Myths Of Reverse Mortgage
By W. L. Pulsipher, CSA
What is it about Reverse Mortgages that instills fear in some Senior
This feeling is real even when the American Association of Retired Persons
(AARP), the American Bar Association (ABA) and nationally syndicated columnists
like Robert Bruss continue to praise them in their literature. The answer may be
like that old axiom says "a little bit of knowledge can be a dangerous thing",
and from the fact that many seniors consult friends and relatives who proclaim
they know, but in reality are grossly misinformed themselves.
Since the Reverse Mortgage can be a valuable and safe tool for Senior Americans,
we will endeavor to correct the major misconceptions connected with them and
allow the Senior Citizen to make an informed decision on the use of the Reverse
The first and foremost misconception is that of safety. Many seniors react to
the suggestion of Reverse Mortgage by saying "that's where you take my home".
The fact is that the home MUST be in and remain in the name of the borrowers
only. Since the Reverse Mortgage is a mortgage, a lien is placed on the property
like all other mortgages. This assures that the lender will eventually be repaid
but for only the amount owed which is principle, interest, and closing costs,
again just like any other type of mortgage.
Another fact is that more than ninety-five (95) percent of Reverse Mortgages
done are the Federal Housing Administration (FHA) Home Equity Conversion
Mortgage (HECM) version. This guarantees the full protection of the United
States Government through use of the required two (2) percent insurance fee paid
on all FHA mortgages.
The remaining, less than five (5) percent of Reverse Mortgages, are the Federal
National Mortgage Association (FannieMae) or Cash Account Reverse Mortgages
which are guaranteed by private lenders that insure their safety.
The next most heard misconception is that Reverse Mortgages are much costlier
than other mortgages. The truth is that closing costs average only about one (1)
percent more than that if a regular FHA mortgage were obtained on the same
property. If you compared the Reverse Mortgage to many other conventional
mortgages, the Reverse Mortgage could actually be lower in cost due to the fact
that conventional mortgages can charge more than the two (2) percent origination
fee allowed on all Reverse Mortgages.
Another cost factor is of course, the interest rate. The FHA Reverse Mortgage
interest rate is based on the one (1) year United States Treasury Note instead
of the prime rate which most conventional mortgages use as their base. This
gives the FHA Reverse Mortgage an average two (2) percent lower interest rate
than most adjustable conventional mortgages.
Another common misconception, related to the first one mentioned, is that the
home goes to the lender after the loan becomes due at death or when the last
survivor permanently leaves the home. This also is NOT the case as value or
equity left after payment to the lender, goes to the estate or heirs of the
borrower. This is exactly the same procedure followed with regular conventional
Since the Reverse Mortgage is "non-recourse", the most the estate will be
required to pay to the lender is the value of the home at the time of repayment.
This is true even if the home value decreased or the borrower lived to an
extremely old age.
Also misunderstood are the requirements for obtaining a Reverse Mortgage. Since
no re-payment is made as long as one (1) surviving borrower remains in the home,
there are NO income or credit requirements. Even bankruptcy does not disqualify
as long as it has been discharged. Another requirement is that both spouses must
be sixty-two (62) or older with no upper age restriction. The only other
requirement is that the borrowers alone must own the home with no others on the
deed. The home may also be in a revocable trust as long as the eligible
borrowers are the only trustees.
All property types are Reverse Mortgage eligible except co-operatives and they
will be in the future when FHA approves the administrative procedures.
Even homes with existing mortgages that can be paid from the equity can obtain
Our last myth to dispel is that a Reverse Mortgage is taxable and affects Social
Security and Medicare. That is NOT the case. Reverse Mortgage proceeds are not
taxable because they are not considered income but are, in fact, a loan. And
since the United States Government sets Social Security, Medicare, and FHA
Reverse Mortgage rules, they have all been made compatible.
It should be noted that Supplemental Security Income (SSI) and Medicaid may be
affected if you exceed certain liquid asset amounts. A Reverse Mortgage Advisor
will show you how to make these programs compatible so getting a Reverse
Mortgage will not affect these benefits.
Now that the myths of Reverse Mortgage have been removed, a person may ask, how
can I get more detailed information? Is your local bank the answer? National
syndicated columnist Robert Bruss says "most banks do not offer Reverse
The American Association of Retired Persons (AARP) supports the Reverse Mortgage
concept and has provided more literature than anyone else on this subject. They
have a specific publication called "Home Made Money" which is excellent. The
Federal National Mortgage Association (FannieMae) also offers a publication
titled "Money from Home" that is helpful.
The American Bar Association (ABA) passed a resolution supporting Reverse
Mortgages in August of 1995. They also publish a book titled "Reverse Mortgages
A Lawyer's Guide to Housing and Income Alternatives".
If you would like to get specific information on a Reverse Mortgage for yourself
or a family member, you can find a lender in your state and in Canada at
www.AmericanReverse.com on the internet.
About W. L. Pulsipher
W. L. Pulsipher has participated in the marketing and origination of Reverse
Mortgages since 1993. He is President of American Reverse Mortgage, one of the
largest providers of Reverse Mortgages in the United States. W. L. is a frequent
guest speaker on the subject to various service clubs, senior organizations,
mortgage associations and mortgage brokers interested in providing Reverse
Mortgages. He became a Certified Senior Advisor in 1999 and has twenty-five (25)
other CSA's on the American Reverse Mortgage staff.
Prior to entering the mortgage field, W. L. was Customer Relations Manager for
American Express Credit Card Division. He was also President of HCS Corporation,
a computer company providing AutoCad systems to engineers and architects.
He is a past State Director of the Florida Association of Mortgage Brokers;
President of the North Central Chapter of the Florida Motion Picture and
Television Association; Vice President of the Film Commission of Real Florida
and an FAA Licensed Commercial Pilot.
W. L. holds degrees from Miami-Dade Community College (A.A. Business
Administration) and Florida Atlantic University (B.S. Business Administration).