Equity on demand
Prop. 7 would give seniors a new way to tap their investment in their home
By TERESA MCUSIC
Special to the Star-Telegram
Texas senior citizens will have access to a more popular form of a reverse mortgage if Proposition 7 passes in a statewide vote Nov. 8.
Proposition 7 would allow older homeowners to draw line-of-credit advances under a reverse mortgage. Current law limits those disbursements to lump-sum payments or monthly installments.
Nationally, the line-of-credit advances are overwhelmingly the most popular form of reverse mortgage, said Scott Norman, president of the Texas Association of Reverse Mortgage Lenders in Austin.
“Lines of credit allow you to budget your borrowing,” he said. Because a borrower doesn’t pay interest on money not used in a reverse mortgage line of credit, homeowners can save money by borrowing only what they need, Norman said.
Legal in Texas since 2000, a reverse mortgage is a federally insured loan that enables homeowners 62 or older to borrow against the equity in their homes without having to sell their home, give up title or take on a new monthly mortgage payment. The borrower does not need to meet any credit standards besides an appraisal of the house.
The loan is paid back with fees and accumulated interest only after the borrower dies, moves out of the house permanently or sells the house. The repayment amount can’t exceed the value of the home, so if the house depreciates after the loan is made, the federal government absorbs the difference, not the seniors or their heirs.
This year, about 7,500 Texas seniors will close on reverse mortgages, taking out roughly $585 million in equity with an average loan amount of $78,000, Norman said. But he expects those numbers to explode over the next two years if Proposition 7 passes, with the state’s seniors taking out about $2 billion in their home equity.
“Fannie Mae did a study that said there were 440,000 senior households in the state with home equity and an interest in reverse mortgages,” he said. “Texas is already Number 3 in the nation in reverse-mortgage volume.”
Richard and Dee Carrera, who live north of downtown Fort Worth, said they took out a reverse mortgage to pay off their house, cut out their $759 monthly mortgage payment and improve their cash flow.
“We read about it in the paper,” Richard Carrera said. “It seemed too good to be true — to get money without making a payment.”
Shirley Ephram-Neal, a housing counselor, said that most of the senior citizens she sees take out a reverse mortgage because they are in bad financial shape. (One of the many safeguards to reverse mortgages is a requirement that the borrower first consult a third-party housing counselor approved by the U.S. Department of Housing and Urban Development.)
“Ninety percent of them really need those funds. They just don’t have the money to pay their bills,” said Ephram-Neal, of NID Housing Counseling Agency in Fort Worth. “Most come in nervous about it.”
Ephram-Neal said she counsels senior citizens about the different kinds of reverse mortgages, sponsored largely by three big players in the state: Wells Fargo, Seattle Mortgage and Financial Freedom. The most popular is the home equity conversion mortgage backed by the Federal Housing Administration.
Norman, of the reverse-mortgage lenders group, said Proposition 7 would place more safeguards on a lending program that is already consumer-friendly. Borrowers would not get to their lines of credit with credit cards or pre-printed checks, and they would not be charged a fee to get to their equity. Additionally, lenders would not be allowed to change the original house note in any way.
IN THE KNOW
Reverse mortgage information
The home does not need to be paid off, but the borrower should have at least 50 percent equity.
The National Reverse Mortgage Lenders Association distributes a free information booklet, Just the FAQs: Answers to Common Questions About Reverse Mortgages. Consumers can order it by calling toll-free (866) 264-4466 or by going to the association’s Web site, www.reversemortgage.org. The Web site has extensive information about reverse mortgages, a state-by-state list of lenders and a reverse-mortgage calculator.
AARP’s consumer guide, Home Made Money, can be ordered online or downloaded through the group’s Web site, www.aarp.org. AARP also provides callers free reverse-mortgage counseling.
SOURCE: Texas Association of Reverse Mortgage Lenders
