And the Govt. want to make Reverse Mortgages the new pensions???
You need to pick your own Date of Death and under seven years! The most expensive
loans in the world and guaranteed to make you homeless super fast.
Reverse mortgages risky, but seldom like this
- Kenneth Harney Washington Post Writers Group
- Jul 20, 2013
WASHINGTON - Call it the estate-devouring, nightmare home loan you hope to never encounter: A reverse mortgage with a base interest rate of 9.95 percent, plus a 50 percent share for the lender of increases in value of the house following closing, plus another 2 percent "maturity fee" to sweeten the payout even more. On top of that, there's a $33,000 mandatory purchase of an annuity by the homeowner that is added to the principal balance and incurs compounding interest while lessening the lender's future payments to the homeowner.
Is this for real?
Do mortgages with terms like this actually exist in this country today? They do. Talk to Sarah Havemeyer of Southampton, N.Y., who's been fighting a California bank in court for two years over her late mother's reverse mortgage that dates to 1997.
Although the bank, OneWest, has not yet provided a total of what it believes is owed on the reverse mortgage, according to Havemeyer, she estimates it could be in the neighborhood of $1.5 million to $1.6 million. By comparison, the amount that Havemeyer's mother actually received from the reverse mortgage between 1997 and her death in 2010 was just $272,911.51.
A reverse mortgage places a lien against a senior's home in exchange for periodic or lump sum payments. The full amount borrowed does not come due until the borrower dies, moves out or sells the home. OneWest, for its part, isn't talking. The bank declined to discuss either Havemeyer's litigation or any details of the reverse mortgage terms.
The law firm representing the OneWest subsidiary that claims ownership of the reverse mortgage note - Financial Freedom Acquisition LLC - did not respond to a request for comment. Financial Freedom has filed for foreclosure, seeking payment of the $272,911.51, plus "interest at the rate stated" in the mortgage along with legal and other fees. The filing did not indicate that a huge chunk of the "interest" due flows from its 50-50 share in the appreciation of the house from $556,000 in 1997 to its approximate current value around $1.8 million.
Havemeyer, who is serving as executrix of her mother's estate, is challenging the foreclosure, claiming that Financial Freedom has not been able to present documentation that it actually owns the mortgage, and the terms of the loan are "unconscionable and usurious" and violate state law. Were it not for the unusual terms of the mortgage,
Havemeyer's dispute with the bank and its subsidiary might be seen as just another real estate squabble in the high-gloss Hamptons on New York's Long Island. But the terms make this case jump out as special. Start with the triple whammy of 50-50 appreciation sharing, plus the mandatory annuity added to the loan balance, plus the 2 percent extra fee tacked on at the end. Although the vast majority of reverse mortgages have never employed such payment terms, thousands that were marketed in the 1990s did.
In the late 1990s, a series of California lawsuits claimed that terms such as these amounted to "financial abuse of the elderly" and allowed lenders to "(reap) unfair profits at the expense of the elderly," many of whom ended up owing far more than they borrowed. A consolidated class-action suit was later settled by the defendants - Transamerica Corp. Transamerica HomeFirst, Inc., Metropolitan Life Insurance Co. and Financial Freedom Senior Funding Corp - for $8 million.
None of the companies admitted wrongdoing. Through a long chain of events spanning the mortgage crash, OneWest Bank acquired reverse mortgage assets that dated back to Transamerica and Financial Freedom Senior Funding, including the loan now in dispute.
A widow and 78 when she originally obtained her loan from Transamerica Home First, Sarah C. Hoge, Havemeyer's mother, did not seek guidance from family members. Havemeyer's lawyer in the foreclosure case, Michael Walsh, says, "I can't imagine that Mrs. Hoge really did understand what she was getting into."
But she signed up, and ultimately did not opt out of the class-action settlement in California, which provided her a payment of $8,480.
How Havemeyer's case ultimately turns out is anybody's guess. But the bottom line is this: Reverse mortgages, even today's friendlier versions that offer upfront counseling, can be hazardous to elderly borrowers' financial health and potentially costly for their heirs. Nearly 1 in 10 federally backed reverse mortgages is in default, risking foreclosure for owners. Family members need to be involved from Day One. And stay involved.
