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The Wealthy Barber Returns...David Chilton warns

2012-02-05T23:18:08Z

The Wealthy Barber Returns

Home equity no substitute for retirement savings, Wealthy Barber author warns... [

David Chilton, author of The Wealthy Barber and The Wealthy Barber Returns, cautions “Don’t take debt into retirement.” This is terrific advice, but there are real world issues to consider here:

•   First, not everyone has a choice about incurring debt late in life. Medical expenses, family problems, and investment decisions, good and bad, can make debt a part of extended living.

•   Second, at some point, one shifts from saving mode to spending mode because you can’t take wealth with you. Usually “the kids” are in their 60's or older and self-sustaining, so paying your own way, in the style of your choice, takes priority. It takes more money every year to live even a simple life. The trade-off between down-sizing and aging in the home you love must be continually re-evaluated. However, the question is, “If you don’t spend your equity, who will?” Reverse mortgages will never suit every property owner, but they should be understood and considered so you always know all your options. These are not last-minute, last-resort products, but an option to be up-to-date on, so you have the widest range of choices possible for keeping the home and the lifestyle you love.

•   Third, reverse mortgages allow access to the tax-free money in a property. This may be a relief for house-rich, cash-poor owners, but it may be a money management bonus for high-net-worth owners.

•    Fourth, reverse mortgages can be arranged privately, within a family, so rates and terms may not be as extreme as those offered commercially.

•   Fifth, even though it’s been more than two decades, the reverse mortgage industry is still in it’s infancy in Canada. We have only one national lender. It’s a start, but it's too early to give up on home equity conversion. The future could include more lenders to create an open competitive marketplace. Community-based lending programs could put reverse mortgages and other home equity conversion approaches to work to provide a full range of affordable housing in neighbourhoods across the country...stay tuned.

A reverse mortgage will be a best friend when there is no other option open to homeowners intent on their primary goal: to stay in the home and community they love. This financial tool allows access to tax-free dollars without selling and moving. If a property owner qualifies for a home equity line of credit or would be happy to sell and move, those options will be less expensive than arranging a reverse mortgage.

Reminder: What is a reverse mortgages?
Reverse mortgages are financial, lifestyle and wealth management tools that enable property owners to convert accumulated value or equity into cash without having to qualify by income, without having to sell and move, and without having to repay the debt until some pre-set time in the future.

“Reverse mortgages hit record high,” “Reverse Mortgages Soar,” & more...

2012-02-05T23:06:53Z

“Reverse mortgages hit record high”

“HomEquity Shatters Records for Canadian Reverse Mortgages in 2011"

“Reverse Mortgages Soar”

“HomEquity Bank’s reverse mortgage originations up 42% in Q4 2011"

“CHIP Reverse Mortgage Volumes Not Surprising to Some”

“Record number of Canadians cashing in on reverse mortgages”

And there are more headlines...all generated by HomEquity Bank’s announcement that fourth quarter 2011 earnings were C$67.2 million and annual earnings C$239 million, in volume, an increase of 16% over 2010, another record-setting year.

With RRSP and investment portfolios still under water for many property owners, and increased reverse mortgage selling efforts (advertising and a growing force of financial advisors) for CHIP reverse mortgages, more property owners sought out this financial alternative than in any other year. Lowering the CHIP qualifying age to 55 accounted for some of the increase.

The approximately 2,000 CHIP reverse mortgages written in 2011 represents only a tiny fraction of US volumes, even though these were down in 2011.

No record is kept of privately-arranged reverse mortgages or home-equity-conversion arrangements which aren’t labelled “reverse mortgages.”

“Understanding Reverse Mortgages”...Expanding on Financial Consumer Agency of Canada information

2012-02-05T22:36:30Z

“Understanding Reverse Mortgages”...Expanding on Financial Consumer Agency of Canada information
The government provides basic details to provide a starting point for consumers. Here are a few ideas on what more you need to learn in your search for understanding when it comes to reverse mortgages

The FCAC material in itallics is expanded on in the section directly below that sentence or section from "Understanding Reverse Mortgages".

1. FCAC: “A reverse mortgage is a loan that is designed for homeowners 60 years of age and older.”
Reverse mortgages favour homeowners over age 70, because the cash liberated is spread over fewer years than at age 40. Reverse mortgages are available to homeowners under age 60:
•   When a reverse mortgage lender, commercial or private, makes payment size practical enough that taking on the cost of this mortgage makes sense to a property owner. Intra-family situations may have lower or no profit expectations and make this practical. Fixed-term closed reverse mortgages, which run for less than 5 years with no renewal, may be less age specific. Examples could include bridge financing between salary and pension, or until a legacy or business sale is finalize.
•   When an owner aged 50 or older is the spouse of a homeowner over the qualification age required by a specific reverse mortgage lender.
•   When a shorted life expectancy due to a chronic condition or terminal illness, makes projections of their remaining time similar to those of more advanced years.

