The Reverse Mortgage 

From time to time, I indulge myself with what the popular press has to say on various financial matters.  Given the downturn in financial markets over the last few years and its affect on retirement portfolios, attention has turned to the reverse mortgage as a way to provide some measure of financial security to retirees.  The press has taken the almost universal stance that the reverse mortgage is "too expensive".  I would like to take the contrary view and suggest it is one of the best financial deals going. But first, a little background for the reader.

The foremost authority on the reverse mortgage is The US Department of Housing and Urban Development (HUD).  To understand this mortgage, one needs to consult their website (www.hud.gov) and search for "reverse mortgage" or as they refer to them as a home equity conversion mortgage (HECM).  The website contains all the requirements both for the homeowner and the home itself.

What is it?

The HECM is FHA's (Federal Housing Administration) reverse mortgage program which enables a home owner age 62 or older to withdraw some or all of the equity in a home. The funds can be withdrawn in a lump sum or as a fixed monthly amount or a combination of both.   Either way, there is a line of credit established with a maximum amount based on the home value and in line with FHA guidelines.  The program has a number of stipulations such as the home must be owner occupied and be a principle residence but is available to multi unit properties and even condominiums.  If the home has current debt outstanding, the proceeds of the HECM are used first to pay off this debt before the balance (if any) is paid to the homeowner.  This means if you have an outstanding mortgage of any kind already, you may still use the HECM.   

How much can I borrow?

The amount loaned is based on a number of factors such as the age of the youngest borrower, the current interest rate, the lesser of the value of the property or the FHA mortgage limit for the area, and finally the initial Mortgage Insurance Premium (MIP) option chosen (2% standard option or .01% Saver Option).  The older the borrower(s), the more valuable the home and the lower the interest rate, the more can be borrowed.  Appraisals are usually required and the HUD website says that $625,000 is the current maximum that can be loaned.

How do I pay it back?

You don't.  I'm kidding right?  No, I am not.  You may never have to pay it back.  As long as the home is your principal residence and one of the borrowers remains living in it, no payments are required.  The home must meet the terms of the mortgage such as keeping it insured, paying any property taxes, and doing routine maintenance.  Otherwise, the homeowner gets to spend the money in whatever way he chooses.  When the last of the borrowers stops being a resident of the home, either due to death, a nursing home stay likely to be permanent, or just because he or she wants to move, the home is sold and the sale proceeds pay off the mortgage.  If the sale proceeds are more than the amount owed, the homeowner gets the balance of the proceeds. If the sale proceeds are insufficient to pay the loan, FHA picks up the balance.  That is what MIP is for and why it is charged.  So even if the home declines in value, the borrower is not left with the problem.

So what is the catch?

The catch is the costs are higher than a typical mortgage which is why the press has such a problem with them.  They include an origination fee than can be as high as $6000 (current cap).  The closing costs include an appraisal, title search, surveys, inspections, recording fees, credit checks, and mortgage taxes.  There is the MIP mentioned above as well as a monthly servicing fee that is deducted from the loan proceeds or added to the loan balance each month.  These are in the $30-$35 range.  There is of course interest charged each month on the outstanding balance.  The total on these loans can amount to $12,000 or more to close the deal.  Sounds like a lot of fees, right? 

What is the problem?

On most of the HECM fees, the borrower can fold the costs into the amount borrowed.  Typically, very little needs to be put up front in cash.  Given that HECM loan proceeds are allowing retirees to live out their remaining years enjoying a life they would otherwise never have, are the cost really that big an issue?  Assuming the families of these retirees don't intend to keep the home being used for collateral, why would we worry about the fees charged?  The lender (FHA) is taking all the risk and being paid to do so.  The issue seems to be that the costs are high compared to conventional mortgages.  But as we can see, with no payments to be made on the loan, it is a very different type of mortgage.  The advantages to the borrower are the lack of any payment and the lack of worry about the valuation of the house after the loan is closed.  There is no "upside down" loan for these borrowers.  Used for the right reasons, this is a great product and can bring a real change to the lives of cash strapped retirees!

Chris Dowley

February 2011

Anxiety and Family Patterns

Have you ever noticed where you keep tension in your body?  Is it in your neck, shoulders, jaw or stomach?  Based upon questioning and observations, there actually is a correlation between the family role and anxiety that gets stored in your body as tension. Roles we play in the family include the "Hero", "Scapegoat", "Lost Child" and the "Family Mascot".

The hero tends to be the first born and is the responsible child.  They are known for carrying the weight of the world on their shoulders.  They typically are the family organizers and caretakers.  When asked, they typically indicate that it feels as though they are carrying the weight of the world on their shoulders.  They hold much stress in their shoulders and many times their neck as well. Many seek medical help for their neck problems and are told nothing is wrong.

The scapegoat is the child that is picked on or blamed for many issues in the family.  They tend to be the truth teller and receive resistance for it.  The scapegoat tends to hold some of their anxiety in their stomach.  When asked they talk about feeling alone, rejected, not wanted and some have indicated if feels as though they are being punched in the stomach emotionally.  In describing the tension, they typically talk about having a knot or a hole in their stomach. Many seek medical attention and can get diagnosed with Irritable Bowel Syndrome.

The lost child tends to be the quietest family member.  They are typically seen as good and do not require the attention the scapegoat gets.  Because they are seen in this fashion, they tend to get ignored.  The lost child tends to hold their anxiety in their jaw. They are known to clinch their jaw, grind their teeth and even develop TMJ (Temporomandibular Joint Disorder).  The tension can sometimes go down the throat or even in the chest.

The family mascot is the one that has learned the importance of entertaining the rest of the family.  Since there is a lot of responsibility to entertain, the family mascot tends to hold much anxiety in their shoulders, again because they feel they have the weight of the world on their shoulders.  They also tend to hold much anxiety in their stomach.

While the family roles are typically created by birth order, situations in the family can cause the order to change.  Sometimes people can also present more than one family role, once again due to family circumstance.

Each family role is created to have a unique way of getting attention in the family.  When a person continues to play out that role, they tend to feel inadequate and not good enough, which creates the anxiety.  When we do not work through the anxiety, it gets stored as energy in the body to create the symptoms discussed.

To get relief for the physical symptoms the medical community has a number of recommendations.  To get relief from the anxiety requires the exploration of the anxiety, and working through it to let it go.  Part of that process may include journaling about feelings, scribbling and meditation.  Recognizing what is being stuffed and where it originated is important in the letting go process to reduce the anxiety.  When we recognize what is being stuffed, honoring our self by actually feeling those stuffed feelings creates the necessary relief to reduce the tension.

Which role do you identify with?

Dave Jetson is a Licensed Professional Counselor of Mental Health for individuals, couples, and groups, specializing in financial issues and the psychology of money.  He is the Onsite group leader for the "Financial Recovery Program" workshop that he developed.  (www.onsiteworkshops.com). He and his wife, Liz Thorn, practice out of Rapid City, SD. (www.jetsoncounseling.com)

Used with permission of Dave Jetson of Jetson Counseling.