The Reverse Mortgage Insider

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The Reverse Mortgage Insider
                                                                                       Issue 2, Volume 1

Who’s a
Recently the CBS Early Show
featured a financial speaker
segmenting several types of
senior homeowners who might
find a reverse mortgage useful:

The Need-Based Candidate,
who has a chronic monthly cash
flow crunch or is facing a major       Foreclosure Prevention
                                       with a Reverse Mortgage
expense such as a medical or
disability need, foreclosure threat,
or divorce settlement. Just paying
off an existing mortgage with the      Rising numbers of home foreclosures      quickly. Thus, it is important for
reverse loan will free up dollars      are taking place in Minnesota, as well   the senior to look into their options
for other needs.                       as nationwide. The elderly have not      sooner rather than later.
                                       been immune from the lure of low
The Financial Planner Type,            initial “teaser” rates of adjustable     Unlike a home equity loan or
who may want to use the                rate mortgages and other unsuitable      conventional mortgage, a reverse
tax-free cash from a reverse           home financing programs for those on     mortgage does not require any
mortgage instead of dipping            limited, fixed incomes. Seniors who      repayment as long as the borrower
into their retirement funds for        are falling behind in their mortgage     lives in the home. Any existing lien or
whatever they need or want.            payments may avoid foreclosure with      mortgage must be paid off with the
Many seniors fear their savings        a reverse mortgage.                      proceeds of the reverse mortgage and,
may not last, or wish to keep                                                   when there is enough equity to do
their tax bracket lower.               An ideal prospect is a homeowner,        this, the home can be saved from
                                       age 62 and older, who has built up       the foreclosure process.
The Enhanced Lifestyle                 considerable equity through the years
Candidate, who might like to           and is more recently unable to keep      The best course of action is always
use the available funds to make        up with mortgage obligations. They       to first contact the lender to see if a
life easier and more enjoyable,        may be experiencing financial stress     repayment schedule can be worked out.
perhaps by purchasing a second         due to ballooning interest rates or      But a reverse mortgage can sometimes
home, traveling, remodeling, or        any number of unforeseen life events.    save the day. If you know someone
gifting children or grandchildren.     Once they fall behind, their mortgage    who might be a candidate, please urge
                                       debt can increase significantly and      them to investigate their options.
  The Reverse Mortgage Insider                                                   Issue 2, Volume 1

                                 IN THE NEWS
                                                                         are pressured to take out reverse
                                                                         mortgages to invest the proceeds,
Tax Tidbits                                                              often into deferred annuities.
                                                                         Deferred annuities may make the
                                 LEGISLATION ADVANCES
                                                                         invested funds unavailable without
                                 THROUGH CONGRESS
• Loan advances from a                                                   paying a substantial withdrawal
  reverse mortgage are           The long-awaited FHA Modernization      penalty if the senior later has a
  tax-free and do not affect     legislation may reach congress for a    pressing need to access the money.
                                 vote and on the President’s desk this   The reverse mortgage by itself offers
  the borrower’s tax bracket.    summer. Its centerpiece authorizes      flexibility. Funds left in a line of
  The funds are considered       $300 billion in FHA refinancing to      credit grow without accruing interest
  to be a loan by the IRS,       help homeowners having trouble          charges, remaining readily accessible
  not reportable income.         meeting their mortgage payments.        and tax-free.
                                 President Bush has threatened to
                                 veto the bill as too expensive. The     COUNSELING FUNDS SHORTFALL
• Because you are not            latest version would impact reverse
  making payments on                                                     Although reverse mortgage counseling
                                 mortgages by setting one national
                                                                         is mandated by HUD, funds to pay
  your reverse mortgage,         FHA lending limit of a proposed
                                                                         the independent counselors have been
  the mortgage interest          $550,000, opening the FHA reverse
                                                                         running short. HUD recently issued a
                                 mortgage (HECM) to co-ops and a
  accruing is not deductible;                                            directive to permit counseling agencies
                                 plan for home purchases, and reducing
  once the loan comes due                                                to charge a fee for the counseling session
                                 costs on homes over $200,000.
                                                                         (capped at $125.) Agencies are permitted
  and the interest is actually
                                                                         to accept payment from lenders and
  paid you or your heirs can     CROSS-SELLING DISALLOWED
                                                                         HUD allows lenders to include the
  claim a tax deduction.         Many of the major reverse mortgage      fee as part of the borrower’s closing
                                 lenders and the National Reverse        costs. Many counselors are still not
• Closing costs for a            Mortgage Lenders Association            charging, but this is the wave of the
                                 (NRMLA) have taken a vigorous           future. No lender is allowed to steer
  reverse mortgage are
                                 stand against the potential misuse      borrowers to any particular counselor
  not tax deductible.            of the reverse loan when seniors        and the reverse is also true.