2. FCAC: “A reverse mortgage is secured by the equity in the home, which is the difference between the value of your home and the unpaid balance of any current mortgage.”
A reverse mortgage is secured by real estate equity, which is the difference between the value of the house, condominium unit, or cottage and encumbrances registered on title, including the unpaid balance of any current mortgage.

3. FCAC: “It allows homeowners to obtain cash without having to sell their home.”
A reverse mortgage is a financial, lifestyle, and wealth management tool which allows a property owner to convert equity into cash
•   without having to sell and move
•   without having to qualify by income
•   without having to repay the mortgage debt (principal and interest) until a pre-set time in the future.

4. FCAC: “The Canadian Home Income Plan (CHIP), which is offered by HomEquity Bank, is the main source of most reverse mortgage products that are available in Canada. You can also speak to your financial institution about other options that may meet your needs.”
Banks, insurance brokerages, and other financial services companies advertise, but do not originate reverse mortgages. They refer their clients to CHIP salespeople and receive a referral fee in exchange. You can also speak to mortgage brokers, and other local financial advisors to discover whether local or regional reverse mortgage lenders are lending in your area.

5. FCA: “With a reverse mortgage you don’t make any payments. Instead, the interest on your reverse mortgage accumulates, and the equity that you have in your home decreases with time. If you sell your house or your home no longer is your principal residence, you must repay the loan and any interest that has accumulated.”
With a reverse mortgage, property owners don’t make any payments, although the mortgage contract may allow them to repay some of the debt, under set conditions, if they elect to, thereby reducing the total amount due. The interest on the reverse mortgage compounds at a rate stipulated in the mortgage contract (i.e., monthly, bi-monthly, annually) and the total amount of interest due accumulates, so equity decreases over time. If the real estate is sold, or you don’t meet the residency requirements in the mortgage contract, i.e. absence for a prolonged period or renting out, the mortgage, that is principal and accumulated interest, becomes due for repayment.

6. FCAC: “Before you decide to get a reverse mortgage, take the time to understand all the terms that apply, and to weigh the advantages and disadvantages.
Advantages
•   You don’t have to make any regular payments on the loan.
•   You can turn some of the value of your home into cash, without having to sell it.
•   The money you borrow is a tax-free source of income.
•   This income does not affect the Old-Age Security (OAS) or Guaranteed Income Supplement (GIS) benefits you may be receiving.
•   You maintain ownership of your home.
•   You can decide how you want to receive the money. You can choose to receive:
        - a lump-sum payment
        - a loan to set up planned advances that provide you with a regular income
        - a combination of these options.”

Additional Advantages
•   A non-recourse or limited-liability clause will limit liability for repayment of the reverse mortgage to the market value of the real estate at the time the mortgage becomes due and payable. The lender will not have legal recourse to collect any amount over this from the property owner, heirs, or the estate. The reverse mortgage lender must absorb all and any loss between the market value of the property and the full amount of the reverse mortgage including all interest.
•   If there is no more equity left to pay out to the homeowner, the homeowner may continue to retain ownership and live in the real estate until one of the conditions stipulated in the mortgage contract as grounds for termination is reached. These may include absense from the property for a stipulated time, loss of principal residence status, non-payment of property taxes, lapse of property insurance, non-payment of condominium maintenance fees, or failure to keep the property “in good repair”, according to terms in the mortgage contract.
•   The reverse mortgage debt may be repaid from the property owner’s other assets or resources, or by the sale of the property.
•   If the reverse mortgage allows, the surviving spouse can continue to live in the property after the death of one property owner.


