Stay informed with...
The Reverse Mortgage Insider
Issue 2, Volume 1
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
invested funds unavailable without
• 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 www.optoutprescreen.com. 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
A DIVISION OF MARKETPLACE HOME MORTGAGE, LLC
Reverse Mortgage Specialists
Dory Lidinsky (763) 780-0703 Gail Wempner (952) 544-0821