Reverse Mortgage Securitizations:
Understanding and Gauging the Risks – Moody’s Approach
June 23, 2000
Page 2
A foreclosure can only take place when a borrower fails to meet some common sense requirements, such as paying property taxes, and insuring and properly maintaining the property.
Reverse Mortgages Differ from Traditional Mortgages
A reverse mortgage differs significantly from a traditional mortgage in terms of borrower population, repayment, and servicing. Therefore, a reverse-mortgage-backed securitization in many ways turns upside down the collateral and credit issues that investors are familiar with in a standard
mortgage-backed security transaction.
Page 3
Servicing
Reverse mortgages also pose unique servicing challenges. The servicer isn’t required to process payments and make collection calls, as it must in traditional mortgage transactions..........
Types of Reverse Mortgages
Some representative types of reverse mortgages include:
Term reverse mortgage provides monthly payments for a set period of time, usually three to ten years. The lender will receive the principal, interest, and possibly a share of home appreciation upon the expiration of a fixed term or upon the borrower’s death or move-out
Page 4
Reverse Mortgage Market and Securitization
Reverse mortgage products have been around for some time, although they are still new to the securitization market. Since 1989, in excess of 55,000 reverse mortgages have been originated under both government- and privately-insured programs.
Page 5
Securitization of reverse mortgage loans is in its start-up stage. Investment banks are testing the water as to how to make a reverse mortgage deal executable. There has already been a jumbo transaction launched in US. The market expects the first HECM securitization to come out soon.
Moody’s rated the first US reverse mortgage transaction, the SASCO 1999-RM1 deal by Lehman Brothers, in August 1999.3 Moody’s also rated the first European SAM transaction, the Millshaw SAMS deal by Barclays Capital, in April 1999.4
Page 13
COMMON ERRORS IN ANALYZING RISKS IN REVERSE MORTGAGES
Some market participants are using flawed methods for analyzing risks in reverse mortgages. These flawed methods may potentially lead to serious over- or underestimates of the risks, and to lower returns or even losses for investors in reverse mortgages and reverse mortgage securitizations. Following are a few examples of such analytical errors................
Australian home equity law changes
by: By Karina Barrymore
- From: Herald Sun
- 5 years ago September 23, 2011
NEW laws are set to ban negative equity debts and force greater information disclosure for reverse mortgages in a bid to clean up Australia's $3 billion equity release industry.
All reverse mortgage and accommodation bond loan providers will now have to provide more detailed information about interest rates, the effect of compounding interest and estimates on total debts involved with a home equity-release product. The changes are included in a Bill to amend consumer credit laws currently going through parliament. "The Bill will introduce significant new protections for senior Australians and other consumers who are vulnerable to inappropriate lending practices,'' financial services and superannuation minister Bill Shorten said. "Because interest is capitalised back into the loan, the lender's equity in the home grows with time. That is why it's so important that we legislate a no-negative equity guarantee, so borrowers can't end up owing more than their home is worth.''
Other changes include standard disclosure of key information about the mortgages and likely outcome to borrowers. "Reverse mortgages are great for some people,'' Mr Shorten said. ``Sometimes seniors will have a lot of wealth in their home but not much income and the hassle of selling the house and moving is just too much. "But they are complex products, very different to a normal mortgage and carry their own risk.'' There are about 15 reverse mortgage lenders operating in Australia, including two of the big four banks. Nine of these lenders are members of the equity release lobby group SEQUAL, which yesterday welcomed the new laws. The no-negative equity guarantee and greater disclosure were modelled on the SEQUAL standards imposed on its members. "With the emergence of the Australian equity release market, senior Australians now have the ability to tap into the stored wealth of their home in order to live well in retirement and, importantly, stay in their home,'' SEQUAL chief executive Kevin Conlon said yesterday.
http://theconversation.com/ageing-population-calls-for-more-reverse-mortgages-39428
https://theconversation.com/reverse-mortgages-need-a-rethink-if-theyre-the-new-age-pension-26433