7. FCAC: “Disadvantages      [EXPANDED MATERIAL IN CAPS]
•   Reverse mortgages are subject to higher interest rates than most other types of mortgages.
•   The equity you hold in your home will decrease as the interest on your reverse mortgage accumulates over the years, UNLESS REPAYMENT OF PART OF THE PRINCIPAL OCCURS AND/OR THE MARKET VALUE OF THE PROPERTY INCREASES.
•   At your death, your estate will have to repay the loan and interest in full within a limited time. The time required to settle an estate can often exceed the time allowed to repay a reverse mortgage. For full details, READ THE REVERSE MORTGAGE CONTRACT BEFORE SIGNING AND check with the reverse mortgage lender.
•   Since the principal and interest will be repaid to the lender at your death, there will be less money OR NO EQUITY LEFT in your estate to leave to your children or other heirs.
•   The costs associated with a reverse mortgage are usually quite high. They can include:
       - a higher interest rate than for a traditional mortgage or line of credit
       - a home appraisal fee, AND AN application fee or closing fee
       - a repayment penalty for selling your house or moving out within A STIPULATED PERIOD, SUCH AS three years, of obtaining a reverse mortgage
        - fees for independent legal advice.”
   - ONGOING ADMINISTRATION COSTS
   - INCREASES IN PROPERTY TAXES, MAINTENANCE EXPENSES, INSURANCE, AND CONDOMINIUM FEES
•   THE LENDER MAY NOT PERMIT THE PROPERTY OWNER TO PARTICIPATE IN A PROPERTY TAX DEFERRAL PROGRAM WHICH WOULD DISPLACE THE REVERSE MORTGAGE AS THE FIRST CLAIMANT ON TITLE.

Content used to expand FCAC copy was taken from “Reverse Mortgages: Best Friend, Worst Enemy...Your Choice!” www.CatapultPublishing.com

Bad habits: Left-overs from a lifetime with traditional forward mortgages...

2012-02-05T22:22:48Z

Don't let misunderstandings and misconceptions about traditional mortgages make understanding reverse mortgages even harder. Don't apply what you believe to be true about traditional mortgages to reverse mortgages until you verify that you do have everything right.

•   Interest Rates
Interest rates matter, but contract terms and conditions may matter more. Borrowers of traditional mortgages focus on 1/4% differences in rates and overlook often-costly terms and conditions in the mortgage contract. These typically favour the lender and can render small rate differences immaterial in reducing the cost of a traditional mortgage over its life of 10 to +25 years.

Best Friend Tip: Always ask for the total cost of borrowing, at the beginning, over the decades ahead, and at the end—in writing. This is important with forward and reverse mortgages.

Worst Enemy Tip: Since the reverse mortgage will be arranged for a series of renewable three to five year terms, understanding exactly how interest rates are recalculated at the end of each term and the start of the next is essential. Assumptions are your worst enemy.

•   Monthly Payments
The emphasis on affordability of monthly payments (which largely represent repayment of principal and payment of interest due), compounded by the years of repayment involved with traditional mortgages, can distract borrowers from the over-all cost of the money they first borrowed. That is, borrowers often pay two or three times the original principal before the traditional mortgage is retired.

Best Friend Tip: Calculate the total cost of your last traditional mortgage so you have a frame of reference for projections of total debt for a reverse mortgage. Frequency of compounding is the debt-building accelerator.

Worst Enemy Tip: Reverse mortgages work best when they are the financial tool that allows a property owner to stay in the property they absolutely must live in. If moving is a possibility, the cost of a reverse mortgage may make staying an overly expensive alternative.

•   Lenders Face Risk
Traditional mortgage lenders are covered by mortgage lender insurance to protect the lender from the risk of the borrower's default, that is the borrower breaking the mortgage contract and not repaying the mortgage debt. That, plus competition for mortgage borrowers, keeps traditional mortgage interest rates lower than those offered for reverse mortgages, where lender competition and risk-eliminating lender insurance do not exist in Canada.

Best Friend Tip: Negotiate, negotiate, negotiate.

Worst Enemy Tip: Before signing, ask the lender for a written list, with specific details, of the circumstances that could put the mortgage in default and call the debt due and payable. For instance, not keeping property taxes or insurance up to date, or renting out the home are typical default triggers.

For more details, read..." Reverse Mortgages: Best Friend, Worst Enemy...Your Choice! "

CHIP's Steve Ranson Interviewed by PJ Wade

2011-11-30T03:31:18Z

Steve Ranson, President and CEO of HomEquity Bank, provider of the CHIP Home Income Plan, spoke candidly with PJ Wade about current challenges as a reverse mortgage provider and future potential for the reverse mortgage industry.

Mortgage Forum 2011

2011-11-30T03:29:15Z

1600 mortgage professionals from across Canada met in Toronto last week at MORTGAGE FORUM 2011 to exchange ideas and information on mortgages and industry trends, however, reverse mortgages--with the potential to drive a multimillion dollar industry--were not on the agenda. When I spoke with individual mortgage professionals, they were intensely interested and usually spoke of growing interest in this home equity conversion tool. Expect to hear more about reverse mortgages on this professional front...

