In his famous book, "The Road Less Traveled," M. Scott Peck wrote "every human interaction is an opportunity to learn or to teach ... " Writing "Forward on Reverse" for the past two years has certainly given me an opportunity to learn and to share my emerging reverse mortgage know-how with you, while my readers have been my teachers as well, through intriguing questions and comments.
As "Forward on Reverse" enters its third year, I am devoting this and next month's columns to respond to some of the questions and comments I received in 2003.
My mother is considering a home equity conversion mortgage (HECM) line of credit. Her house is fully paid for, and she wants to use the cash for repairs, which she thinks will help the sale of the home some day. However, we have a couple of questions.
In the reverse mortgage section of the book "Mortgages for Dummies," they say, "The line of credit may grow." What do they mean by this? Also, the book says, when given a line of credit, the interest won't begin until money is withdrawn. If she has a line of credit for $100,000, but only uses $20,000, will she only pay interest on the $20,000, or will they charge her for the full $100,000, because she tapped into the line of credit?
I would appreciate any help you can provide. I want to make
sure my mother doesn't get involved in anything that will hurt her
--T., Rhode Island
The short answer to your first question is that the HECM line of credit is designed to grow every month, as the value of your mother's home grows. For example, if your mother doesn't touch the $100,000, it could grow to $106,000 in 24 months, depending on her age and the interest rate used to calculate the amount she gets at closing. The HECM line of credit is a cash-generating contraption; and it is a smart choice.
On your second question, your mother will only pay interest on the $20,000 and any financed closing costs, not on the full credit line. HECM is as safe as a mortgage can be--Uncle Sam is behind it, and your mother will be fine.
Finding the source
I enjoyed your article in the November issue of The Michigan Mortgage Press. I'm new to the broker world, having spent nearly 20 years as a mortgage banker. With baby boomers coming into their own, the demand for this product should grow quite a bit in the years to come. Do you know where I could find a source or two?
There are three wholesale sources for brokers with or without FHA approval: (1) Financial Freedom Senior Funding Corporation in Irvine, Calif.; (2) Seattle Mortgage Company in Bellevue, Wash.; and (3) New-Orleans-based Standard Mortgage Corporation, which accepts correspondents mostly in Texas and the Southeast.
By the way, your statement, " ... demand for this product should grow quite a bit in the years to come," is an unintentional understatement. Expect demand for reverse mortgages to explode! At the National Reverse Mortgage Lenders Association Annual Conference in Chicago last year, FHA Assistant Secretary John Weicher says that he sees "dramatic growth" for reverse mortgages. The U.S. Department of Health and Human Services is pushing reverse mortgages as a financing alternative for long-term care. A public-private partnership under the direction of the National Council on the Aging (NCOA) is also working to increase the use of reverse mortgages for long-term care. An estimated $2.3 trillion in home equity controlled by Americans 62 and older remains untapped. Simply put, demand for reverse mortgages will hit the sky!
Educate in Reverse
I have some knowledge of reverse mortgages; I have had some training, and have closed one reverse mortgage to date. However, I am interested in more training. Can you offer any?
I am not in the reverse mortgage training business, right now. Meanwhile, I believe your reverse mortgage wholesaler (if you still have that relationship) can provide you more training. Your company can also join NRMLA, which holds regular training classes and workshops around the country. Visit their Web site at www.reversemortgage.org or call (202) 939-1760 for more information.
I will address other questions and comments in March. Please keep sending me your questions and comments; they encourage me to learn more and think more deeply about these unique home loans. Keep thinking forward on reverse!
Atare E. Agbamu, CRMS, is a senior mortgage consultant and director of training at Inver Grove Heights, Minn.-based Credo Mortgage, a member of the National Reverse Mortgage Lenders Association. Atare's reverse mortgage interview has been webcast on Mortgage Mag Live!, and he currently serves on the Board of Little BrothersFriends of the Elderly in the Twin Cities. He can be reached by phone at (651) 389-1105 or e-mail [email protected].