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In comparing these two loan products, there are several factors to consider. For some, the option Arm would be like a ticking time bomb – it is only a matter of time before the low monthly mortgage payment would be replaced by a large monthly payment. If the senior does not have an abundance of income and wants to stay in their home for many years to come, then the option ARM would be a poor choice. On the other hand, the reverse mortgage carries the guarantee of no mortgage payments for as long as the homeowner lives in the home.

Qualifying for the reverse mortgage is much easier than qualifying for the option ARM. The reverse mortgage does not require any income, assets (other than home equity) or minimum credit score. The option ARM does require those items, even if they only must be “stated” on the forms by the borrower. Caution: never consider lying about the amount of income or assets. Despite what an eager broker might say, such an action carries potential loan-fraud consequences.

Coming up, Part 5

In the last two years we have seen lots of new reverse mortgage programs introduced to the marketplace. Countrywide Bank started offering both the government-backed reverse mortgages and their own version of the jumbo reverse mortgage to compete with Bank of America and Financial Freedom.

Earlier this week, they stopped taking applications for their jumbo reverse mortgage. The decision was probably driven by investor sentiment as reflected in their stock price and of course, mortgage-backed securities overall. Countrywide rocketed up the ranks to become the top lender for reverse mortgage loan volume for the month of March so their loan volume was probably not the issue.

Countrywide will likely continue to offer the FHA Reverse Mortgage, known as the Home Equity Conversion Mortgage (HECM). The HECM is sold to Fannie Mae, though the lender usually retains the servicing, so there is no lack of funds available for the program.

The loss of Countrywide's program to California reverse mortgages will be felt across the state. With fewer programs available, the existing programs will be in greater demand, probably resulting in a migration to less favorable terms. Still, seniors have decent choices in other California reverse mortgage lenders.

Another potential drawback of Medi-Cal is the possibility that they will seek repayment from the senior’s estate after they pass away. They may file a lien on the senior’s home to guarantee repayment. In this way, Medi-Cal is like a reverse mortgage except that you have less control and potential legal hassles. It is best to talk with an elder-law attorney to discuss these issues.

Interestingly, as of press time, Medi-Cal does not consider a reverse mortgage home equity line of credit to be assets that count toward disqualification. So, in cases where one spouse will stay at home, Medi-Cal may be used in conjunction with a reverse mortgage to pay for the other spouse’s nursing home care. For an informative article on this subject, click here.

There are a myriad of other non-governmental insurance plans that may cover the cost of medical care. If you need care now or in the near future, you have probably already called your insurer and determined what coverage, if any, they will provide. As you can probably guess, finding new insurance coverage when you already need its benefits is next to impossible. For immediate financial needs, you may want to consider a California reverse mortgage. But if you are just planning for the future, and want to look into regular health insurance coverage, Medicare supplemental insurance or long term care insurance (which I highly recommend), contact a qualified professional.

Last year, Bank of America bought out Reverse Mortgage of America (formerly Seattle Mortgage) becoming an instant player in reverse mortgages for seniors. With perhaps the largest brand of any bank in the business, they brought instant credibility and a wide distribution channel through their retail and reverse mortgage wholesale divisions.

With such size and market clout, Bank of America because an immediate competitor to Financial Freedom, the largest reverse mortgage bank and to the newly formed Countrywide reverse mortgage program. In fact, Bank of America’s reverse mortgage jumbo program was, at least until recently, arguably the most competitive program in the business.

But the credit crunch has had battered all mortgage lenders over the past 6 months and Bank of America is no exception. Reverse mortgage lenders have, one by one, recently been making their jumbo reverse mortgage programs more restrictive and less competitive. Bank of America has now followed suit with their announcement this month to their brokers that jumbo reverse mortgage loan amounts will be reduced by 5% is most major California markets. The move applies to many other markets across the country that are deemed to be declining in value.

This means that seniors will be able to take out 5% less cash, or have a 5% lower credit line on their jumbo reverse mortgage than they could last month. In addition, Bank of America will no longer offer the no-fee reverse mortgage option that was available to seniors who had a large initial loan balance.

I will keep an eye on new developments in the reverse mortgage marketplace and report them here on this reverse mortgage blog. You can also check here for more info on California reverse mortgages.