MORTGAGE FORUM 2011 was the sixteenth annual conference of the Canadian Association of Accredited Mortgage Professionals (caamp.org). This organization launched the AMP (Accredited Mortgage Professional) designation in 2004 as part of its "ongoing commitment to elevating ethical and operational standards within Canada's mortgage industry.

For more on MORTGAGE FORUM 2011:

Conference agenda, keynotes, panel discussions: http://www.mortgageconference.ca/   twitter #caamp2011
facebook   www.facebook.com/mortgageforum2011
linkedin      www.linkedin.com Group Name: Canadian Association of Accredited Mortgage Professionals (CAAMP)
Mortgage Views: Retiring Debt & CAAMP Conference "One valuable recommendation made by Economists to mortgage professionals at the conference was to encourage borrowers not to count on predictions and promises from the Bank of Canada. It cannot guarantee rates or anything else 5 years out until global financial uncertainty is resolved. The more vulnerable clients are to rate increases, the more important it is that they act now to pay down debt and seek out additional income streams."

HELP FOR SENIORS: FP Mortgages "...we need to get a piece of it"

2011-03-31T00:13:00Z

"HELP FOR SENIORS: Reverse mortgages expected to draw more interest" by FP Mortgages journalist Paul Barker (page SR 1 and 3).

The lead story in the National Post's Special Report on Mortgages stressed the tremendous business potential in reverse mortgages. This is not news (my first book proclaimed the opportunity in 1993 when it was an established fact). It is news that this potential may become mainstream.

Once again reverse mortgages are presented as just another feature of the standard mortgage product instead of encouraging emergence of this industry to herald a different way of thinking about personal finance, real estate, extended living (the 21st Century replacement for "retirement"), and the relationships consumers have with their money and their advisors. What have we -- consumers and professionals -- learned from the economic reversal?

To paraphrase a common mis-definition of reverse mortgages, will the Canadian reverse mortgage market be exactly the same as the current mortgage industry, just backwards?

For context:
Response to Draft Advisory Capital Treatment of Reverse Mortgages
BestFriendWorstEnemy.com - Posted April 7, 2009

Reverse Mortgages in FP Mortgages: http://www.nationalpost.com/news/Help+seniors/4525572/story.html

AARP Sues HUD Over Shift in Reverse Mortgage Policies

2011-03-11T15:32:00Z

Written reverse mortgage contracts are the proof, the evidence, that protects your rights within the agreement. Read carefully before you sign. Ask questions and ask for examples. Work to understand your rights in as many of the hundreds of possible and impossible circumstances ahead as practical. What will happen and what could happen over the decades the reverse mortgage may exist?

This exercise will also prove to you the importance of staying on top of changes in law and finance, so you can anticipate complications in your life. Membership in proactive nonprofits will provide you with a loud voice to exert your rights. Here’s an actual example of how these two issues can combine. One that you can follow in the news and can contribute your comments to...

“AARP Sues HUD Over Shift in Reverse Mortgage Policies” reads the headline of the media release from AARP, formerly known as the American Association of Retired Persons. The law suit filed by AARP Foundation on Tuesday, March 8, 2011, states that older US homeowners have been and are being forced into foreclosure because of “confusing rules and unfair policies on reverse mortgages”. Three homeowners facing foreclosure and the loss of their homes are represented in the suit.

The nonprofit organization is suing HUD—the US federal Department of Housing and Urban Development—which regulates these mortgage products in the US. "HUD has illegally and without notice changed the rules in the middle of the game at the expense of vulnerable older people," said Jean Constantine-Davis, an AARP Foundation senior lawyer.

In 2008, HUD reversed its policy so that surviving spouses (even if they are not on the loan) must pay the full loan balance to keep the home, regardless of the home's value. So if the home loses equity and the survivor cannot repay the full loan amount when their spouse dies, eviction results.

In the US where many soon-to-be retirees and retirees on fixed incomes don’t qualify for foreclosure remedies, reverse mortgages, commonly known as Home Equity Conversion Mortgage Loans, have become the last save-my-home resort for those over the qualifying age of 62. Reverse mortgages usually end when the home is sold, the homeowner moves out, a previously-agreed upon deadline is reached, or the homeowner dies. For couples, this should be the death of the surviving spouse.

For more on the Canadian viewpoint on what a reverse mortgage is, why the older the homeowner the more can be borrowed, and when reverse mortgages end, see Reverse Mortgages: Best Friend, Worst Enemy...Your Choice!

Reverse mortgages, backed by the US Federal Housing Administration, include nonrecourse clauses which limit the collectable portion of the continually-growing loan amount to the value of the home at the time of termination. This protects the borrower and the borrower's heirs.

