By Teresa McUsic
Reverse Mortgage Market in Texas
- 52,000 loans made since 2000
- $5 billion in home equity accessed
- No. 2 in total loan volume in country behind California
- 8 percent national market share
Source: Sente Mortgage
Texans will vote this fall on allowing a new reserve mortgage product in a constitutional amendment proposal that passed both chambers in the legislature almost unanimously.
The legislation for a reverse mortgage loan for purchase of another homestead also has the backing of consumer group AARP.
“We think it’s a good idea,” said Tim Morstad, associate state director for AARP Texas. “Texas was the only state that couldn’t collapse two transactions into one.”
Also in support of the measure during the chamber hearings on the legislation were the Texas Association of Realtors, Texas Association of Builders, Texas Land Title Association and the two banking associations in the state.
If voters approve the new product in an election held Nov. 5, Texas seniors age 62 and older will be able to sell their house and use a reverse mortgage to purchase another residence in the same transaction, which will reduce closing costs, Morstad said.
“The reverse mortgage for purchase reduces costs because you have one set of fees,” he said. “It will make it easier for couples approaching or in retirement looking to downsize their home.”
Available in the state since 2000, reverse mortgages allow senior citizens age 62 and older to convert equity in their house into tax-free cash income without having to sell the home, give up title, or take on a new monthly mortgage payment.
The lender pays the borrower in monthly payments, a lump sum or through a line of credit that can be used for anything from upkeep on the house to medical bills to a trip overseas. When the borrower leaves the house, the loan is either paid off or the property reverts back to the lender.
Scott Norman, vice president of the reserve mortgage division for Sente Mortgage and a key lobbyist of the legislation said the new product that allows a reverse mortgage to purchase another home would save senior homeowners several thousand dollars in closing fees.
“The Department of Housing and Urban Development authorized it four years ago, but the Texas constitution prohibited it based on the equity of their homes,” he said. It will take a change in the state constitution to allow the product to be offered in the state.
The Texas House approved Senate Joint Resolution (SJR) 18 by a 139-1 vote on May 16. The Texas Senate approved the legislation in March by a vote of 31-0. The legislation was written by Sen. John Carona (Dallas) and sponsored by Rep. Mike Villareal (San Antonio).
If the amendment passes in November, the reverse mortgage for purchase product will become available Jan. 2, 2014.
Norman expects the reverse mortgage market in Texas—which now closes on 500 mortgages a month—to more than double once the new product is available. Texans age 65 or older own 1.3 million owner-occupied homes in the state, or 23 percent of all households, Norman said.
“In traditional downsizing you either pay cash for your next house or take out a mortgage,” he said. “But sometimes there’s a liquidity issue. A reverse mortgage monetizes the equity in your house and you still have a roof over your head.”
Along with the new product are stricter disclosure requirements from the legislation if the amendment passes.
“Reverse mortgages are still a very complex product and they aren’t for everybody,” Morstad said. “When you combine it with purchasing another property is will be even more complex. Improved disclosure can help with that.”
The disclosure points out that property taxes may be required on the property, even if the taxes were deferred before, and that the lender may foreclose on a reverse mortgage and the borrower lose his home if property taxes and home insurance are not paid and the property is not maintained.
Such issues have come up recently as reverse mortgages have come under fire by consumer groups. Last month, AARP published a bulletin discussing stories of individuals who had been foreclosed upon because they took the equity in a lump sum and didn’t have enough to maintain the property is later years or one spouse was not on the deed because they were too young to qualify and then their spouse dies. The article said nationally nearly one in 10 reverse mortgages were in default.
The Consumer Financial Protection Bureau, which oversees deceptive reverse mortgage advertising practices, is asking for public input for future rules and policies of this mortgage.
The state’s disclosure is already added to stringent requirements developed by HUD that includes a session with a housing counselor before a reverse mortgage can be taken out.
Cara Smith, a HUD-approved reverse mortgage counselor with Housing Opportunities of Fort Worth, said a typical counseling session for a reverse mortgage takes 2 ½ hours, but she welcomes the added state disclosure.
“You can never have too many disclosures,” she said. “It may be that one last form that clicks in their mind so they know what they are getting into.”
Smith said some of her clients do not review their disclosure packet before they meet with her either in person or over the phone.
“A small percentage of people don’t do their due diligence and just want to come in and get the money,” she said. “And I’ve had some people call me and they are still a little confused.”
Norman said his clients often think the mortgage must be some kind of grant at first, since it is paid to them.
“Maybe two or three percent don’t understand,” he said. “But over the next five years that’s tens of thousands of people. The lenders wanted more disclosure requirements.”
Reverse mortgages have received only one complaint in the state since they became legal, however, said F. C. "Chris" Schneider, associate general counsel at the Texas Department of Savings and Mortgage Lending, which oversees some of the reverse mortgage lenders.
“That complaint was an allegation that the person was not mentally competent and their children pushed for the reverse mortgage,” he said.
The fees in general have also come down as much as 60 percent in recent years, Norman said. Right now the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) Saver has a 4.99 annual percentage rate on its fixed version with no origination fees and a 3 percent APR on its ARM version with an origination fee. Both have an annual mortgage insurance premium of 1.25 percent of the outstanding loan balance, but the upfront mortgage premium is just .01 percent of a home’s value.
For more information, the National Reverse Mortgage Lenders Association distributes a free information booklet that explains reverse mortgages, called Your Roadmap to a Reverse Mortgage. You can order it by calling (866) 264-4466 or on NRMLA’s Website, www.reversemortgage.org. The Web site has extensive information about reverse mortgages, a state-by-state list of lenders, and a reverse mortgage calculator.
Also, look at the AARP Foundation’s publication “Reverse Mortgage Loans: Borrowing Against Your Home”