The fee's are not as high as it say's, they are much lower. But a big part of the fee's is the FHA insurance that should be lowered. The new housing bill did not offer to save money on the FHA insurance.

OK you went to school and passed all your classes but you do not live in the real world. I am what you would call a house flipper but I help alot of older peaple keep there homes insted of them going in to forclouser and its peaple like you that scare them into thinking this is bad and by the time we get through to them its to late. As for buying forcloser I dont because I know how to get better deals but if you get it at the right price and you do your home work you can get a great deal. Also note I do not make any thing off of the peaple I help to keep there homes.

OK you went to school and passed all your classes but you do not live in the real world. I am what you would call a house flipper but I help alot of older peaple keep there homes insted of them going in to forclouser and its peaple like you that scare them into thinking this is bad and by the time we get through to them its to late. As for buying forcloser I dont because I know how to get better deals but if you get it at the right price and you do your home work you can get a great deal. Also note I do not make any thing off of the peaple I help to keep there homes.

OK Bill, great you can help people. But please learn how to spell people.(use spell check)

Bill you need to go back to spelling class!

Dan,
Your numbers are all wrong in regards to the closings costs on a $250,000 dollar HECM loan. The maximum allowable fees are 2% origination and 2% MIP and settlement fees for a FHA HECM. With the new FHA modernization bill that was just passed the maximum origination will be $6,000.00. I have written dozens of HECM's and have never had $25,000.00 in fees like you state. People read these comments of yours and assume that they are true. You do a disservice to the people you are trying to educate with this article by giving false information.

The AARP has an excellent discussion of fees for reverse mortgages on its web page at:http://www.aarp.org/money/revmort/revmort_federal/a2003-03-21-whatarecosts.html. Fees for reverse mortgages vary depending on many factors. After describing all of the fees and costs, the AARP concludes: "If you've been keeping track of all the upfront and ongoing costs described for a 74-year-old borrower in a $250,000 home in May of 2006, you know that the total—not including interest—could be about $25,000." Readers who believe I have overstated these fees are not considering all of the fees and costs that could be associated with these mortgages.

Dan Solin

The good thing about a reverse mortgage is that your heirs can never owe more than the original loan plus accumulated interest. Therefore, after you die or end up in a nursing home (at which time the heirs have one year in which to pay back the mortgage), if the fair market value of your home is less than the original appraised value due to a slump in the housing market and the property is sold for less than what is owed on the loan, the mortgage company "eats" the difference. But remember, the key words here are "fair market value" as judged by licensed appraisers. If, however, there's a housing boom and the property sells for more than the original appraised value and there is a surplus after the loan is paid off, the heirs get the difference. However, I would advise that you talk to your heirs and make sure they understand the reverse mortgage procedure, their responsibility regarding the mortgage, and that they agree to the process -- that's only fair because they're the ones who will ultimately have to pay it back.

Giving up equity in your home is a bad idea. Full stop.

Dears Dan..,
Nice to see your informative blog.

Being a senior and knowing many, and being a reverse mortgage originator, I have to say that this article may be self serving but does not serve the people whose lives are dramatically improved by taking advantage of the reverse mortgage opportunity.

Your stated fees are very high, but I guess that was to try and drive home a point. They are not! And for what guarantees the insurance fee provides, if it were optional, I would fully recommend that one buy the insurance to guarantee that they will never owe more than the resale value of their home, plus the guaranteed performance of the loan if the bank fails.

Any reverse mortgage originator who puts all the information on the table, is doing an excellent service to the seniors whose live will be improved by taking advantage of the opportunity.

Any mortgage specialist who makes the blanket statement that "reverse mortgages should be avoided at all cost," is approaching the realm of prejudicial hysteria.