According to Reuters’ Corbett B. Daly, “The lawsuit alleges that the Bush administration in late 2008 changed HUD practices so that a surviving spouse who is not on the mortgage would be required to pay the full loan balance, even if that balance was for more than the home's value…A stranger, perversely, could purchase the home that was worth less than the loan amount for market value and the FHA insurance fund would kick in the difference.”

For more detail:
HUD Targeted in Suit for Illegal Reverse Mortgage Foreclosure Actions
AARP Sues HUD Over Shift in Reverse Mortgage Policies

NRMLA West 2011 March 15-16

2011-03-11T02:02:00Z

Education Notice: National Reverse Mortgage Lenders Association NRMLA West

NRMLA West: New Requirements, New Relationships
Fairmont Newport Beach Hotel
Newport Beach, California
March 15-16

Worst Enemy...Your Choice!

2011-02-05T15:22:00Z

A reverse mortgage is not a desperate last resort although it should be the last choice taken when other acceptable options are available.

Best friend when the fit is perfect, a reverse mortgage can be a worst enemy in two situations:
1. When it is the best solution and is not considered fully, so lesser options, like selling and moving when you don’t want to or need to, are taken.

2. When a reverse mortgage is taken out, and it is not the best choice since there are other less-expensive, more flexible options that would have better suited financial, lifestyle and wealth management goals.

Use the accurate, comprehensive advice of professionals and your experience to make your own decisions. Determine the depth of understanding and experience a financial, lifestyle, or real estate professional has before you act to arrange or avoid a reverse mortgage. PROFESSIONAL WHO ARE SKILLED IN THEIR OWN FIELD DO NOT AUTOMATICALLY UNDERSTAND REVERSE MORTGAGES AND THE RELATED FINANCIAL, LIFESTYLE, AND WEALTH MANAGEMENT ISSUES.

How are you sure advisors fully understand your point of view on staying in the home you know and love?

For more on advisors and advice: Reverse Mortgages: Best Friend, Worst Enemy...Your Choice! Chapter Six: Getting Good Advice, page 91

Extended Living is 21st Century Retirement

2011-01-26T23:50:00Z

So how’s 2011 going so far? This year of the Rabbit promises lots of positive hops and jumps if you keep your eyes and ears open for opportunity.

What’s one big mistake that can be made in deciding to arrange or avoid a reverse mortgage, as well as when you’re planning your future ("retirement" or whatever you call your decades-long extended living)?

Confusing this thinking about your future with vacation planning.

That is, with vacation planning
•   the focus is on a few years, not decades into the future.
•   the concentration is on good things happening, not temporary or permanent changes in interests or abilities that could cause, or become, problems.
•   the question of where you’ll be living on your 100th birthday is not seriously addressed, but you may join the growing group of Centurions and use reverse mortgage funds to throw a fabulous birthday party.

For those of you with practical experience projecting your life dreams into the unknown, what were you surprised to find out was a big issue, but that had been overlooked?
Or, perhaps, something was considered essential to planning and proved much less important over the years?

Thinking outside the box means leaving "retirement" and "aging" stereotypes behind, and broadening your horizons to visualized extended productive living decades and decades into your future. Have fun!

Reverse Mortgages: For Life & Money

2010-12-08T18:37:00Z

Reverse mortgage issues are the issues of life and money.

Even when reverse mortgages are not mentioned, topics relevant to finance, lifestyle, and home equity management are usually relevant. Get in the habit of reading reverse mortgages into what you read, watch, hear about and talk about, and you’ll discover why I say, "Reverse mortgages (RMs) are not as complex as the financial, lifestyle, wealth management issues involved."

For instance, the combined November/December 2010 issue (the one with Betty White, Jamie Lee Curtis and Kristen Bell on the cover) of the American Association of Retired Persons (www.aarp.org) monthly full-colour publication, AARP The Magazine, doesn’t mention RMs, but it features many topics relevant to home equity conversion and management.
▸ Page 28: “Family Affairs — When a Relative Needs a Hand: Should you give your adult child a loan? How to help a loved one in a financial bind.” This article offers suggestions to avoid pressure to arrange anything (including a reverse mortgage, I say) solely for the benefit of others.
▸ Page 68: “Just Ask the Lonely: Our landmark survey reveals a dramatic rise in loneliness—and ways to avoid it in your life.” This special report encourages readers to face their fear of loneliness and take proactive steps to live a fulfilling life. Loneliness is an often ignored factor in decision making for reverse mortgages. This is particularly important when the RM could run for decades.

What have you considered important without looking at it through the reverse mortgage lense to see long-term, extended living implications?

