Reverse mortgage counseling may not be as legit as it seems on clarkhoward.com

Are you a senior who is "house rich and cash poor," or do you have a loved one in this situation?

Reverse mortgages offer a way for retired folks who are running out of money to remain in their home and get a check each month by borrowing against the value of the property. This can be a good option if you don't want a family member to inherit the house. Historically, however, the fees on reverse mortgages have been too high.

In fact, any legitimate lender will require you to go to a counseling program to learn about the pitfalls of a reverse mortgage before you sign on the dotted line.

Now the Government Accountability Office (GAO) finds that these types of counseling programs are in fact shills for lenders looking to rip the elderly.

The GAO did an undercover investigation of 15 different counseling organizations and went zero for 15 when it came to finding one that conveyed unbiased, sound information about reverse mortgages.

There's also another danger to be aware of with reverse mortgages. Last year, Kiplinger's reported that insurance salespeople were pushing variable annuities to seniors doing reverse mortgages.

AARP found that 1 in 10 people doing reverse mortgages were conned into doing so with the promise of pseudo-investments like variable annuities. If you get the pitch, run the other way.

Reverse.org continues to offer unbiased information about reverse mortgages online.

What others are saying

Reverse Mortgages Work
For this example we are assuming that Mr. John Public is getting a line of credit HECM. John was born 01/01/1938. John’s house is worth $315,000, he recently took out loan for $135,000 and he’s paying right around $650 a month against that. (He’s only had the new loan for a few years so he’s paying mostly interest.)

John takes out a HECM to retire the outstanding loan balance, cover the upfront fees and create an interest accruing line of credit.

John now has $650 a month to do with what he pleases because he no longer has a house payment. John now has, beginning the day of funding, an available line of credit of $35,128. John still has equity in his house of $169,516!

It gets better.
John has planned well—the additional $650 a month has covered his day-to-day fun, and he has not needed his rainy day line of credit. John is 79 years old now, his line of credit has grown to $47,143, and he has $215,522 equity in his house. John is pretty darn happy with the whole thing.

Let’s assume John leaves this life in his 87th year. He has not used the line of credit because he just never needed to. When he moves on, he leaves a credit balance of plus $65,984. The equity in his house is now $284,259. John’s estate has 12 months to do whatever they want with the property. The ending balance due on the HECM is $305,730; the home’s value is now $589,989.

If the estate wants to sell the house, anything they get above the $305,730 (less the $65,984 = $239,746) is profit. Over $350000 in profit for the estate, no house payments for John's lifetime and a substantial rainy day fund should he have ever wanted it.

That was a pretty good deal for John, and it's Government Guaranteed.
By Mark @ 07/23/09 09:35:12 PMreport abuse
Post Removal
The only reasons we ever remove a comment from these boards is if it contains profanity or offensive language, blatent solicitation or ads, or contains personal names or information that an ID thief could use against the poster. If your post contained none of the above, please post again. We encourage debate and the open exchange of ideas.
By Team Clark @ 07/23/09 03:16:46 PMreport abuse
Agree or be removed
I posted a contrary opinion this morning, It has been removed.
I wonder why? Don't you?
By Mark @ 07/23/09 02:21:52 PMreport abuse
Reverse Mortgages
When I attended Real Estate classes at an accredit college in California in the 1980's, only seniors who couldn't pay their property taxes had reverse mortgages to pay their taxes for them.

Now, just like bad credit, the reverse mortgage has become a instant fix for seniors who either didn't plan well, or spent their pension too early.

I know if one eldery retired fellow who received his entire pension in one huge lump sum, from the county agency he had worked for for 44 years.

It was spent in about 5 years.(even though he had 2 paid off houses, cars etc) He just put the money in the bank, and chipped away at it until there was nothing left.

His next move, was to do a "reverse mortgage" to compensate the loss of his 44 year pension saved up.

When he died, the widow and adult children were left with a huge finacial mess.
By PennyPincher @ 07/15/09 03:59:25 PMreport abuse

Reverse Mortgages Work

For this example we are assuming that Mr. John Public is getting a line of credit HECM. John was born 01/01/1938. John’s house is worth $315,000, he recently took out loan for $135,000 and he’s paying right around $650 a month against that. (He’s only had the new loan for a few years so he’s paying mostly interest.)

John takes out a HECM to retire the outstanding loan balance, cover the upfront fees and create an interest accruing line of credit.

John now has $650 a month to do with what he pleases because he no longer has a house payment. John now has, beginning the day of funding, an available line of credit of $35,128. John still has equity in his house of $169,516!

It gets better.
John has planned well—the additional $650 a month has covered his day-to-day fun, and he has not needed his rainy day line of credit. John is 79 years old now, his line of credit has grown to $47,143, and he has $215,522 equity in his house. John is pretty darn happy with the whole thing.

Let’s assume John leaves this life in his 87th year. He has not used the line of credit because he just never needed to. When he moves on, he leaves a credit balance of plus $65,984. The equity in his house is now $284,259. John’s estate has 12 months to do whatever they want with the property. The ending balance due on the HECM is $305,730; the home’s value is now $589,989.

If the estate wants to sell the house, anything they get above the $305,730 (less the $65,984 = $239,746) is profit. Over $350000 in profit for the estate, no house payments for John's lifetime and a substantial rainy day fund should he have ever wanted it.

That was a pretty good deal for John, and it's Government Guaranteed.

By Mark @ 07/23/09 09:35:12 PMreport abuse

Post Removal

The only reasons we ever remove a comment from these boards is if it contains profanity or offensive language, blatent solicitation or ads, or contains personal names or information that an ID thief could use against the poster. If your post contained none of the above, please post again. We encourage debate and the open exchange of ideas.

By Team Clark @ 07/23/09 03:16:46 PMreport abuse

Agree or be removed

I posted a contrary opinion this morning, It has been removed.
I wonder why? Don't you?

By Mark @ 07/23/09 02:21:52 PMreport abuse

Reverse Mortgages

When I attended Real Estate classes at an accredit college in California in the 1980's, only seniors who couldn't pay their property taxes had reverse mortgages to pay their taxes for them.

Now, just like bad credit, the reverse mortgage has become a instant fix for seniors who either didn't plan well, or spent their pension too early.

I know if one eldery retired fellow who received his entire pension in one huge lump sum, from the county agency he had worked for for 44 years.

It was spent in about 5 years.(even though he had 2 paid off houses, cars etc) He just put the money in the bank, and chipped away at it until there was nothing left.

His next move, was to do a "reverse mortgage" to compensate the loss of his 44 year pension saved up.

When he died, the widow and adult children were left with a huge finacial mess.

By PennyPincher @ 07/15/09 03:59:25 PMreport abuse

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Jul 13, 2009 -- Reverse mortgage counseling may not be as legit as it seems

What others are saying