bit naive,self serving and uncalled for. What is required is a dedicated group of authentic professionals, no lobbyists or 'freeloaders' here to succeed in this effort.

We do not need any further assistance but will continue to try as it simply is a misunderstood asset by these overregulated governmental agencies..

FACT: The people,shockingly and sadly, with the most objection to this Reverse Program, in general, are the children or other entities who will inherit the asset now with more debt against it, which this results in, but served ONLY to assist to better the standard of living of the current owner occupants over the age of 62 who earned it !~.

A truly repugnant FACT

Lets focus on a solution here rather than these irrelevant comments

It isn't "naive" to ask a question about process -- I doubt a board member on FM would ever lobby on behalf of mortgage brokers as the two entities together is what created this debacle in 2008. So don't deflect answering the question by name-calling and superficial comments.

There is a reason that a reverse mortgage isn't approved for co-ops, the danger they present requires scenario management because regulations are, in fact needed -- just as regulations are needed in a company -- before deciding to lend into that market. You seem to be hung up on non-business people authoring the laws? How many business people wrote the laws that allow you to function as a broker? Probably not many, so let us give credit when credit is due and stop blaming DF for all the financial market "woes."

Rushing the process and framing the debate as a regulation issue, gets away from the real question of reverse mortgage effectiveness -- which I think Steve and I have shown them to be a very last resort.

The solution is clear -- don't allow brokers to lobby for a law when they are arguing that reverse mortgages are a great tool when they clearly can't see the danger in them. But, hey, these are irrelevant comments, right? advice: My Understand the product before you bolster some tangential relationship that you believe will "impact" a federally reviewed law process.

not sure why the comments -- i try and help people.
If you have a legamant question\concern that is non biased and\or self serving please respectifully ask it
who are you by the way ARTHUR (??)-- that would be of interest i am quite sure

I just returned from the New York State Realtor meetings and reverse mortgages for co ops were discussed. They are a long way from being approved. NYS Association of Realtors will be looking into the matter. They are definitely not available as we speak.

There are loopholes to this reverese mortgage thing. I live with my 82 year old mother in a condo she owns. She was approached about getting a reverse mortgage which she really felt would help us - we are both struggling financially.

FIRST: In order to get the reverse mortgage the build MUST be FHA APPROVED. For the next almost 8 months the person wtih the reverse mortgage & the condo building manager worked to get FHA approval (they split the cost).

THEN mom was told it was only a matter of a few more signatures & it was a DONE DEAL!

As mom & I waited for things to be finalized we were hit with another brick wall - mom was REJECTED - why?

Condos that were at one time HOTELS then converted CANNOT GET FHA APPROVAL. We live in what is considered a well-known building with a long history as a hotel, a shelter for soliders returning from World War II the history of this building has NEVER been kept secret.

Why after what is now 9 months do we find out that condos that were formally hotels CANNOT GET FHA APPROVAL?

People need to be aware that though they may meet ALL THE CRITERIA to ge a reverese mortgage if their building (for whatever reason) cannot get FHA approval they WILL NOT get the reverse mortgage.

Reverse mortgages can be a great idea for many seniors but you have to be cautious of some of the reverse mortgage pitfalls. Many seniors are going to find this ---
http://www.reversemortgagelendersdirect.com/reverse-mortgage-disadvantages/

It is not a bad idea to find webpages detailing the many pitfalls of reverse mortgages that are *not* provided by companies trying to sell reverse mortgages. Here are two from sources not connected with selling reverse mortgages:
http://www.wggb.com/2012/09/04/stronger-oversight-of-reverse-mortgages-needed-to-protect-seniors/
http://www.smartmoney.com/spend/real-estate/the-pitfalls-of-reverse-mortgages/

If the same webpage that describes the pitfalls of a reverse mortgage also offers a "Calculate Your Eligibility" section, ponder how unbiased the information really is.