Diligence urged for homeowners seeking reverse mortgages

The image of a smiling 70-year-old woman fixing lunch in her kitchen flashes across the television screen.

An announcer with a baritone voice says the woman is happily living off tax-free income, with no mortgage and the luxury of staying in her home for the rest of her life.

“And, you could do the same,” the announcer says, his voice rising with enthusiasm, “with a reverse mortgage.”

The claims are appealing:

“It’s safe” (if done right)

“It’s inexpensive” (in some cases)

“It’s simple” (not at all)

“You can leave the house to your heirs” (yes, but …)

Questions and Answers

Lenders and senior advocacy groups agree that a federally insured reverse mortgage, known as a Home Equity Conversion Mortgage (HECM), can be a advantageous for some seniors.

New rules imposed by the Federal Housing Administration earlier this year mean more protection for seniors, but the onus remains on the borrower to work with a reputable lender and counselor.

Both the FHA and the National Council on Aging have detailed information about reverse mortgages.

Locally, Nova Home Loans reverse mortgage manager Glen Smart is one of only 104 certified reverse mortgage professionals in the country and one of four in Arizona.

Richard Hunter is a HUD-certified reverse mortgage counselor with Old Pueblo Housing Development Inc., the only reverse-mortgage counseling agency in Tucson approved by HUD.

The following Q&A is based on research and interviews with those sources.

While there are other Internet-based financial lenders who offer a different type of reverse mortgage, the following information refers only to the federally insured loan.

Q. What is a reverse mortgage?

A. The federal program known as Home Equity Conversion Mortgage is for homeowners ages 62 and older. It allows borrowers to access the equity in their homes without making a monthly mortgage payment.

Q. What if one spouse is younger than 62?

A. The loan will be based on the age of the youngest person in the home. He or she may continue to live in the home if the other spouse dies but will no longer receive payments from the reverse mortgage.

Q. Who owns the home if there’s a reverse mortgage taken out?

A. As with traditional financing, the homeowner is the owner. The home is pledged as collateral on the loan.

A. How much can be borrowed?

Q. The loan amount will be based on the age of the youngest borrower and the value of the home, minus finance and insurance fees and a set-aside equity reserve.

Q. Who is charging the fees?

A. Third-party fees include appraiser, escrows, title company, legal fees and county recorder. The federal government receives the insurance fees, which are pooled by HUD and make up the pot of money used to insure the loan in the event that there is more owed than value of the home at the time of the loan’s termination.

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