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Reverse mortgages Few seniors in state are taking advantage of them
Santa Fe therapist Sabine Lucas was concerned when the economy faltered, causing her therapy practice to slow and bringing her financial difficulties.
It was then that Lucas decided to apply for a reverse mortgage on her Santa Fe home, a property in which she said she had "a lot of equity."
A reverse mortgage allows the homeowner to tap into her home's value without making any repayments during the person's life or as long as he or she occupies the house.
Lucas worked with Rich Zimmerman, who at the time was with Quest Mortgage in Santa Fe but has since joined another mortgage company.
"He was a very competent person," Lucas said. "The other good experience I had was with the American Association of Retired Persons. Their counseling was excellent."
Lucas is pleased with the reverse mortgage. "Nobody can take my house away from me, even if I exhaust the credit line," she said. The lender "can only come and collect what is owed when I sell the house. If I stay here until I die, that will happen after my death."
Reverse mortgages are for people 62 years of age and older who have equity in their homes. There are no credit or income requirements and no monthly mortgage payments. The money they receive, which is tax free, may be used for any purpose. The title to the home remains with the homeowner.
Seniors must receive mandatory counseling from AARP or other consumer groups "to make sure they understand what they're getting into," said John Ruybalid of Quest Mortgage. "They need to realize they're putting a lien on their property."
Quest is the only Santa Fe mortgage broker that offers reverse mortgages. Wells Fargo offers reverse mortgages statewide.
Ruybalid explained that the payout of a reverse mortgage comes either as a lump sum, a monthly payment or a line of credit the senior can draw. In the latter arrangement, the account accrues monthly interest.
Reverse mortgages also involve closing costs, and those costs are often higher than those of conventional mortgages. Ruybalid estimated closing costs for a reverse mortgage range from $8,000 to $12,000.
A large part of those costs is a monthly servicing fee that is collected up front -- the fee can amount to $4,000 or $5,000, he said.
The amount of money seniors receive from their reverse mortgage is less the closing costs they must pay and also less the amount of any other mortgage on the property.
Reverse mortgages "typically work best for people with little or no debt on the property, and typically the older (the borrower) the better," Ruybalid said.
Ruybalid said Quest offers "several different products" when it comes to reverse mortgages, including the most popular one, the home-equity conversion mortgage, which is the only reverse mortgage that is insured by the federal government.
HECM loans are insured by the Federal Housing Administration, which tells lenders how much they may lend, based on a person's age and his or her home's value.
According to AARP, the only reverse mortgages that cost less than HECM mortgages are those offered by state or local governments.
Another client of Quest Mortgage is a Santa Fe woman who asked not to be identified. She took out a reverse mortgage on a home she owned in the South Capitol district.
"I used some of the money to do essential work on the house and to pay off some credit-card bills," the woman said. "It was very useful at a time when my income was very low."
The woman later put the home on the market and sold it for around $500,000, enough to pay off the reverse mortgage, buy a smaller house in Park Plaza and invest in certificates of deposit.
"A reverse mortgage is a very good thing. It was kind of a godsend for me," the woman said. "It got me over a financial hump."
New Mexico's biggest reverse-mortgage lender is Wells Fargo, said Stan Allen, Wells Fargo New Mexico's reverse-mortgage consultant. Based in Albuquerque, he handles reverse mortgages for the bank throughout the state.
"We're about to embark on a big push" to advertise reverse mortgages in New Mexico, Allen said. "The word's not totally out" in the state about the advantages of reverse mortgages."
He added: "New Mexico has been the slowest state to get involved with this (reverse mortgage) program. In the Midwest and on the East and West coasts, it's going crazy."
Wells Fargo did about $12 million in reverse mortgages throughout the state in 2004, he said.
Allen also said that the FHA recently raised the lending limits on reverse mortgages in Santa Fe County to $290,272 from $242,250.
"We've been working on getting limits in Santa Fe comparable to those in California," he said.
Bronwyn Belling, who is a counselor with the AARP Foundation's reverse-mortgage education project, which is based in Washington, D.C., confirmed that reverse-mortgage closings in New Mexico for the federal budget year that ended Sept. 30, 2004 were modest.
"The Albuquerque HUD (Housing and Urban Development) office closed and insured 159 loans statewide," she said. "The Los Angeles HUD office did 2,700."
Other data from HUD indicated the top-five markets for reverse mortgages were Los Angeles; Santa Ana, Calif; San Francisco; New York; and Denver.
Belling said reverse mortgages are popular in areas of the country where there are "lots of lenders and lots of older people,'' such as Florida, California and Illinois. Reverse mortgages "are more of a household word there."
Reverse mortgages are becoming more common as the economic downturn "has forced people to look at their homes as economic resources," Belling said. "Pensions have not kept up with inflation, and there's more public awareness about the concept in general."
AARP has sent out 100,000 copies of its reverse-mortgage booklet, and the information has been viewed by almost 1 million Web users, she said. "There's growing demand and interest in this concept."
Not everybody who turns to AARP for counseling decides to go ahead with a reverse mortgage. "We think about 25 percent of those who get counseling choose otherwise," Belling said, adding that a reverse-mortgage's cost is often a deterrent.
"The loans tend to be fairly expensive," Belling said.
"We tell people not to take out a reverse mortgage unless they're going to be in the home a while. The most important thing is to do their homework and explore all their options."
Other possibilities include property tax relief or a home-repair loan, she said.
Source: The New Mexican
RTG Consultants is a national approved reverse mortgage lender, please feel free to call with any questions at 1-888-973-8377.
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RTG Consultants, LLC
202 Lonesome Pine Dr.
Longwood, FL 32779
Phone: 888.9REVERSE
Phone:(888.973.8377)
Local: 407.774.0112
Fax: 206.333.0112
Email: Contact Form
www.rtgconsultants.com
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