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Resource for seniors

Reverse mortgage can supplement income.

Robert C. Reed | Hickory Daily Record

Tina Miller, an aging specialist with the Western Piedmont Council of Governments, discusses reverse mortgages with Dixie Steck of Maiden after a recent program at the West Hickory Senior Center.

NEED HELP?

WPCOG Area Agency on Aging, 485-4216, www.wpcogaaa.org

Consumer Credit Counseling Services of Catawba Valley, 322-7161, www.fgcservices.com

Olive Hill Community Economic Development Corp. (Morganton), 439-8893

AARP, www.aarp.org

By John Dayberry | Hickory Daily Record

Published: April 19, 2009

HICKORY - Tina Miller stays busy these days.

As one of the few nationally certified reverse mortgage counselors in Western North Carolina, Miller's services are in high demand.

The prolonged recession, a steep decline in the equities market and falling home prices have created an environment where more homeowners 62 and older are turning to reverse mortgages to supplement their income and in some cases to save their homes.

Miller is an aging specialist with the Western Piedmont Council of Governments' Area Agency on Aging, which serves older adults in Alexander, Burke, Caldwell and Catawba counties.

Among her duties is counseling people applying for reverse mortgages. Counseling is required for reverse mortgage seekers throughout the United States, although North Carolina and Massachusetts are the only states that require face-to-face counseling. The counselor must be approved by the Department of Housing and Urban Development.

In the Greater Hickory Metro, Consumer Credit Counseling Services of Catawba Valley and Olive Hill Community Economic Development Corp. also offer reverse mortgage counseling, but Miller is by far the lead provider.

In 2007, she provided the free counseling sessions to 47 clients. In 2008, that number nearly doubled, rising to 87. In the first quarter of this year, Miller conducted 21 counseling sessions.

The National Reverse Mortgage Lenders Association said the industry closed 112,100 Home Equity Conversion Mortgages or HECMs in 2008, up from 107,558 in 2007 and 76,351 in 2006.

HECM is a reverse mortgage program insured by the Federal Housing Administration.

"Many seniors have done everything right, but they still find themselves with too little money," Miller said.

"They've got to do something, and for some of them, a reverse mortgage is an answer."

THE BASICS

• A reverse mortgage is a loan against a home that the borrower generally does not have to pay back for as long as he or she lives there. The loan must be repaid in full, including all interest and other charges, when the last living borrower dies, sells the home or permanently moves away.

• The loan can be paid to a borrower all at once in a lump sum of cash, as a regular monthly loan advance, as a credit line or in a combination of those payment plans.

• All borrowers must be 62 or older. They must also own their home free and clear or be able to pay off existing debt at loan closing. (Existing debt can be paid off as part of the reverse mortgage loan).

• Single-family, one-unit dwellings are eligible properties for reverse mortgages. Many programs also accept duplexes and owner-occupied four-unit dwellings, townhouses, condominiums and mobile homes.

• Because the borrower makes no monthly payments, the amount he owes grows larger over time. However, the loan balance cannot exceed the value of the home. In other words, the borrower or his heirs will not owe more than the house is worth at the time of sale.

• Borrowers continue to own their homes, and are still responsible for property taxes, insurance and repairs. If they fail to carry out those responsibilities, their loans could become due and payable in full.

• The amount of cash a borrower can get from a reverse mortgage depends on the borrower's age, the home's appraised value and location and the cost of the loan.

• The largest loan advances usually go to the oldest borrowers living in the most expensive homes on loans with the lowest costs. The amount of cash also depends on the reverse mortgage plan a borrower chooses. Most homeowners get the largest advances from the HECM.

• Loans with annual adjustable rates, monthly adjustable rates and fixed rates are available. With fixed-rate loans, all funds must be taken in a lump sum at closing.

• HECM loans are insured through the Federal Housing Administration. Should the lender fail, FHA will make direct payments to the borrower.

• When a borrower or his heirs sell the home, the estate will repay the cash the borrower received from the reverse mortgage plus interest and other fees, to the lender. The remaining equity in the home, if any, belongs to the borrower or his heirs.

WHAT YOU'LL PAY

Miller said that for many people, the biggest drawback to a reverse mortgage is fees.

An application fee usually includes the cost of an appraisal and a credit report. Other loan costs typically include an origination fee, closing costs, insurance and a monthly servicing fee. HUD's HECM also requires mortgage insurance.

Such costs generally can be added to the loan balance, requiring no up-front payment, but adding to the ultimate interest charged.

For a reverse mortgage on a $150,000 house, for example, financed fees and costs can amount to more than $7,680, Miller said. In that example, the borrowers would have $91,026 available to them.

LENDERS

When Miller began offering reverse mortgage counseling 10 years ago, five lenders were approved to offer reverse mortgages in North Carolina.

Today, 55 lenders can offer reverse mortgages in the state, including Peoples Bank, Granite Mortgage, RBC Centura, Sidus Financial, Bank of America, Wells Fargo Home Mortgage and N.C. State Employees Credit Union.

Miller said it is a good idea to shop around among lenders. While most reverse mortgage costs are fixed, there is some "wiggle room," especially with origination fees and monthly servicing fees, she said.

NOT FOR EVERYONE

Miller said reverse mortgages are one of many resources available to seniors needing more income.

"Sometimes I can suggest alternative resources that would work better in a particular situation than a reverse mortgage," she said.

"In a counseling session, I make sure they get all the details, that they understand what they are getting into. I also try to make sure they are not getting scammed."

The American Association of Retired Persons recommends that people consider a few questions before signing up for a reverse mortgage:

• Why do you want a reverse mortgage? Do you need money to help pay your monthly bills or are you looking to make a major purchase, such as a vacation or car? In general it's not advisable to use long-term financing for short-term items.

• Can you afford the reverse mortgage fees?

• Do you have enough equity in your home for a reverse mortgage?

• Is there another way you can borrow the money you need, such as a home equity line?

• How is your credit rating and income? If you have credit problems or insufficient income, a reverse mortgage may be the cheapest (or only) option available to you because there is no credit qualifying and you don't make any payments.

Counseling is a big help in answering such questions, said a 76-year-old Caldwell County man who recently took out a reverse mortgage on his $100,000 house.

The retired furniture worker, who asked not to be named in this article, used the loan to pay off a $20,000 second mortgage on his house, reducing monthly expenses by about $350. The money is also going toward some much-needed house repairs and as a cushion for possible future use.

"We live simply, but we were still having a hard time making ends meet," he said.

"Now we can relax a little bit."