AUSTIN, Texas -
The popularity of reverse mortgages has grown exponentially in recent years and, although credit unions cannot yet directly benefit from referrals, one company is working hard to develop products that will please members and boost the bottom line.
In the meantime, says Andy Berry, reverse mortgage advisor for CU Members Mortgage in Arlington, Texas, credit unions should know there is an alternative to sending their members to a bank.
"Wells Fargo does reverse mortgages, and if a credit union refers a member to Wells, that person will be cross-sold. The credit union might lose the checking account," he said.
Under current Federal Housing Administration regulations, CU Members Mortgage-a subsidiary of Colonial Savings and one of a family of mortgage companies under the Colonial name-is prohibited from paying credit unions for referrals, Berry explained. "Today, CU Members Mortgage is offering a service to credit union members rather than referring them out. It is a third-party origination service to credit union members that keeps the member under the credit union umbrella. CU Members Mortgage is working on setting up servicing, which perhaps will be ready by the end of 2007. When we service our own reverse mortgages, we will be able to pay credit unions for referrals," he added.
Berry told attendees of Texas CU League's annual meeting the Department of Housing and Urban Development reported reverse mortgages have grown 115% in the last year, and he expects 200% to 300% growth by the end of 2007.
"There are several different products today, and new ones are being developed all the time. There is a huge population of baby boomers turning 65 that has not been marketed to and has not yet chosen reverse mortgages."
Simply put, seniors are outliving their savings thanks to improvements in healthcare. Berry said people are confronting increased expenses with reduced income. A reverse mortgage is a loan against home equity for borrowers 62 or older. He said it provides tax-free payments because the money is not income. Borrowers can use the money for any legal purpose.
Underwriting a reverse mortgage is relatively simple because there are no income, medical or credit requirements to qualify. Berry said bankruptcy changes the process, but a reverse mortgage still could be done with a bankrupt borrower, as long as no conditions affect title.
A reverse mortgage has no fixed maturity date-it is a lifetime loan for however many borrowers are on the note. Berry said in the case of married borrowers, if one passes away, the remaining spouse still can live in the house and the loan continues. All persons on the title must be 62.
When all borrowers are deceased or no longer able to reside in the house for at least one day out of a 12-month period, or if the borrowers wish to sell the house, the reverse mortgage is paid off in the same manner as any other mortgage. In the case of death, heirs have 30 days to declare intent to sell the house, or occupy it and obtain their own mortgage.
"The biggest misconception in the industry is the homeowner turns over title to the lender. This is not true-the homeowner retains title," he said. "Another misconception is the borrower or the heirs could end up owing more than the value of the property at the time of sale. When the product first came out, the loan could get upside down. Today, there are safeguards for borrowers and there is a mortgage insurance premium that protects the lender in case the person outlives life expectancy and the market has a downturn."
Borrowers have several options for taking the proceeds of the reverse mortgage: lump sum cash payment, monthly payments for a period of time, monthly payments for as long as the homeowner occupies the property, a line of credit, or any combination of these.
"Some people take a lump sum to pay off expenses or credit cards, then hold the rest in a line of credit. Once they get rid of their house and car payments, they've improved their monthly cash flow."
Closing costs and fees are approximately 5% to 6% of the home's value. Berry said fees are stipulated by HUD, so every lender is on the same playing field.
