Please School Me on Reverse Mortgages

[verticaldoug]

Originally Posted by pbarry

Using the calculator Dekindy provided, the sale of the home will not result in enough capital to provide a sufficient annuity, especially when rent is factored in.

This is one of the nasty side effects of the FED's ZIRP. You crush cash flow from yielding assets by forcing risk into either capital gains or fees. It is particularly difficult on retirees without diversified portfolios.

[verticaldoug]

BofA Emerges as Defender of Elderly Borrowers in Ditech Sale
2019-07-23 15:12:21.193 GMT


By Josh Saul and Jeremy Hill
(Bloomberg) -- Bank of America Corp., which took heat for
how it treated customers in the mortgage crisis a decade ago,
has emerged as a champion of elderly borrowers in Ditech
Holdings Corp.’s second trip through bankruptcy.
The bank is siding with a growing list of groups, including
the U.S. Trustee, attorneys general from several states and
consumers, who object to Ditech’s plan to sell its reverse
mortgage business.
BofA, for its part, has warned that the sale could leave
thousands of BofA’s elderly borrowers without promised services
on their loans, according to a court filing.
The reverse mortgages are held by people with an average
age of 81, and for many of them, the loan is their primary
source of income, court documents show. Some of the loans date
from before the financial crisis, according a person familiar
with the situation.
“They rely on this income to fund their basic living
expenses,” the bank said in the filing. “Any interruption in the
servicing of these reverse mortgage loans could have severe
consequences for these borrowers.”
The loans are owned by BofA and serviced by Ditech’s
Reverse Mortgage Solutions Inc., which the company plans to sell
to Mortgage Assets Management LLC. The latter company is
affiliated with Waterfall Asset Management LLC, according to
court papers filed in the case. New York-based Waterfall focuses
on investing in asset-backed securities, loans and private
equity, according to its website.
The objection from BofA comes on top of separate complaints
and objections from borrowers who oppose the bankruptcy plan;
they say Ditech is trying to sell its business to a new owner
free-and-clear of their claims against the company for
mishandling their mortgages. The U.S. Trustee this week voiced
similar concerns.
Representatives for BofA, based in Charlotte, North
Carolina, and Ditech, based in Fort Washington, Pennsylvania,
declined to comment. Waterfall Asset Management and lawyers
representing Mortgage Assets Management didn’t respond to
messages.

Role Reversal

BofA wound up paying more than $50 billion by 2014 to
settle claims related to shoddy mortgages, most tied to its 2008
purchase of Countrywide Financial Corp. The recovery led by
current Chief Executive Brian Moynihan included selling off most
of its mortgage servicing assets by 2013.
One of the buyers was Ditech’s predecessor, Walter
Investment Management Corp., which in 2013 bought servicing
rights for a BofA portfolio of more than 650,000 loans.
By 2017, Walter Investment Management had collapsed into
bankruptcy. It emerged in February 2018 with Ditech as its new
name and quickly appointed Tom Marano, the former head of
mortgage-backed securities at Bear Stearns & Co., as the new CEO
-- only to fall back into bankruptcy almost exactly one year
later.
Ditech and BofA also recently settled a dispute over
expenses related to the 2013 sale of mortgage servicing rights,
with the bank agreeing to pay Ditech $7.6 million.
Earlier this year, as Ditech tried to reach agreements to
sell its businesses, complaints from borrowers and consumer
groups began to pile up. Some homeowners sued the company,
claiming that Ditech’s failures put them in financial peril and
cast doubt on the value of the servicing rights Ditech was
trying to sell. Attorneys General from Colorado, Washington,
Nevada, Iowa, Oregon and New York have joined with the consumer
creditor committee in objecting to Ditech’s bankruptcy plan and
the sale of its businesses.
Now comes Bank of America, adding the weight of the second-
biggest U.S. bank by assets to the fray.

Critical Funds

BofA’s filing shows that servicing a reverse mortgage for
the elderly is more of a high-touch business than a conventional
home loan. It involves handling borrower requests for money that
they may need for basic living expenses. For some, it’s their
primary source of income, and RMS has been their only point of
contact on the mortgage for years, the filing shows. The process
also involves paying taxes and insurance and communicating with
heirs when a borrower dies.
BofA said it tried to bargain without success for terms to
ensure those services are maintained. Without a new contract,
elderly borrowers may wind up with loans that aren’t serviced
properly or funded in a timely way, according to BofA.
Ditech, it said, “should not be allowed to walk away from
this protected class of borrowers.”
The bank wants the federal judge overseeing Ditech’s
bankruptcy to make sure servicing arrangements are made for the
reverse mortgages.
When Ditech filed for Chapter 11 protection in February,
Marano said in a statement that the company remains “firmly
committed to our mission of serving customers through the
homeownership journey.”
A confirmation hearing on the bankruptcy plan is slated for
Aug. 7.
BofA also wants to avoid negative headlines and the
possibility that poor servicing of the reverse mortgages could
show up in the media, said Christopher Whalen, chairman of
Whalen Global Advisors LLC. “They are still sensitive to any
potential liability that could come back at them,” he said.

--With assistance from Lananh Nguyen and Shannon D. Harrington.

To contact the reporters on this story:
Josh Saul in New York at jsaul15@bloomberg.net;
Jeremy Hill in New York at jhill273@bloomberg.net
To contact the editors responsible for this story:
Rick Green at rgreen18@bloomberg.net
Nicole Bullock

[weaponsgrade]

I really love these random OT threads where I get to learn something new. OP, I hope it all works out.

[Ralph]

There are some extra fees involved in reverse mortgages....because there are some extra risks to the financial institutions. And sales expenses. And a lot more paper work....and most mortgage companies will not fool with them.

But....it seems to me....your relatives are exactly the kind of people and situation this product was designed for. They get money for the rest of their life from their equity in the property, they make no payments, they can't be kicked out until last is dead if they adhere to the contract.....pay home owners insurance and taxes, and maintain the property. They can also sell the property and pay off mortgage any time....just like any other mortgage.

And when they are gone....the property is sold.....if sale proceeds are more than loan amount, relatives get an inheritance. if they live longer than expected, or last to die lives longer than expected, and if sale proceeds are less than loan amount....the mortgage company lost the bet (which is one reason for some extra fees).

They might be interested in a "reverse to purchase" mortgage. If another property w/b more suitable for them in their declining years.....sell the current property, take the equity and buy another house.....depending on their age....maybe put up 50-60% cash (depends on their age....or youngest age) ....and a reverse for the rest. Use some to pay off debts. This is for folks who maybe need a smaller, or cheaper, or single story, or handicapped equipped home for their final years. Make no payments. Same deal about equity at end. Maybe heirs get something, maybe they don't, depending on RE markets. I personally think the "reverse to purchase" is kinda interesting....and few people know about it.

Understand.....I'm only suggesting these mortgages may be suitable for certain folks in certain situations. Where there has been abuses, is usually where sales people did not fully explain and drill home the importance of keeping up the taxes and insurance, and maintaining the home. Or both names not on mortgage. Break the contract, and they can be foreclosed just like any other mortgage. And many desperate elderly, even with cash flo from their home equity, still cannot afford to pay taxes, insurance, and maintenance. I don't think these mortgages are automatically "evil".