Reversal of fortune [Virginian – Pilot]

By Toni Guagenti

Correspondent

When loan officer Karen Rayfield held seminars in 2009 on reverse mortgages at Sommerton, a new 55-and-older community in Chesapeake, Fran Weaver listened.

Own your home with no mortgage payments for as long as you live. That's what Weaver heard.

She took notes and wondered if what Rayfield was saying was too good to be true.

Nearly two years later, the retiree fixes a spaghetti dinner in her two-story, three-bedroom townhouse that she watched being built from the ground up.

Weaver purchased the home with a reverse mortgage. Monthly payments to a bank are a thing of the past for the 66-year-old grandmother originally from Queens, New York.

For nearly 24 years, the federal government has offered people age 62 years or older the opportunity to get the equity out of their house while they're still alive and able to use it. It's called a reverse mortgage because it allows senior homeowners to convert a portion of the value in their homes into tax-free cash.

Legislation establishing reverse mortgage insurance, and ultimately the program, was signed into law by President Ronald Reagan in February 1988.

Since then, thousands of seniors have used reverse mortgages to stay in their homes and to access funds that otherwise would not have been available until the house was sold.

In the past couple years, the program, administered by the U.S. Department of Housing and Urban Development, has been amended and tweaked.

First, seniors like Weaver may purchase a house using a reverse mortgage. Second, and more recently, the Federal Housing Administration, the insurer of reverse mortgages, is allowing lenders to assess a borrower's financial stability when they consider issuing these types of mortgages.

With a reverse mortgage, seniors need to be 62 or older and own their own home, which means either having paid it off or having enough equity to borrow against it.

After a reverse mortgage is issued, though, seniors have to pay their property taxes, maintain insurance premiums on the home, maintain the condition of the property, and live in the house as a primary residence.

In recent years, some holders of reverse mortgage haven't been keeping up their end of the bargain.

What loan holders are seeing nowadays are seniors who are getting older and not making their tax or insurance payments, and property values are declining because of the stressed housing market, said Jerry Tomlin, a certified reverse mortgage professional with Atlantic Bay Mortgage Group in Virginia Beach.

"Unfortunately, with these tough economic times, some seniors are not electing to pay their property taxes on time or at all, or they're not paying their homeowners' insurance. Some of those houses have been sold to pay for delinquent taxes," he said.

Tomlin and others who specialize in reverse mortgages say many of these seniors have been hit by hard economic times and dwindling retirement investments.

Still, they say, the number that default is small.

That's why they say seniors shouldn't fret just yet about the possible new borrowing standards. To date, only MetLife Bank has begun scruntinizing an applicant's finances when issuing reverse mortgages.

"We view it as responsible lending," Ben Newell, a senior product specialist with TowneBank Mortgage, said of potential changes.

"Every investor is taking a different approach on it. The traditional side has been that way for years; we're just coming up to speed

," he added.

As for Weaver, her Sommerton townhouse is the first home she's owned by herself. With substantial savings and a desire to own, not rent, Weaver purchased the house with roughly 34 percent of the home's price down.

With no monthly mortgage payments, Weaver has the flexibility to pay bills and travel and anything else she desires, Rayfield said.

Those who receive a reverse mortgage have three options, a line of credit, a lump or monthly sum, or a combination.

Reverse mortgage specialists like Rayfield and her partner, Marc Gannon, both with Southern Trust Mortgage, say it's their job to educate seniors and their families to the benefits of the reverse mortgage.

This means dispelling the many myths that have followed the practice over the years.

These include: Reverse mortgages are for people who financially need them; that the house has to be paid in full; that the bank will own the house; and that heirs have to pay back the reverse mortgage.

None of these is true, said Mike Poole, a senior products specialist with TowneBank Mortgage.

In fact, states succinctly under "Why Get a Reverse Mortgage?", "No repayment is due for as long as you occupy your home; no taxes are paid on the cash from a reverse mortgage loan; no pre-payment penalty with reverse mortgages; you retain the title to home and may sell at any time; Social Security and Medicare benefits are not affected by reverse mortgages."

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www.hudreversemortgage.org