Reverse Mortgages: MSNBC Consumer Man Gets It
Wrong Says Industry Leader
It's so easy to attack with fears of generalities
when you don't have to back up your claims with facts
Michael G. Branson, CEO, All Reverse Mortgage Company
July 28, 2010 - I just read an article on reverse
mortgages and how they can lead to big trouble. After I read the entire
article, I became enraged. Not just angry, but really, really mad due to
the fact that the man who calls himself the "ConsumerMan" obviously has
no real understanding of the product and is reporting several items as
"fact" that are completely false. I want to take on this method of
reporting but not by just slamming the individual, but also by pointing
out why he's completely missing the boat.
His first assertion is that
reverse mortgages are becoming ever more popular because of the fact
that, as he puts it "they have gone mainstream". He seems to believe
that they are growing in popularity and the growth of the reverse
mortgages between the years of 2005 and 2008 can be directly
attributable to actors like Henry Winkler and television commercials for
the product.
Using actors and other celebrities as spokespersons
is certainly nothing new, it would not seem to explain the upswing in
the number of reverse mortgages in recent years. I think the author for
MSNBC.com, Herb Weisbaum may be missing the obvious and really insulting
our greatest generation ever by simply attributing it to increase to TV
pitchmen. Let's look at facts and not suppositions.
Baby Boomers have been labeled with different
definitions by different people. Some say Baby Boomers are those born
from 1946 to 1964, while others say it includes those born 1943 to 1963,
but the United States Census Bureau considers a baby boomer to be
someone born between 1946 and 1964 (but they are not involved in
cultural definitions).
In other words, this huge group of individuals
began turning 62 in 2008, something the author completely ignores when
he talks about the rise of the market for reverse mortgages between 2005
and 2008, attributing all of the increase to the success of the sales
pitch delivered by reverse mortgage companies. The reverse mortgage
market will grow every year as this group reaches age 62, especially
since this group was not raised with the same gals of paying off your
home early in your life as was the generation before them.
Crashing Economy in 2008 Crushed Senior Nest
Eggs
Another tiny little fact the author could have
mentioned that I hear day in and day out is that Seniors started seeing
their
investments shrink as 2007. Articles of the start of a stock market
crash appeared all over the internet and in papers as early as January,
2008. By October of 2008, the market had completely fallen apart,
leaving many seniors with portfolios which no longer supported them as
it once had, was worth a fraction of what it once was and in many
instances was receiving no income at all. They were forced to either
start to live on the shrinking principal of their investments or look to
other opportunities, such as reverse mortgages.
As the economy worsened, many of the seniors who
still worked part-time jobs to make ends meet began losing those jobs,
they also began looking for some way to be able to get by. For most of
these individuals, a Home Equity Line of Credit (HELOC) was not an
option as they could not qualify for the loans now under conventional
underwriting standards and the banks were no longer able to grant the
loans based on equity alone.
In fact, many seniors (and others) who had HELOC's
and were depending on them for emergency situations were seeing the rug
pulled out beneath them as banks began to freeze and close lines without
notice due to the falling property values and the tightening of the
equity markets.
Seniors whose portfolios no longer yielded any
income and were shrinking, could not find jobs in a market where
unemployment was rising, HELOC's were disappearing and becoming more
difficult to obtain and credit card rates going through the roof. All of
these factors continue to make reverse mortgages more attractive to
senior homeowners even more so than the "sales Pitch" Mr. Weisbaum wants
to credit for the rise of reverse mortgages.
The Stories Weisbaum Tells
It's so easy to attack with fears of generalities
when you don't have to back up your claims with facts. We saw Consumer
Reports doing this and
completely debunked their story on one borrower that they ran
nationwide with completely erroneous facts and Mr. Weisbaum appears to
be the same sort of writer. He talks about Mr. and Mrs . Hickerman of
Thousand Oaks, CA who he claims received $80,000, had a lien of $470,000
placed against their home and now the family can't afford to place the
surviving mother into a care facility, because they can't touch the
equity in the home because it belongs to the reverse mortgage company.