Please continue to email when you see or hear something on reverse mortgages, right or wrong, so we can share details and correct misconceptions...

Reverse Mortgages: Expensive to Misunderstand

2010-11-08T17:33:00Z

Understanding mortgages is an important step toward understanding reverse mortgages.
Merely, having been a mortgage borrower at some time, and even paying one or two off, may not mean you understand the contractual terms and responsibilities involved.

What you don't understand and what you unconsciously assume about mortgages, can make the subtle differences of reverse mortgages harder to appreciate:
• The differences are where advantages lie. For instance, qualification for a traditional or forward mortgage is based on income, that is, your ability to repay or to service the mortgage debt. In qualifying for a reverse mortgage, income usually has little or no bearing. Qualification focuses on the appraised value of the property and the age, and therefore traditional years remaining, of the owner(s).
• The similarities are where liabilities and responsibilities lie. For example, mortgage and reverse mortgage contracts include legally binding promises or covenants that require the property to be kept in good repair. This means gutting the bathroom or adding an extension, without lender acknowledgement, violates this covenant, and gives the lender the power to call the entire mortgage debt due and payable. Would this happen? That depends on the lender. Usually they only learn about renovations if more money is needed or something goes seriously wrong with the building.

Mortgages, reverse and otherwise, are expensive things to misunderstand.
Reverse Mortgages: Best Friend, Worst Enemy…Your Choice! explains the similarities and differences between traditional and reverse mortgages, so you can make informed decisions about the fit, and shop with confidence. See Chapter Two — What Is a Reverse Mortgage?

My motto of "Consumer Be Aware" encourages you to learn ahead of need. "Buyer Beware" is a before-you-sign alarm that may be too late—and expensive. Want to start by discovering what you didn’t know that you don’t understand about mortgages?
Decisions & Communities column: "Variable or Otherwise: What Has Your Mortgage Committed You To?" http://realtytimes.com/rtpages/20101020_variable.htm

Why Haven't You Read The "Canadian Mortgage Market Primer"?

2010-10-16T23:58:00Z

How did you learn about mortgages and home equity management?

Traditional education rarely touches on mortgages—the greatest debt thatmost Canadians will willingly, if not eagerly, take on. Reportedly,mortgages represent approximately two-thirds of total household debt inCanada. Would you like to raise your level of financial understanding,so you'll know how to lower the balance owing on your mortgage?

For more on this subject and The "Canadian Mortgage Market Primer" —

Realtytimes.com column "Decisions & Communities: Why Haven't You Read The "Canadian Mortgage Market Primer"? realtytimes.com/rtpages/20101007_primer.htm
Previous posting -- September 29, 2010 "The Canadian Mortgage Market Primer"

GLOBE AND MAIL: “TD overhauls mortgage program as housing market slows”

2010-10-16T23:42:00Z

Globe and Mail Real Estate Reporter STEVE LADURANTAYE added depth and perspective to the TD Bank announced switch to collateral-charge mortgages, when he wrote "TD overhauls mortgage program as housing market slows ."

With residential mortgages registered as collateral charges, TD would have the upper hand on mortgage renewal at the end of the term since moving to another lender would mean paying off the mortgage and essentially starting again. This type of mortgage would not fall within typical within mortgage transfer and portability programs. And this is just part of the concern for consumers...

Ladurantaye reports that mortgage brokers also see TD’s move in a negative light: “The move has sparked anger among the country’s independent mortgage brokers, who see the change as a direct shot at an industry that has been gaining market share from the big banks by competing fiercely on mortgage rates.”

Reverse mortgage borrowers face many of these issues since they are usually financially “hand-cuffed” to their lender, so the more you understand the implications of this situation for traditional mortgages, the better prepared you’ll be to understand what you’re getting into when you sign on the dotted for a reverse mortgage.

Recommendation: This October 11/12, 2010 Globe and Mail article is well worth reading, comments and all: “TD overhauls mortgage program as housing market slows” — www.theglobeandmail.com/globe-investor/personal-finance/mortgages/td-overhauls-mortgage-program-as-housing-market-slows/article1752474/
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TD Mortgages Go Collateral...Is What's Good for Them Good for You?

2010-10-09T15:41:00Z

TD Mortgages Become Collateral Charges...& Hand-Cuffs to Unsuspecting Borrowers

Presented as an opportunity for borrowers, TD’s switch from registering on title a document for a specific mortgage amount to registering a loan agreement that can represent up to 125% of the value of the property is not merely paper shuffling. This change will tie borrowers to this lender and make it difficult to access available equity if this lender’s criteria are not met. The initial mortgage loan might total 60% of the real estate’s value, but to take out a further 20% later may not be simple even though the blanket collateral charge is registered on title, making borrowing through a different bank or mortgage broker difficult if not completely impossible.