Dan:
Look at what AARP considers "costs". Every loan, mortgage or not, includes interest. It is ridiculous for AARP to consider this a "cost" of the loan in the framework of comparing one loan to another. The servicing fee set-aside is not an upfront "cost" to the borrower. The set-aside is a reduction in the principal limit of the loan or in other words it is reducing the amount of equity available to borrow and is assessed on a monthly basis in the amount of the actual fee ($35,$30 or $25). Most seniors would not have access to this equity in a forward loan's "loan to value ratio" because of income and credit requirements in any event. "Cost of the loan" implies "up-front" and AARP is and has been very misleading in calling a reverse mortgage an extremely expensive loan in relation to other options.

I think most of you making negative comments about the cost estimates are only counting the costs paid at closing. Unfortunately the reverse mortgage is a loan that keeps on "giving" in the cost department.

Take the average 7 years that a person stays in a loan as a benchmark to calculate costs. You won't be far off of the $25,000 price tag.

Although the costs on this loan product have dropped considerably since it inception in the 90's it still would qualify as a high cost loan in many states if the loan program did not receive a congressional exemption from that law.

How many originators that are praising the reverse mortgage today are the same ones that praised the negative amortized loan yesterday?

Dan,

One should never make a blanket statement if they haven't done one themselves, or seen them up close - it's obvious you haven't. And pulling information from various sites, without verifying the data, is just creating more misinformation. A Reverse Mortgage is a good product provided it is done for the right reasons and with full disclosure. It is an individual decision and you have to look at the senior's needs to match them with the right product, if at all. How can you put a price on quality of life, peace of mind, saving a home from foreclosure....

Quoting from the same source you used (but didn't mention): ".....a lender is required to "set aside" a prescribed dollar amount and deduct it from your available loan funds. But this total amount is not added to your loan balance at closing. Instead, the monthly fee is added to your loan balance each month....the total amount set aside overstates the actual amount likely to be charged on most loans......On traditional "forward" mortgages, the cost of servicing is added to the interest rate. So you may not have seen this fee before, but you've paid it."

Based on your example of a $250,000 home, in California, the maximum cost allowed on a HECM FHA reverse mortgage would be more like $12,500, if even that. A far cry from $25,000.

Warren, imagine an 85 year senior living in a $500,000 home on a $800 a month budget - if they can't take the "equity" with them, what would you suggest?

THIS IS THE KIND OF INFORMATION THAT SHOULD BE SMEARED ON THE SIDE OF BUSSES.YOU IS OPENED MY EYE. THANK YOU.

Dan,
I do believe that everyone is entitled to their own opinion but a blanket statement that a reverse mortgage is a dumb idea is not addressing the needs of this product. Rising health costs, gas prices, food costs, and general costs of living increasing along with over 10,000 seniors signing up for social security every day for the next 19 years poses a problem. Yes, I agree that a reverse mortgage is not for everyone but I have wrote thousands of these notes and I challenge you to contact any of our customers to see if after the fact any off them are dissatisfied. Please look us up on the better business bureau as well. Interestingly enough we have changed the lives of many senior homeowners in distress and will continue to do so. The reverse mortgage has its place and a very great place right now with what is happening in our economy. Please do not pose as an expert on something you are not familiar with. Out of the thousands of reverse mortgages that we have written, not one government insured FHA Reverse Mortgage has EVER amounted to $25,000 in costs-without interest as you refer. The example you used was a $250,000 house, I am talking about an even higher limit, the natioinal limit of $362,790 which has NEVER been close than $25,000 and by the way that is a 10% fee which would be against RESPA and a violation that lenders could not even do the loan let alone originate it through FHA at that price.

Lee W.,

"Unfortunately the reverse mortgage is a loan that keeps on "giving" in the cost department."

This assumes they have rolled their closing costs into the loan. And you would be correct to say that most do; but so then, the same applies to many in a forward loan.

Look at the numbers on a TIL. Most folks don't remember that disclosure on a forward loan to see the true cost over 30 years. But unlike a forward loan, most seniors don't live for 30 years.

Cost is high - no doubt about it. But a blanket statement by a so-called expert saying all reverses are a dumb move belongs to the National Enquirer.