Reverse mortgages help seniors reverse financial ills

Capital Eye by Randi Bjornstad

For years, we’ve been hearing horror stories about elderly people choosing between buying groceries or prescriptions, sending in house payments or utility bills and having to leave their longtime homes because they can’t afford to pay steadily rising property taxes.

The prospect of these kinds of dilemmas is getting worse, not better, as medical premiums continue to go up, skyrocketing medication costs show no signs of leveling off, and the cost of providing public services keeps on going up, even as the level of services declines.

But many people in both government and business seem to be on a mission to ease the burden of the country’s senior citizens, and the “reverse mortgage” has become an increasingly popular tool for accomplishing it.

The U.S. Department of Housing and Urban Development supports the idea and, in fact, created one of the first available reverse mortgage programs.

Banks and credit unions throughout the country have been starting their own programs to offer the assistance to their elderly customers.

And now, some members of the U.S. Congress–in particular, Rep. Michael Fitzpatrick of Pennsylvania–want to make the option even more widespread.

Fitzpatrick has introduced H.R. 2892, the “Reverse Mortgages to Help America’s Seniors Act,” which would remove the limits currently in place on the number of reverse mortgages that may be insured under the Federal Housing Administration’s mortgage insurance program.

“As we continue to discuss the best ways to strengthen retirement security for our nation’s seniors, I have looked into numerous programs to lessen the burden that our seniors face in rising health costs, transportation and homeownership,” Fitzpatrick said in introducing his bill.

“A reverse mortgage is a unique loan that enables senior homeowners to remain in their homes and be financially independent by converting part of the equity in their homes into tax-free income without having to sell the home. (It) does not require them to give up title or to take on new mortgage payments.”

As a result, the elderly have more money for “health care costs, prescription drug costs, in-home care, prevention of foreclosure, paying off existing debts, home repairs, modification or simple daily living expenses,” he said.

However, his bill requires eligible senior citizens to complete mandatory counseling to make sure no one rushes into a mortgage that they are unprepared for.

Under a reverse mortgage, elderly homeowners in effect borrow against the equity they have built up in their houses through the years, but they don’t make any repayment as long as they continue to live in their homes. In a reversal of the traditional mortgage payment, the bank actually sends a check to the homeowner.

The money can be used for a myriad of purposes, including medical bills, in-home care, property taxes and fees, existing debts, home repairs and everyday living expenses.

Payments to the homeowner under the reverse mortgage may be made every month; for a specified period of time; on an irregular schedule based on particular need, similar to an equity line of credit; or a combination of monthly payments and additional funds on a line of credit.

If the homeowner dies or leaves the home, the estate repays to the lender the amount of cash received through the reverse mortgage program, plus interest and fees. Remaining equity belongs to the estate, and the reverse mortgage program can not attach any other assets belonging to the estate.

However, a lender may require repayment of the reverse mortgage if property taxes become seriously delinquent, the home is not maintained sufficiently to keep up its value or the home insurance is allowed to lapse.

It’s no wonder reverse mortgages have become a popular tool for elderly people who fear they will not be able to stay in their homes or cope with the rising cost of living.

For many senior citizens, the reverse mortgage has become the safety net that used to be provided by the stability of employee pensions, the solidity of Social Security and an economy in which a middle-class retirement income could be expected to keep pace with increases in the cost of living.