On October 8, Editors Melanie and Rob McLister announced on CanadianMortgageTrends.com that after October 18 “TD Mortgages To Become Collateral Charges ” while Mortgage Broker and Editor of CanadaMortgageNews.ca labelled this news as “Introducing the new TD mortgage…hand-cuffs included .” Well respected by the industry, comments on these blogs raise issues from the clientperspective, which is not always evident in product announcements frombanks and other lenders.

The pitfalls and potential that occur to knowledgeable readers (many of them mortgage brokers) of these widely-acclaimed blogs appear in the comment sections of those postings, so there is little need to rehash the pros and cons here. Just a reminder: The print and ebook versions of Reverse Mortgages: Best Friend, Worst Enemy...Your Choice! cover many of the concerns and questions that consumers should raise when dealing with any lender or considering any encumbrance of the equity in their property:

“My advise to anyone looking at a TD mortgage is to be careful…make sure you understand all the terms, conditions, the differences and the limitations…you be the judge… is this a good thing for the client or is it a good thing for the Bank?? Will other Banks follow? Some might say this is like putting handcuffs on the client… I tend to agree… “ said Steve Gaganis on his blog CanadaMortgageNews.ca

We repeat the caution here: Banks and other mortgage lenders are in business to make the most profit possible, with the minium amount of hassle, in the fastest possible time. They are not in business to look after you and your real estate—that’s your job: Home Equity Management. The issues covered in the book "Reverse Mortgages" and in the education program "Reverse Mortgages & Home Equity Management, In Context" help professionals understand how the long-term issues of reverse mortgages can be ignored or misinterpreted by consumers and by themselves since spending equity, instead of building equity is new to most professionals and advisors. Consumers and their advisors may be long overdue for similar care with traditional or forward mortgages.

Scams and Reverse Mortgages

2010-10-06T23:59:00Z

Typically, reverse mortgages are used as problem solvers, so borrowers do not want to compound their problems by being taken advantage of.

In the US, reverse mortgages have gone hand in hand with scams. From high-pressure and unscrupulous salespeople to con-artists ready to snap up the liberated equity in home improvement and investment scams, American reverse mortgage borrowers have been under siege, usually at a time when they most need help.

“Reverse mortgages are complicated and expensive financial products that must be used wisely and regulated carefully, or profit and volume driven sales efforts can open the door to abuses and fraud,” said Odette Williamson, a lawyer with the National Consumer Law Center: www.consumerlaw.org />
Since reverse mortgages can be arranged privately, there may not be anyone to protect your interests unless you insist on independent legal and financial advice to verify that the offer made for your equity represents the best choice for you.

How could you become victim to fraud or scams (for home equity conversion or anything) when you don’t consider yourself greedy or a financial “babe in the woods”?
•   Sales is professional persuation. The techniques and language used to persuade you to act against your best interests have been perfected over decades. Even trained salespeople can fall prey to their lure, so outside, independent advice is the best antedote.

•   Common sense is not so common. When a scam or fraud is explained after the fact, it is usually difficult to understand how any thinking individual could be taken in. Swept up in the heat of the moment, the pitches powerfully and logically overshadow common sense and logic. This makes independent advice, not common sense, the best line of defense.

•   Consider the source. Expect the worst and be proven wrong. Whether the contact is someone recommended by someone you know or someone you discovered online, don’t expect the best from them. Your contact may be a scam victim themselves. Get proof contacts are who they say and can deliver what they sat they say they can. Check with relevant professional organizations to verify credentials. Check with local police to see if this is an ongoing scam.

•   Don’t be pressured by one-time opportunities or deadlines. Be wary of signing confidentiality agreements that limit your freedom to seek independent advice. Ask for written information and agreements to share with those who have your best interests at heart.

•   Beware of easy money. Scams from seemingly-legitimate individuals that promise you great returns for the no-risk of a few thousand of your dollars—like the original Nigerian emails—have separated millions of dollars from their owners. Phone calls and emails announcing you’ve won a prize should also be vetted with police, especially any that ask you to send money so you can collect your prize.

•   Protect your information. Yeah, you’ve heard that before, but do you understand what needs to be protected? Yes, passwords and PINs, but there’s more. Your mother’s maiden name, your birth date, the three-digit number on the back of credit cards and your social insurance number can be the key to successful identity fraud. Protecting this information is a battle since businesses treat it so trivially and yet rely on it to determine if you are you.