• Reverse mortgages do
  not impact entitlement          Same Experienced Service, New Name
  programs such as
  Medicare. SSI and               At the beginning of 2008, we           At Reverse Mortgage Marketplace,
                                  launched Reverse Mortgage              we have increased our product
  Medicaid are not affected
                                  Marketplace, a division of             offerings which now include the
  if care is taken to spend       Marketplace Home Mortgage, LLC.        FHA HECM fixed rate mortgage.
  all the cash in the month       Our parent company, Marketplace        In addition, we are continuing to
  it is taken.                    Home Mortgage, has been serving        add the best new and innovative
                                  the residential and commercial         products available in the expanding
                                  mortgage needs in Minnesota since      Reverse Mortgage industry.
• The homeowner is                1995. In the last year Marketplace
  responsible to keep                                                    We are pleased to be able to
                                  Home Mortgage has doubled in
                                                                         continue to offer our personal and
  payment of property             size from 40 loan officers to now
                                                                         professional guidance to our clients
  taxes and homeowners            over 70. The company is employee
                                                                         by helping them understand the
                                  owned, based in Minnesota, and
  insurance premiums                                                     various home equity products for
                                  serves all of Minnesota, North
  current.                                                               seniors and their planning options.
                                  Dakota, Iowa, Nebraska, and
                                  Wisconsin.                             Gail Wempner      952-544-0821
                                                                         Dory Lidinsky     763-780-0703
 The Reverse Mortgage Insider                                                  Issue 2, Volume 1

                                                                               What is a
That’s a Good Question...                                                      Reverse Mortgage?
What is the FHA mortgage insurance premium and why is it necessary?            A reverse mortgage enables
The mortgage insurance premium (MIP) guarantees that you will receive          homeowners, age 62 and older, to
your promised loan advances and not have to repay the loan for as long as      convert part of the equity in their
you live in your home, no matter:                                              home into tax-free* cash. There are
 • how long you live there;                                                    no income or credit qualifications
 • what happens to your home’s value; and                                      and no monthly payments to make.
 • what happens to your lender.                                                The property must be your primary
You pay for this insurance in two parts:                                       residence. The amount that can be
                                                                               borrowed is based on a formula using
 • 2% of your home’s value (or the lending limit in your area, whichever
   is less) is charged “upfront” at closing; and                               the youngest borrower’s age, home
 • 0.5% is added to the interest rate charged on your rising loan balance.     value, and current interest rates.

This two-part MIP can be financed with the loan. The MIP also guarantees       Even seniors with a current mortgage
that your total debt can never be greater that the value of your home at the   may qualify, but the proceeds must
time the loan is repaid. It makes it possible for you to keep getting your     first be used to repay any debt on
monthly loan advances or growing creditline as promised even if:               your home. The remaining dollars
 • you live much longer than others your age;                                  can be taken as: a lump sum,
 • your home’s value grows very little, not at all, or declines, or;           monthly checks, or a line of credit
 • your loan balance catches up to—and then is limited by—the value            which makes cash available when
   of your home.                                                               you need it and grows in value
                                                                               through the years. You may use
As a government program, HECM insurance does not make a profit. The
                                                                               these funds for any purpose.
premiums paid by all borrowers are used to continue making loan advances
to—and limit the amount owed by—the borrowers who live the longest             You always retain the title and can
and whose home values grow the least or decline.                               continue to live in and own your
                                                                               home. You remain responsible for
Can you explain the service fee set-aside?                                     home maintenance, property taxes,
“Servicing” a loan is everything lenders or their agents do after closing      and insurance.
the loan. This includes sending payments to you, making or changing
loan advances at your request, transferring insurance premiums to the          Repayment is due—of any funds
Federal Housing Administration (FHA), sending account statements, and          advanced to you, the closing costs
monitoring your obligations under the loan agreement.                          and accrued interest—when the
                                                                               last borrower permanently leaves
The servicing fee ranges from $30 to $35 per month.                            the home. The amount due will
To finance this fee with the loan, a lender is required to “set aside” a       never exceed the value of the home,
prescribed dollar amount and deduct it from your available loan funds.         regardless of the loan balance. Any
This total amount is not added to your loan balance at closing. Instead, the   remaining equity always belongs to
monthly fee is added to your loan balance each month.                          you or your heirs.
The FHA requires lenders to “set aside” enough to pay the monthly fee          You are required to take part in
every month until the borrower would reach age 100. Since few borrowers
                                                                               a counseling session with an
live to age 100, the total amount set aside overstates the actual amount
                                                                               approved housing counselor who
likely to be charged on most loans.
                                                                               will review the loan and discuss all
On traditional “forward” mortgages, the cost of servicing is added to the      options available to you.
interest rate. So you may not have seen this fee before, but you’ve paid it.
                                                                               *Consult your tax advisor
      The Reverse Mortgage Insider                                                          Issue 2, Volume 1

  Marketplace Home Mortgage,
                                         Say No to Credit Cards
  LLC is pleased to now offer            You can slow and even stop the             Opting out lasts for 5 years. You can
                                         flow of credit card offers coming          make it permanent by following up
  reverse mortgages to our               in your mail. Call the toll free           your opt out request with a written
  senior homeowners with the             number 1-888-567-8688 or visit             request. If you have joint credit with
  same attentive service you    Both are          a spouse or partner, you both have
  have always come to expect             operated by the three major credit         to opt out. If you change your mind
                                         bureaus and are free of charge.            and want a new credit card, you can
  from us. We have built a strong
                                         You will have to provide your name,        always “opt in”.
  reputation as an outstanding           address and social security number.
  mortgage banking firm serving          Per the Federal Trade Commission
  the lending needs of individual        website, this information will be used
  homeowners and homebuyers,             to process your request to opt out.
  real estate professionals and          You can also opt out other family
  builders throughout Minnesota.         members if you are their legal guardian.
                                         You may still get offers from charities,
                                         alumni associations and companies
                                         you do business with, such as your
                                         current credit card company.

Reverse Mortgage Marketplace

     Reverse Mortgage Specialists

Dory Lidinsky (763) 780-0703        Gail Wempner (952) 544-0821