This tells me that Mr. Weisbaum does not even
understand the subject he is writing about and about which he is issuing
warnings. Let's do the same thing we did with the Consumer reports
claims and see what the circumstances really are...
Firstly, the bank or mortgage company never owns
the property or the equity. It is the borrowers or the borrower's heirs
at all times so the daughter has been misinformed of her mothers' rights
to the property. They may not be able to find a bank who will go in
second position and may have to sell the home to realize the equity, but
any equity is hers.
Secondly, in California and many other states, a
reverse mortgage deed is recorded for 1.5 times the amount of the HUD
lending limit or the appraised value, whichever is less. This is due to
the fact that the balance does increase over time so if the deed on this
home was recorded for $470,000 (which when we check public records we
see was actually $469,342, but close enough), that is not the amount of
the "loan" the borrower received at the time nor is it necessarily the
amount that the remaining borrower or her heirs must pay off now.
At the time they received the loan, Mr. and Mrs.
Hickerson paid off a World Savings negatively amortizing adjustable rate
loan which started with a balance of $124,000 and I cannot say what the
balance was by the time they paid it off. There is no way to know if
they paid just the minimum payment or what from public records, but the
borrower's daughter claims they received $80,000 as well.
The article claims they paid $25,000 in fees which
is impossible, HUD caps
reverse mortgage fees and even with the Mortgage insurance premium
of approximately $6250 and the maximum allowable origination charge of
$6250 at the time (based on the amount of the Deed that was recorded),
then the HUD-allowable third party charges should have been no more than
$2500 on the absolute high side making the total fees of $25,000
over-stated by at least $10,000.
The true issue these borrowers may be having now
has nothing to do with a reverse mortgage but the economy itself and
that is the daughter claims that the house was once worth over $500,000.
If I go online and pull up recent comparable sales for their property, I
see that similar properties are now selling for less than $400,000.
So not knowing what the payoff was for the World
Saving loan, if that loan had a prepayment penalty (many of those loans
did and it was only a year old)and how much other cash they received, I
cannot comment wholly but I can see that they didn't just get $80,000;
they could not have paid $25,000 in fees or the loan would not meet HUD
parameters; the equity is not controlled by the bank so that is not now
nor is it ever a contention; and since the parents were coming out of a
recent negatively amortizing World Savings loan, the borrower's daughter
really didn't have a full understanding of her parents' financial
situation. All things Mr. Weisbaum missed and failed to report.
Mr. Weisbaum also doesn't seem to understand that
in this economy, we see many families who have lost their homes and have
moved back in with their senior parents or are once again looking to
their senior parents for help.
The borrowers all get an amortization schedule
which shows exactly what the borrower(s) will owe at any time during the
life of the loan, and the attorney Mr. Weisbaum quotes, Prescott Cole,
states that the loans "are designed to wipe you out". Nothing could be
further from the truth and savvy reverse mortgage borrowers plan their
needs accordingly.
Mr. Weisbaum also tells the tale of Betty and
Arthur Banks of Pomona (and I do mean tale and I'll explain why I say
this in a moment) who he claims took out a reverse mortgage and only got
$38,000 but 5 years later owed $272,000 on the loan. If Mr. Weisbaum had
actually researched the facts again instead of trying to scare people
with mistruths, he would realize that even with 20% interest you could
not begin to reach that balance after just 5 years.
This means either the borrowers paid off an
existing mortgage in addition to the $38,000 cash they received or the
author just has his other facts confused and then I can't begin to guess
where he went awry. We have no way to know that this couple would not
have lost their home 5 years ago had it not been for the reverse
mortgage due to being unable to pay their existing mortgage. We simply
can't speculate.
