Reverse Mortgages

We are dealing with the aftermath of a parent who died with a reverse mortgage. My dad did a RM on his home for 700k. In less than 4 years when he died he owed almost 900k. The interested started accruing at about 4.1k a month but ended at almost 5k a month (but of course would have continued to increase).

RMs are considered a "last resort" product because they are so darn costly. In dad's case, it was a sibling who pressured him to get it when he didn't need it. It's a lot like taking a loan from your credit card. You don't do that if you have cheaper options because the interest rate is so high. It is suggested to go through your IRA and whatever else you have first (you can line up a reverse mortgage later as you get closer to the end). The primary criteria if a RM is a good option is if you don't have enough income to cover your expenses and have no other options - then maybe take the smallest amount of the RM needed with access to more later. But if you have other options (like increasing IRA distributions) then avoid it at all costs because it is NOT like a regular loan despite lots of the info out there saying it's just like a regular loan. 

The initial company dad had was AGG but his loan was sold to FOA (Finance of America). Like regular mortgages, one doesn't have control over where you mortgage goes and this DOES make a difference as some companies appear to be much more difficult to deal with than others. We were lucky as FOA actually seems to be a reasonable company whereas AGG seems to have more complaints (see the BBB complaint page to get a feeling for what people are dealing with).

With a RM one must keep up with certain things having to do with maintenance, occupation, insurance and taxes etc otherwise they can begin foreclosure. Some companies are more aggressive about trumped up causes to start foreclosure. A RM also means your options more limited. For example, maybe later you will be curious to see if you like living in a retirement or Assisted Living place and want to rent your home out for a year to do so - but now you have the occupation of your house requirement to deal with so you must either sell to move or stay so you've been paying the high interest for nothing. 

Selling a home after death with a RM is also trickier as many RMs require payment in full within 30 days or they begin the foreclosure process! (many run through the equity so hand the home back). So if you get a RM make sure to get in writing the time frame is before the loan has to be paid in full. When I called in to let the company know of dad's death, I was told we'd have to pay it in full within 30 days of his death. Mind you we didn't even have the death certificates for 2 weeks, there was no way I could get a house on the market, sold and closed even in San Mateo within 30 days without selling it at a significant discount. It turned out that info isn't correct for jumbo loans but is correct for federal backed RMs. Now we have longer to sell but not worry free as they re-evaluate it every 30 days.

Basically if you have anyone you hope to inherit money from your home, a RM will go through the equity of your home far faster, and they will have to deal with the RM at the end in the sale. My dad bitterly regretted his decision and was heart broken by it. But if it is your only way of staying in a location you love, just be cautious about how much you take....

You might find this upcoming webinar through Legal Assistance for Seniors helpful in understanding the risks, costs, benefits and alternatives of an RM:  https://www.lashicap.org/event/webinar-protecting-your-home-equity-pace…;  

Reverse mortgages are unbelievably expensive in terms of interest and fees and frankly, if you hope to leave your home or the proceeds from your home for someone to inherit, it's not likely to work out that way.  They do have a time and place, though, especially if the value of the home has increased and there is equity to borrow against for the reverse mortgage. A reverse mortgage, paid out in monthly payments over 10 years, helped my elderly mother stay in her home. By the time she moved to a skilled nursing facility, though, the value of the property had dropped and she owed much more than it was worth.  We decided to hand the property back to the mortgage company -- which was an unbelievably complicated and stressful process, and she was devastated that she could not leave the property to her kids, but I'm glad she was able to live in it as long as she could.   All of that said, if you want to speak to an excellent loan broker about reverse mortgages and all kinds of mortgages, I recommend John Assily at RPM Mortgage, (925) 708-9404.

The above comments are accurate and parallel my recent experience of getting a Reverse Mortgage from a great resource, Cheryl McCarthy of Mutual of Omaha. 

I am a trusts and estates attorney, so have researched reversed mortgages in my professional role. i have also seen clients who have obtained them (not on my recommendation), and probated an estate where the only asset was a house "under water" on a reverse mortgage. There are only a few companies offering them, and they are highly regulated. The borrowers are required to meet with a HECUM counselor prior to signing up. The initial fees are high - $10K +.. Sometimes the borrowers are required to make considerable improvements to the home before they can qualify. Please contact Legal Assistance for Seniors in Oakland. They may have more in-depth information.

My overall conclusion is that reverse mortgages can be useful in many situations, and especially if the borrowers are not overly concerned about their kids inheritance.

This brochure put out by consumer reports is a nice summary of what to watch out for with a reverse mortgage. https://article.images.consumerreports.org/prod/content/dam/consumerist/2017/08/cfpb_reverse-mortgage-discussion-guide.pdf

Also be careful about marketing that RM are no longer last resort products. I see there must be some new marketing campaign by the RM industry to dispel that idea as there are articles everywhere in the last 2 years with the same type of title like "reverse mortgage not a last resort product anymore" but our impression is that they are so utterly destructive and so hard to deal with after death that they are completely a last resort product. Don't trust marketing by the banks or reverse mortgage companies! 

And one last tip, if you do get one, you'll find yourself absolutely inundated with marketing materials and phone calls multiple times a day often of people wanting you to refi your reverse mortgage into a new one so you'll have to deal with them. But worse is you'll get what look like official letters telling you that you are missing important insurance or one of the other requirements and the foreclosure will start if you don't do this or that. No these are fake and the parasite businesses making money off of people with reverse mortgages. But many elderly people get scammed.