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Seniors lured by lending
By MEG HECKMAN
Leo Dupuis figures a reverse mortgage will solve most of his problems. It won't cure his wife, Blanche, of her heart trouble, but it will stop the bills that fill their mailbox each month and let him quit his job selling shoes at Wal-Mart.
"What we want to do is just spend time together," said Dupuis, who's 69. "I planned to work part time, but I've been working full time with the bad economy."
Like a growing number of elderly homeowners, Dupuis and his wife see financial salvation in a reverse mortgage, which lets seniors use their homes as a source of cash without having to move. The regulations are complex and the math gets tricky, but the basic concept is simple: Instead of you paying the bank each month, the bank pays you. When you either move or die, the loan is usually repaid by selling the house, although other assets can be used instead.
Some homeowners spend the money on luxuries - one bank's advertisement showcases a couple who bought a pair of Harleys - but mortgage experts say the vast majority use it to pull back from the cusp of poverty.
"With home values going up and property taxes going up and gas going up, more and more of the people we talk to need this money just to make ends meet," said Liz Lamoureux, the director of the New Hampshire Housing Finance Authority's home ownership division. "They need it to buy their groceries, they need it to stay warm in the winter."
The concept of reverse mortgages has been around for awhile, but banks didn't widely embrace reverse mortgages until a decade ago, when the federal government began guaranteeing them. In the last few years, they've quickly grown more popular as an aging population grapples with grim returns on stocks and retirement accounts. Between 2003 and 2004, the number of reverse mortgages issued nationally doubled to 38,000. In New Hampshire, 182 homeowners took out this type of loan last year, compared with just 21 in 2001.
"It empowers them, it gives them choices and opportunities," said Lyn Coffin, a reverse mortgage manager with Manchester-based Equity America Mortgage Services, Inc.
Coffin has sold more than 80 reverse mortgages in the last two years, and most of her clients desperately needed the money to make their bathrooms accessible, replace a leaky roof or pay a neighbor to mow their lawn. Others use it for medical services they couldn't otherwise afford, such as visiting nurses or adult day care.
"There absolutely have been people who struggle between prescriptions and food," Coffin said.
The mortgages can be useful tools for cash-strapped seniors, but there are drawbacks. The fees are high, usually about $8,000, and they're often rolled into the balance of the loan. If a borrower's children want to inherit the house, they must find another way to repay the bank.
"You have to know what you're doing," said Joanne Petito, an attorney with New Hampshire Legal Assistance who often works with seniors. "As an instrument of last resort I have less of a problem with it than I do with an individual or couple using it as a lifestyle enhancement, because you're giving up a big thing."
Dupuis and his wife are still working out the details of their loan with Coffin, but he says they're happy to trade their $166,000 home in Lakeport for some financial security. The couple moved to New Hampshire a decade ago, after he retired from a bread factory in Florida. Since then, they've amassed financial troubles common to many seniors: a pension dwarfed by medical expenses, a house that costs more to maintain each year and credit card debt from a few long-ago vacations.
"I don't see any other option, really," Dupuis said. "We won't owe anything. Just the idea of not making payments is good."
Reverse mortgages have no income requirements and, although they're a form of debt, it's not the kind that comes with monthly bills.
Still, there are rules: To qualify, a person must be at least 62 years old and live at her home full time. The house should be in good condition, although banks do allow borrowers to use a portion of their loan for repairs.
Many borrowers own their home outright, but reverse mortgages can be used to pay off what remains of a traditional mortgage or home equity loan. It's difficult to default on a reverse mortgage, although a bank can demand repayment if the borrower doesn't pay his property taxes or lets the home lapse into disrepair.
Banks offer the money in one of three ways: A lump sum, monthly payments or a line of credit. The size of the loan depends on the borrower's age, the value and location of the house and interest rates. For example, if a 65-year-old Concord couple takes out the most common type of reverse mortgage on their $250,000 house, they could get a $90,000 one-time payment, a line of credit that starts at $90,000 and grows over time, or $530 a month for as long as they live in their house.
A 75-year-old couple in the same house could get a $107,000 lump payment, a line of credit starting at $107,000, or $700 a month as long as they live in the home.
The federal government requires borrowers to have a counseling session with a non-biased agency before taking out a reverse mortgage. (Most people in the state go to the New Hampshire Housing Finance Authority in Bedford.) More and more banks are offering this type of loan, so the key, says Coffin, it to find a lender you're comfortable with.
In the two years since Coffin started selling reverse mortgages, she's learned the job is about a lot more than calculating interest rates and scheduling home assessments.
When Coffin visits a prospective client, she stocks her bag with pamphlets about low-cost or free home maintenance programs, food subsidies, senior centers and other social services available for the elderly.
"I belong to a whole pile of committees to enable me to be a good resource," she said.
Her efforts are usually rewarded with handwritten thank-you notes, gracious phone calls and detailed descriptions of home repairs. But even Coffin's most enthusiastic clients were wary at first - something financial experts say is healthy.
Reverse mortgage fraud is very rare, mostly because the loans come with so many regulations, but the housing authority's Lamoureux says a little caution is a good idea. Seniors should be skeptical of companies that offer to invest cash from a reverse mortgage, and they should share their plans with relatives.
"We encourage them to bring family with them" to counseling, she said. "A lot of times, depending on age, it's always good for family to understand what their parents are doing."
While reverse mortgages can be helpful for some, Lamoureux says they're not for everyone.
"If you don't need it, why would you mortgage your house?" she said. "You take it because you need it. It's not a quick fix."
Source: Concord Monitor
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