There is one statement that the author touches on
but could have actually helped seniors considering a reverse mortgage
but merely glossed over the point. He states that the borrower's wife
was not on the mortgage due to the fact that the broker advised the
couple that they could get a bigger payout if the wife was not on title
due to the fact that she was younger. We always advise against this
course of action just for the very reason that it could leave a borrower
without a home in the event of
death of the older homeowner.
However, some borrowers have considered their
circumstances and have elected to proceed with this course of action
anyway. I don't know if the Banks' made a conscious decision to proceed
or not, but if they were advised to take a borrower off of the loan just
to receive more money (and not because of dire need and that was the
only way they would qualify and they ASKED how they could make it work),
then this is a good reason why borrowers should seek to work with
industry professionals who belong to the National Reverse Mortgage
Lenders Association (NRMLA),
who adhere to strict ethics and would not steer borrowers into a
decision such as this just so that they could obtain a little more
money.
Does the Industry Need More Regulation?
Mr. Weisbaum states that the industry opposes
"reasonable regulations that would reduce the abuses and fraud that can
take place". Here again, Mr. Weisbaum really demonstrates his naivete
regarding the industry's stance and what we in the industry believe and
see every day.
Firstly, reverse mortgages are already the most
highly regulated mortgages. As NRMLA members, we already police
ourselves with regard to our advertising and endeavor to always make the
terms as clear as possible on the mortgages. However, has Mr. Weisbaum
gone through a reverse mortgage package from top to bottom as it is now?
Has Mr. Weisbaum sat through the HUD-mandated counseling session (a
session that no other cross-section of borrowers has to attend and that
many reverse mortgage borrowers are offended by having to sit through)
and has Mr. Weisbaum seen how confusing it gets whenever new "clear
disclosures" are issued by the government to augment the numerous
disclosures already in the files? Based on this article, I would
definitely say that he did not go through the trouble.
Nor does it seem that Mr. Weisbaum has ever sat
with borrowers who have designed a complete model of different reverse
mortgage programs and have determined which product is best for their
circumstances who would be appalled to hear or read Mr. Weisbaum insult
their intelligence by saying that they don't understand the devil in the
details or that they only know the benefits they've heard in
commercials.
It's really unfortunate when you have authors who
don't have their facts straight and only interview one or two people who
are having problems and then don't follow up to see where those cases
may not be 100% solid. It's a shame that for the sake of journalistic
sensationalism, an author like this writes a piece that is so one-sided
with so many misstatements while not interviewing a single reverse
mortgage borrower whose house was saved with their reverse mortgage or
whose life has been enriched as a result of their decision to get a
reverse mortgage.
Reverse Mortgages Not for Everyone
Reverse Mortgages are complex financial
transactions but with a little research, solid family support, and the
help of the right reverse mortgage professional, it can be much better.
Reverse Mortgages are not for everyone. Like any loan, borrowers who
took cash out of their property when values were higher may experience
problems now with properties having higher loans than they are worth,
but unlike all other loans, the borrowers can still live in those homes
without having to make a monthly payment. If the borrowers never got a
reverse mortgage, the values on those homes would have dropped just as
much but then those borrowers may never have been able to make the
mortgage payments through the years and may have lost the home years ago
to foreclosure.
The money they did receive may have been the
difference between living with dignity or the disgrace in their eyes of
having to seek assistance elsewhere that may not even have been
available. But articles such as these do a huge disservice to those
people who have found a new lease on life with this viable financial
tool, and to those who may be too frightened to even look into it after
reading a poorly researched piece like this and putting too much faith
in its content.
Here are some other journalists who don't get their
facts straight...
July 28, 2010 - I just read an article on reverse
mortgages and how they can lead to big trouble. After I read the entire
article, I became enraged. Not just angry, but really, really mad due to
the fact that the man who calls himself the "ConsumerMan" obviously has
no real understanding of the product and is reporting several items as
"fact" that are completely false. I want to take on this method of
reporting but not by just slamming the individual, but also by pointing
out why he's completely missing the boat.
