A Way for Older Homeowners To Back Out of a Bind

[question everything]

A Way for Older Homeowners To Back Out of a Bind

The Wall Street Journal

A Way for Older Homeowners To Back Out of a Bind
Some Find Banks Are Willing To Accept Reverse Mortgages To Retire Troubled Loans
By KELLY GREENE
December 26, 2007; Page D1

Reverse mortgages used to be a way for homeowners to get extra cash during retirement. Now they're also being used for a more-pressing purpose: helping people who are struggling to meet payments on high-interest-rate loans to keep their homes. The strategy, which is relatively novel but gaining popularity among legal-aid attorneys and housing advocates around the country, calls for persuading lenders to take the cash generated by a reverse mortgage in lieu of foreclosing on older homeowners. With a reverse mortgage, the bank makes payments to the homeowner instead of the homeowner making payments to a bank. The loan is repaid, with interest, when the borrower sells the house, moves out permanently or dies. The products are complex and have high fees -- typically about 7% of the home's value -- and they make it difficult for homeowners to leave the property to their heirs. But they may be the best option for people who have built up equity in their home and would otherwise lose it.

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The strategy worked recently for Gloria Forts, a 62-year-old retired federal worker in Forest Park, Ga., a suburb of Atlanta. After refinancing her home in August 2006 with a $106,500 mortgage from Fremont Investment & Loan in Brea, Calif., Ms. Forts was facing monthly payments of $950.41. That consumed 70% of her monthly income from Social Security and a pension. Intending to start a new job, she found herself kept at home by diabetes complications and back surgery. In June, she sought help from the Atlanta Legal Aid Society. There, she found William J. Brennan Jr., a veteran housing attorney who, over the past 18 months, has developed a sophisticated model for settling subprime debts with reverse mortgages. After Ms. Forts received a foreclosure warning in October, Mr. Brennan connected her with Genie McGee, a reverse-mortgage specialist with Financial Freedom Senior Funding Corp., an Irvine, Calif., unit of IndyMac Bancorp Inc. She determined that Ms. Forts would qualify for a reverse mortgage of about $61,000. Mr. Brennan sent Fremont's loss-mitigation department a letter proposing that the company agree to take that sum and cancel its plans to foreclose on the house. On Dec. 3, the day before the foreclosure sale was supposed to take place, Fremont agreed to the deal and stopped the foreclosure.

The transaction illustrates one of the biggest challenges in getting lenders to accept payouts from reverse mortgages: taking less money than the house may be worth. In the 14 cases Mr. Brennan has settled to date, lenders have accepted payments for an average of 65 cents on the dollar. Mr. Brennan contends that the loans -- typically mortgage refinancings or home-equity loans with high interest rates and monthly payments that gobble up more than half of the borrowers' fixed income -- should never have been made in the first place. Lenders, he says, "have been making loans regardless of the borrowers' ability to pay, and there needs to be a penalty for that."

When Mr. Brennan first attempted to broker such settlements a few years ago, he hit resistance from mortgage lenders who were unwilling to accept reverse mortgages as full loan repayment instead of foreclosing on properties they could sell outright. He finally started getting traction when Georgia Sen. Vincent Fort, an Atlanta Democrat who pushed state legislation to damp predatory lending, personally called the executive offices of the banks involved... In Washington, the National Council on Aging, an advocacy group, has launched a reverse-mortgage initiative to help older homeowners around the country learn how to use the product appropriately -- including ridding themselves of monthly mortgage payments.

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URL for this article:
http://online.wsj.com/article/SB119862780200649751.html (subscription)

[BOSSHOG]

1. I am leary of such things

as well as Home equity loans. If a senior was close to foreclosure I think heir intervention would be more appropriate then a reverse mortgage.

[sandnsea]

2. Uh yeah, am I confused or

did this mortgage company not just get a $100,000+ property for $60,000???

[question everything]

3. Indeed, it did (nt)

[question everything]

4. and if heir intervention is not possible?

If there are no heirs or if they cannot come up with needed help?

[BOSSHOG]

5. Then

the senior is over the barrel and possibly at the mercy of a mortgage company.