•   Does the lender or the salesperson representing the lender have fiduciary duty, that is a legal duty to act in your best interests? If not, why not? If so, get the details.

For more on protecting your interests and asking the right questions about reverse mortgages, read the preview pages of Reverse Mortgages offered by Catapult Publishing .

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The Canadian Mortgage Market Primer

2010-09-29T19:57:00Z

MORTGAGE MATTERS
To understand reverse mortgages and most aspects of home ownership, a solid understanding of mortgages is essential. Reverse Mortgages: Best Friend, Worst Enemy...Your Choice! includes a primer on mortgages presented as a comparison between key features of traditional and reverse mortgages, and an exploration of mortgage lenders. This information is vital to understanding reverse mortgages and home equity management, but it is not all there is to know about mortgages and mortgage lending.

Eric Lascelles, Chief Canada Macro Strategist for TD Securities, recently published a terrific 18-page, ebook called the Canadian Mortgage Market Primer, which is an excellent overview of mortgages in Canada.

Podcast attached: Lascelles said he was prompted to compile the Canadian Mortgage Market Primer as a “so what’s it all about?” overview of Canada’s mortgage market to satisfy growing interest from international clients. The apparent stability of Canada’s banks and housing markets is puzzling to them in the face of international financial collapse. Canada-watchers “were worried the Canadian market would be in trouble down the road.”

Lascelles explained that the Primer covers “the real details, the plumbing of this market.” He emphasized that the point was not to argue that the market was good or bad, but to clarify financial basics, reveal the elements of stability, and explain how everything fits together.

The Canadian Mortgage Market Primer: www.td.com/economics/special/el0610_cdn_mort_market.pdf

Listen to Eric Lascelles discuss the mortgage market and The Canadian Mortgage Market Primer .

On October 6, 2010, an article based on the Primer and the Lascelles Podcast will be posted on my column "Decisions & Communities": http//realtytimes.com/rtpages/pjwade.htm

HUD Announces New Reverse Mortgage Option

2010-09-22T23:22:00Z

Lower upfront premium makes FHA Home Equity Conversion Mortgage more affordable

September 22/10: The U.S Department of Housing and Urban Development, known as HUD, today announced that HECM Saver, a second reverse mortgage option, will be available for all Home Equity Conversion Mortgage (HECM) case numbers assigned on or after October 4, 2010.

“Despite the popularity of our HECM loan product, we have noted concerns that some senor citizens find that our fees are too high for them,” said [Federal Housing Administration] FHA Commissioner David Stevens. “In response, we created HECM Saver wich will provide seniors with a reverse mortgage option that significantly lowers costs by almost eliminating the upfront Mortgage Insurance Premium (MIP) that is required under the standard HECM option.”

In the United States, the federal government insures the HECM loan to protect lenders should the final amount of the reverse mortgage exceed the value of the property when the reverse mortgage is terminated. FHA pays lenders the difference which would otherwise represent a business loss to the lender. Neither the property owner or the estate are responsible for this amount.

Note: 1. In Canada, a non-recourse clause in the reverse mortgage contract protects property owners and their estates, but there is no federal government insurance to protect lenders from loss if the final reverse mortgage balance exceeds the property’s market value.
2. In Canada, how much you actually receive after fees, initial and ongoing, is a vital issue to establish before signing up.

To read the entire September 22/10 release HUD No. 10-205: www.hud.gov/news/index.cfm

For more on HECM: www.hud.gov/offices/hsg/sfh/hecm/hecmhomelenders.cfm

For more on FHA HECM Saver: www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-34ml.pdf

For more information about HUD and its programs: www.hud.gov and espanol.hud.gov.

Contracts: The Deliberate Path to Success

2010-08-11T18:35:00Z

Reverse Mortgages: Reverse mortgages, like all mortgages, are contracts, or legally binding agreements, between a borrower, known as the mortgagor, and the lender, called the mortgagee. (To keep these terms straight, remember the borrower or mortgagor must pay up or else. At the same time, the lender or mortgagee thinks, "Gee, isn't it nice to get all this interest.")

The more comfortable you are with contracts the more prepared you'll be when faced with deciding whether to sign on the dotted line for a reverse mortgage. Reverse Mortgages: Best Friend, Worst Enemy...Your Choice! explains what contracts are, and what to look for, and to look out for in a reverse mortgage contract.

For an inside look at contracts gone wrong in the context of renovations and homeownership, read the article "Contracts: The Deliberate Path to Success" posted August 11 on "Decisions & Communities": http://realtytimes.com/rtpages/pjwade.htm