Tuesday, June 21, 2011

Reverse Mortgage, prying the remaining assets from workers

Americans are showing a shockingly ignorant inability to save and plan for the future for some, while low pay make it nearly impossible for others.  At the same time they vote in people who hate government and programs for the public good.  The road to disaster couldn't be any shorter.

Enter the Reverse Mortgage, for those who own their own home.  Someone pays you a lump sum, or says they will pay you so much a year for as long as you live there.  Leave for any reason including for assuming room temperature and they sell the place pronto.  I don't like it.  But, I suppose there are some who this is a good thing for since otherwise they either default on their remaining payments, or have to sell now and move out.

My main concerns are as follows.  They new mortgage owner is in most agreements suppose to maintain the property.  Developers and crooks are lurching to this business with the expected results, the house falls into such disrepair the former owner leaves earlier than they would have.  I had a friend in Milwaukee, his mother did this through a bank, when she died only a year after selling to the bank, the bank gave he and his brother a few months to try to sell it at an agreed price to recoup something on the lop sided deal, they made improvements but were unable to sell it, the bank ended up with a house dressed up for free.  The boys lost a family home, family asset, and weeks of work and more money, hindsight said they were foolish, but I never saw it, maybe it looked like it would work.

Met Life has just announced it wants to become the number one reverse mortgage company.  In their business plan they state, Ginny Mae (a hated gov. entity) will guarantee their mortgages, they will sell the mortgages.  So, you and I are on the hook if they give the old lady more than they can sell it for, and they will sell it to those developers and crooks who will most likely continue their current business plan of keeping these homes repaired.

If you, or a family member is thinking to enter into a reverse mortgage, I hope you can find a safe source, and do it before you get to old to understand legal contracts, in fact, if you don't get a lawyer involved in this your a dumb ass.  Enjoy the ride, as corporations find a new way to pry hard assets from workers.

2 comments:

  1. Fringe,
    Sometimes these are a right move. I had a client in Anderson with a 60's style range built atop a hill over looking the White River -
    the whole east wall was picture windows and the view was awesome. Betty was 82 and her husband Bob was 85 - he was in a nursing home that was draining their finanaces. The house assessed at
    350K - She was able based on her age to take a lump sum payment, a healthy credit line, and a
    monthly income. She brought Bob home with her. The reverse mortgage was a blessing. I brokered that deal through the attorney I worked for and felt damned good about it.
    Now, they don't work for everyone - that is a fact. And, you accurately stated the dangers associated with doing a reverse mortgage.
    My point is - You have worked your fucking asses off for thirty years to buy that home - now, let the damned thing work for you.
    Say Bob dies and Betty lives another three years - at 62% of the assessed value Betty and Bob had access to $217,000. Betty used only $57K - leaving $160K. Her daughter buys the home - pays the $57K note off and per the will inherits the house.

    In most cases the kids have their own homes - So, moving into Mom and Dad's isn't a player.
    They sell the thing, pay off their parents note, and pocket the remaining...


    Ron

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  2. Anonymous Ron,
    No problem with your example, and there is no good reason to not use your assets. It sounded like a perfect world for them. I just know, I have read, some of these things are a disaster, people are harassed out of their homes directly or neglected upkeep drives them out. I assume it is a minority of cases, but people need to be wise on this and get legal advice.

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