Reverse-Mortgage-Truth.com

FHA Reverse Mortgages (Home Equity Conversion Mortgage or “HECM”)
The fixed rate HECM is at 6.30% to 6.68% (depending on the lender)
The HECM rate is at 4.07%. It is based on the 1 Year CMT index at 2.57% plus a margin of 1.5%.

Jumbo Reverse Mortgages (non-FHA):
Fixed Rate Jumbo Reverse Mortgage: 8.875%
Standard Jumbo Reverse Mortgage: 6.65% (variable, LIBOR index plus 3.5% margin)
Financial Freedom Cash Account Advantage Reverse Mortgage: Closed
Bank of America / Countrywide Jumbo programs: Closed

Ask for a reverse mortgage quote to see the Total Annual Loan Cost since the rates above exclude other loans costs and fees.

Medi-Cal is the State of California’s version of Medicaid, the Federal need-based insurance program that is separate from Medicare. It is generally used to pay for nursing home coverage when the senior has virtually no assets (usually excluding her home and car). The level and quality of the nursing home care that Medi-Cal will cover is usually substandard. That probably does not come as a surprise since Medi-Cal is a basically a welfare program intended for the impoverished. Reverse mortgages, on the other hand are for any senior who has equity in their home since the funds can be used for any purpose.

Just finding an opening at a Medi-Cal facility may be difficult because Medi-Cal only pays for care at their approved facilities. As of early 2007, there were 1,031,000 Medicaid-only beds and 1,667,000 total using or waiting for those beds, so there is bound to be a shortage. Thus your choices may be very limited.

To qualify for Medi-Cal you need to be practically penniless. But do not think you can just transfer assets to another person to qualify. Medi-Cal reviews up to five years of financial history to determine eligibility. However, there are ways of “spending down” assets in order to qualify. A good elder law attorney who specializes in Medi-Cal planning should be consulted to explore this option. Fortunately, Medi-Cal does not consider home equity as part of the assets, so a reverse mortgage line of credit can be a solution to use in combination with Medi-Cal.

Mortgage brokers all over the country are experiencing a huge downturn in their business. The “refi boom” is over and now many brokers’ businesses cannot survive.

Then brokers hear about reverse mortgages. They start asking around and everyone says that reverse mortgages are the next big thing! Revere mortgage volume is growing 30-40% each year, they say. Just get your FHA approval, start a mailing campaign and watch the cash roll in.

Haven't you heard how many baby boomers are going to retire this year? It's a tried a true business model - sell what the baby boomers are buying and you'll be rich.

Reality check. Economics 101: look at supply and demand. Demand is 110,990 HECM reverse mortgages (90% of the market) for the last 12 months and 92,414 as of this time last year - that's up 20% year over year for the entire United States (reference).

Let us take a look at the math. There are 45 million people over age 62 (which is the minimum age for the reverse mortgage) in the US. That means .002 (.2%) did a reverse in the last year. And the loan volume grew 20% year over year which is an extra .0004128 increase in market share. That is not exactly a booming market.

That means demand, and its growth, as a percentage of total senior citizens is pretty low.

Now for the supply side. There are no statistics to quote, but many seniors report that they get 10 to 15 mailers per week on reverse mortgages. The National Reverse Mortgage Lender Association membership has ballooned in recent years. And the number of banks offering reverse mortgages has quadrupled over the last two years (though some have been suffering recently, as reported here).

If you are a lender looking for a new line of business, it would be prudent to consider the statistics and look before you leap into the reverse mortgage business.

As I mentioned earlier, the typical reverse mortgage requires special Federal Housing Authority (FHA) insurance. You may wonder why this insurance is necessary.

The lender is taking a risk by not requiring any repayment for as long as you, the senior with a reverse mortgage, choose to live in the home. Even if you live in your home for the next 50 years, they can't ask you for a payment. And the money that you receive from the reverse mortgage must remain available to you for the life of the loan.

The reverse mortgage is "non-recourse". The lender cannot come after you, your estate, or your heirs if the housing market crashes and the amount owed is more than your home is worth. So the lender - not you - is taking the risks that you live a really long time or that the housing market crashes.

Given those risks, no lender in their right mind would make such a deal without some assurance that they won't lose huge amounts of money. But since the FHA makes up the difference in case of a loss, the lender has little risk and can offer the reverse mortgage at extremely low interest rates. FHA can't provide that guarantee for free, so they charge borrowers for it in the form FHA insurance, which is like a group insurance policy. Everyone pays in to it so when a few go upside down, there is money to cover the loss to the lender.

Well, that all sounds great for the lender, but what do you, the senior home owner, get for it? For starters, this insurance makes the Reverse available to you at really low rates in the first place. More importantly, your money is guaranteed to you by the FHA even if the lender were to go out of business. So you will be able to use the money while you live in your home and won't have to pay back a dime for the rest of your life!