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National Mortgage Professional
Jan 24, 2006

Forward on Reverse ... The Zero-Payment Home LoanAtare E. Agbamu, CRMSreverse mortgages, home equity, NRMLA A number of the mortgage products that Mortgage Brokers sell derive names from their built-in payment arrangements or inherent featuresloans requiring the borrower to make 26 or 27 annual half-payments are known as bi-weekly mortgages; home loans that first call for small payments, which increase as time goes on, are packaged as graduated payment mortgages; and if payment flows to the borrower rather than the lender, theyre called reverse mortgages. In other words, payments are central to mortgages. It is not surprising, that when evaluating borrowers for mortgage loans, brokers pay serious attention to payment history. Borrowers, lenders and even investors worry over payments. For borrowers, payments reduce present income and build equity for tomorrow; for lenders, payment equates to portfolio performance; and for all mortgage investors, prompt payment means prompt income. Although mortgage loans designed to direct payment flows to borrowers are called reverse mortgages, we can also call them zero-payment home loans or mortgagesthe lender doesn't actually make payments to the borrower (and vice-versa). Let us illustrate this growing lending phenomenon. Lets say that Bob Latestarter didnt buy his first house until age 52. Having retired at age 68, there are 16 years worth of payments left, competing for Mr. Latestarter's now fixed retirement income of $2,000 a month. With $1,100 in mortgage payments a month, Mr. Latestarter's net monthly income is $900, or 45 percent of his retirement income. Assuming Mr. Latestarter comes to you for some home equity counsel, what would you advise him to do? For me, I would first identify his problem: Income-gobbling mortgage payments. At his age, the most sensible solution is to eliminate those mortgage payments and restore his retirement buying power to its pre-mortgage payment level, equivalent to increasing his monthly income by 55 percent. The tool that will solve Mr. Latestarter's cash problem is a zero-payment home loan, a.k.a. a reverse mortgage. With 16 years remaining on his forward mortgage obligations, he may not receive payments from a reverse lender, but he can receive something of an even higher immediate value: Elimination of his mortgage payments. In a sense, we are all in the mortgage payment business. When the going is good, the economy is vibrant, and our incomes are growing, payments usually present no significant problems. But in times of economic peril, when we are older and are struggling on fixed incomes, mortgage payments can become sources of enormous stress. It can be argued that a large portion of a reverse mortgages value resides in its unique zero-payment feature, so instead of selling unpopular payment schedules, how about we all begin hawking zero payments? Atare E. Agbamu, CRMS, is a reverse mortgage specialist and director of training at Inver Grove Heights, Minn.-based Credo Mortgage. Atare's reverse mortgage interviews have been webcast on Mortgage Mag Live!, and he currently serves on the boards of Little Brothers--Friends of the Elderly in the Twin Cities and nationally. He can be reached by phone at (651) 389-1105 or e-mail atare@credomortgage.com.
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