Reverse Mortgages Get a Bad Rep… But the Truth Is Something Else Entirely
A recent article that appeared in the Los Angeles Times, Reverse Mortgages Can Be Hazardous to Seniors’ Financial Health, tells the story of Sarah Havemeyer, who has been contesting the repayment of her late mother’s reverse mortgage loan, which was originated by One West’s reverse mortgage subsidiary, Financial Freedom, in 1997, for two years.
****I want to stress that this type of reverse mortgage NO LONGER EXISTS!****
At a base interest rate of 9.95%, plus a 50% share for the lender (at the time of closing if, and when, the home value increases) and a 2% maturity fee, this reverse mortgage loan was anything but satisfactory. In addition, Havemeyer’s mother had to purchase a mandatory annuity of $33,000, which was added to the principal balance and acquired compound interest.
In total, Havemeyer potentially owes between $1.5 and $1.8 million, despite the fact that her mother only received $272,911.51 between 1997 and her death in 2010.
Sounds horrible, right? HOWEVER….
The article fails to present both sides of the coin. Instead, it is more interested in presenting the negative aspects of a reverse mortgage loan, despite the fact that this type of loan only accounts for only 1% of existing reverse mortgages (0% of new reverse mortgage) and was done by a PRIVATElender that no longer originates reverse mortgages.
A counter article, published in Reverse Mortgage Daily, LA Times Spells Out “Harards” of Private Reverse Mortgage, states:
“…the most common type of reverse mortgage loans are in fact HECMs, insured by the Federal Housing Administration, and they constitute more than 90% of all reverse mortgages originated in the U.S., according to a National Bureau of Economic Research report.”
A Federal Housing Administration (FHA) INSURED reverse mortgage loan—THE MOST COMMON–ensures that you never owe more than the value of your home. At the current value limit of $625,500, a homeowner can potentially receive more for their home value as opposed to the previous value limit of $417,000.
The LA Times article fails to account for the rarity of private reverse mortgage loans and the fact that only 1 known company currently offers non-FHA insured loans. This lender, which we at PS Financial Services use frequently for their FHA products, offers the Proprietary (or private) Jumbo Reverse Mortgage for homeowners whose home value is $1 million or above. A homeowners whose home value is less than $625,500, can still potentially receive more money with an FHA-insured reverse mortgage, instead of a private loan.
Other “high” costs such as upfront fees and closing costs have been eliminated by the “Standby” Reverse Mortgage (HECM Saver), an cost effective alternative for seniors looking into a reverse mortgage.
The HECM Saver is also insured by the FHA.
At PS Financial Services, a reverse mortgage company in Florida, we only offer FHA-insured reverse mortgage loans. We disclose everything to the best of our ability and always stress the benefits of MANDATORY reverse mortgage counseling.
Give us a call at (888) 845-6630 or email us at info@PSReverseMortgage.com. We do not pressure those who inquire, nor is there an obligation for our services, we are simply here to help.