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Reverse Mortgages Gain Popularity

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By Michael Sasso / The Tampa Tribune

Published: November 17, 2007

TAMPA - Suddenly, it seems that every charming, affable actor from the 1960s and '70s is pitching something called a reverse mortgage.

Robert Wagner of television's "Hart to Hart" is hawking mortgages for the Senior Lending Network. James Garner of "Rockford Files" fame is selling them for Financial Freedom. And singer Pat Boone is representing an outfit called Financial Heritage.

Meanwhile, some local seniors are getting two or three reverse mortgage solicitations in the mail each week.

Behind the marketing surge is a boom in a type of mortgage left relatively undisturbed by the nationwide housing mess. Unlike traditional mortgages, in a reverse mortgage, the lender makes payments to the homeowner. Interest accrues on those payments, and the bank is finally repaid the principal and interest after the senior dies or moves out of the home.

In Florida, reverse mortgages backed by the Federal Housing Administration - which make up about 90 percent of all reverse mortgages - soared by 116 percent in the 2007 fiscal year over 2006, according to the U.S. Department of Housing and Urban Development.

So, are these a good deal for seniors?

Elder law attorneys in the Bay area said reverse mortgages can be good for seniors in the right circumstances, such as when the senior needs money for health care or to stay in his or her home. But they fear that reverse mortgage companies are marketing so heavily that seniors may not understand all the fine print, including the mortgages' relatively high fees.

One reverse mortgage broker, Wanda Saporito of Pinellas Mortgage Services, believes strongly in their merits but still fears that many mortgage brokers will jump on the reverse mortgage bandwagon without keeping the needs of seniors in mind.

"My fear is that too many of the wrong people will get into this industry," Saporito said.

More Banks, Lenders Involved

For years, reverse mortgages took up an obscure corner of the mortgage industry, barely on the radar screen of most mortgage brokers. But that has changed in the big way.

Five years ago, there were barely more than 13,000 FHA-backed reverse mortgages issued nationwide, according to the National Reverse Mortgage Lenders Association. But a combination of factors has caused that to surge to 107,558 last year, the NRMLA reports.

Behind the statistics are people such as Shirley O'Dell, a 72-year-old Clearwater widow who took out a reverse mortgage in June and is thrilled.

She had lived in her home for 40 years, but still owed $122,000 on her traditional mortgage. That meant making a $725 mortgage payment every month, which forced her to work five days a week and restricted what she could do with her money.

After taking out a reverse mortgage in June, she was able to pay off her outstanding debt and eliminate her monthly mortgage payment. Today, she has cut back to working four days a week and has financed some dental work, gifts for her grandchildren and occasional gambling trips to Biloxi, Miss.

She confesses to originally worrying about her children's inheritance, because as the interest accrues on reverse mortgages, it often eats up much or all of a home's equity.

"At first I was trying to save the equity in my house to give to my kids, but all four of my kids said, 'Don't worry about us. Just do what's best for you,'" O'Dell said.

Darryl Hicks, a spokesman for the NRMLA, said the reverse mortgage boom is being fueled in part by more attention from banks and mortgage lenders. At least 1,348 lenders issue reverse mortgages in the United States, Hicks said, although he had no historical comparisons. Bank of America announced last week that it would begin issuing reverse mortgages in Florida.

Meanwhile, the industry has launched an aggressive marketing campaign that hits television, newspapers, direct mail and seminars.

One of the biggest advertisers: a Long Island company called Vertical Lend, which is behind the Senior Lending Network ad campaign starring Wagner. Vertical Lend not only issues reverse mortgages, but also serves as a referral network for mortgage lenders nationwide.

When people call the Senior Lending Network's toll-free number, an operator may refer the caller to a lender in his or her area. Vertical Lend receives a fee for generating such "leads" for other lenders, Vertical Lend Chief Executive Officer David Peskin said.

"Florida is a booming market," Peskin said. "It's actually one of our fastest growing markets."

In fact, Florida has been boom country for reverse mortgage companies of all stripes lately. According to HUD data, there were only 3,115 FHA-backed reverse mortgages issued in the state in 2005. That more than doubled to 7,963 mortgages in fiscal year 2006, and more than doubled again to 17,185 in fiscal 2007.

Fees Higher Than Traditional Loans

Elder law attorneys say reverse mortgages are often good financial tools for seniors, but they need to be wary of fees, which are generally higher than in traditional mortgages.

Saporito, who issues reverse mortgages in Dunedin, said they usually carry an origination fee equal to 2 percent of the home's value or the FHA's lending limit for the Bay area, whichever is less. The origination fee is split by the broker and lender. The FHA also charges a one-time 2 percent mortgage insurance premium to insure the mortgage, and FHA charges another half-percent insurance premium annually. Then there are the usual costs of title insurance and documentary stamp taxes.

As one example, a recent reverse mortgage she issued had principal of about $160,000, and upfront fees and costs ran just shy of $14,000, she said.

"It is a regular mortgage in that it carries all the same closing costs," Saporito said.

Emma Hemness, a Brandon-based elder law attorney, said reverse mortgages are often helpful when a senior needs long-term health care and wants to stay in his or her home. But she said reverse mortgages are not as good for younger seniors, such as a 65-year-old, because the person may live so long that he outlives his home's equity.

Another elder law attorney, Jim Hines Jr. of Tampa, also said reverse mortgages can be excellent financial tools as long as the senior understands the terms and conditions. Hines fears that with so many seminars on reverse mortgages around the Bay area, seniors don't understand what they're getting into.

"There's a lot of seminars that we've come across where they'll encourage people to turn to these mortgages, and it's not always in their best interest or even necessary," Hines said.

Reporter Michael Sasso can be reached at (813) 259-7865 or msasso@tampatrib.com.

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