A misleading article in The New York Times about the supposed dangers of reverse mortgages has Martin Andelman all fired up.
Martin Andelman has some advice for children upset that their parents reverse mortgages are threatening their inheritances—get a job and buy your own home.
Andelman, a Now It Counts contributor, writes on his blog how spoiled these children are that they’re more focused on what’s best for them rather than how their parents can afford to live and do things in the last years of their lives. The impetus was a recent article in The New York Times on reverse mortgages titled “Heirs of reverse mortgage holders may inherit the pitfalls, too.” Reverse mortgages allow those at least 62 to borrow money against the value of their homes. The loans don’t have to be repaid until the borrower moves out or dies.
Andelman says it’s another article that depicts reverse mortgages in a bad light as if it’s something that people should avoid in their lifetimes. In fact, it’s a tool that people can use to make their lives better after they retire, he says.
“Reverse mortgages are a benefit for seniors made possible by the United States Congress, regulated by the Department of Housing and Urban Development and insured by the FHA,” Andelman says. “Reverse mortgages are a good thing, not a bad thing.”
Andelman says it made him cringe when he read comments from children about how their inheritance is threatened and how embarrassed he felt for one woman who was featured and whose photo was displayed in the article. He says he wanted to turn away from his computer screen.
The 61-year-old woman lamented how her dad came from Cuba with nothing and worked hard to buy a ranch-style home in Pleasant Hill, CA., and now it’s facing foreclosure. Andelman takes exception with the concept that children are entitled to their parents’ assets such as their homes without any regard for their own well being in their old age.
“The parents needed the money,” Andelman says. “So, thank God, they were able to get it using a reverse mortgage. That’s a much better option than any of the available alternatives, which would include a hard money loan at a high interest rate, or selling the home.”
Andelman mentioned that a friend asked if didn’t he want to leave his home to his daughter. He says he would like to but he has to take care of him and his wife in retirement first of all.
“Look, I love my daughter more than anything in the world; there’s nothing I wouldn’t do for her, and she knows that. I hope she lives with us for a long, long time to come. It hurts my heart to think of her anywhere but in her room,” Andelman says. “But, make no mistake about it, it’s my house, it’s my wife’s house. If I need to access the equity in my house during retirement, well, I’m certainly not going to feel as if I’m threatening her inheritance. And I know my daughter and she wouldn’t think or feel that way either, not even for a moment.”
Some people may be appalled by that thinking, but Andelman says what he’s leaving his daughter is more important than any home. It’s a college education, including maybe a masters or doctorate if that’s what she wants. And he would support her during her lifetime for whatever she chose to do and give her an unlimited amount of unconditional love.
Andelman says parents, upon their death, should give their children whatever they can but for heirs demanding their parents’ homes, they should buy their own and leave them to their own children if they want. What these spoiled children in essence are saying is that it’s all right for their parents to struggle financially at the end of their lives for their grown kids’ sake, he says.
“Yes, your mother and I ate cat food for the last years of our lives, but at least we were able to leave our kids a free and clear home? Or, we always wanted to take a cruise around the world, but we just stayed around the house, so our kids would get our home free and clear? I think I just threw up in my mouth a little bit,” he says.
Andelman says in jest that those same people ought to ask their mom and dad to die early so they can get their home free and clear. The parents may not mind, Andelman says, because after all, they’re almost 80. It’s tragic to scare people about reverse mortgages because they can transform a person’s retirement years, help seniors remain independent and fulfill some of life’s dreams, he says.
“Why would we want someone to think something bad about something that can be so good?” he asks. “What’s the point of having a home, if it can’t help you during your retirement years? Isn’t that a big part of the reason why we all buy them in the first place?”
The New York Times article talks about how under federal rules, survivors are supposed to be offered the option to settle the loan for a percentage of the full amount. But what’s happening, the article contends, is that reverse mortgage companies are threatening foreclosure unless mortgages are paid in full with some foreclosing weeks after the borrower dies.
Andelman says he doesn’t understand all the fuss because a reverse mortgage is only a mortgage that comes with “the most flexible repayment terms imaginable.” Borrowers can choose to make interest only payments, principal or interest payments or even a balloon payment, he says.
They can choose to make no payments, thus leaving the balance against the house when the second spouse dies, Andelman says. Reverse mortgages can even be set up to pay the borrower, he says.
“That’s really all it is, for the most part it’s a mortgage with super flexible repayment terms,” Andelman says. “You still own your home, you still pay the property taxes and insurance, you still benefit by it going up in value over time—nothing changes when you have a reverse mortgage, except that you have a source of funds, available at a low interest rate, that doesn’t need to be repaid. What could be better than that?”
As for those who argue reverse mortgages are expensive, Andelman asks how they are different from other loans and dismisses they have hidden dangers. Before anyone can get one, they’re required to go through counseling from an independent HUD specialist and that’s not required for people who buy a home in which there are more pitfalls than a reverse mortgage, he says.
“If there’s anything hidden about a reverse mortgage, then it’s not the fault of the reverse mortgage, it’s the fault of the unethical, predatory jackass that sold the reverse mortgage, because I’m quite certain that neither Congress nor HUD ever intended that anything about a Home Equity Conversion Mortgage (or HECM) reverse mortgage ever be hidden,” Andelman says.
Andelman says that doesn’t mean there aren’t problems that develop for heirs trying to get information from lenders and that they should report the problems to HUD. Since the borrower took equity from the home, the heirs have six months to decide what to do. That includes financing the property to pay off the reverse mortgage, buy the home for 95 percent of its current market value or walk away and owe nothing, Andelman says.
The New York Times article depicted one example of a man’s mother who had an outstanding loan balance of $123,773 and that how today her home is worth less than $20,000. That shows his mother made a smart move in taking out a reverse mortgage, Andelman says. If the son didn’t know he could buy the home for $14,000 or 95 percent of the value, that’s his fault for not educating himself on a scenario that’s not typical, he says.
“OK, so he couldn’t figure it out from reading the HUD.gov website, so he contacted a lawyer—am I the only one who finds that a totally reasonable outcome? I didn’t find out an option I had with the IRS until I contacted my CPA, so what?”
“You want to know all of your options having to do with a federal program like the HECM reverse mortgage program at HUD, then there’s reading involved. If you don’t want to read, then hire someone who has already done the reading. Sorry, but that’s just how stuff works sometimes. What else would anyone expect, someone to come over a read them a bedtime story?”
If people want the reverse mortgage to travel to India to ride an elephant or buy the boat they always dreamed of, or just to make their lives more comfortable, that’s their right, says Mandelman. He says that if his parents took out a reverse mortgage to make their lives better, he’d be happy.
“This is life, not a dress rehearsal. I say, ‘live it’,” Andelman says. “Parents sacrifice so much for their children throughout their lives. Their children should be happy for the truly priceless inheritance they receive, the treasured memories of their loving parents. And if they get a photo album or two, well, that sounds pretty darn fantastic to me. Not everyone gets that.”