Reverse mortgage specialist Jerry Gilmour
Reverse mortgage specialist Jerry Gilmour
'Heirs are my best salespeople'
Q: What are elements that lead people to think about reverse mortgages?
The fact is people don't think about them in the first place. People, generally speaking, when they're in need, do what they're used to doing and that includes getting a mortgage or refinancing. Ninety-nine percent of the motivation behind a reverse mortgage is that people need it ' desperately. Occasionally there is a customer that has planned out carefully the situation, has looked in that direction and that's the avenue chosen. Generally speaking, people have reached a point where literally they have no other options.
Q: Are those people typically without heirs?
You might think, until you get to know these loans and get to know the psychology of the borrower, you might think that's the biggest obstacle ' the heir. It is in a lot of cases, because people want to leave something to the kids. But the heirs are my best salespeople. Whenever possible, I bring the heirs into the initial meeting when I'm explaining the program and I don't have to do a thing; the heirs walk right through the process and insist on implementation. I'm not shy at all about talking to an heir that might resist the reverse mortgage. If Mom and Dad, or whomever their relative is that is in need, I'm not at all shy to say, if you're willing to let them live a sub-standard life, then you don't deserve to inherit a darn thing. I believe that to the core of my existence. The people who need it, who own their own home, deserve to be able to live a decent life without having to want for basic needs. Yes, there is resistance toward these loans in the minds of a lot of the people in favor of the heirs. But the fact of the matter is that it's in their mind, not in the kid's mind.
Q: In a five-year period, what kind of demographic profile have you developed of people who want reverse mortgages?
Most generally, they're people on Social Security, commonly one party, not a couple. I'd say 90 percent of the loans I do, have one borrower. When a spouse has passed on, Social Security drops substantially, yet the bills and the overhead don't necessarily drop. The average age is 75 to 77, and they're definitely not people managing portfolios, and they don't have a lot to fall back on. They're generally people in debt with enormous mortgages or enormous credit card debt. In a lot of cases I can't help them, because their mortgage is too high. It's not uncommon to see an 80-year-old with a &
36;120,000 mortgage trying to squeak by on Social Security.
Q: What leads to having that kind of mortgage when you're that old?
It's the mortgages that originate five to 10 years ago. Most typically, it's recent mortgages taken out to consolidate credit card debt. What's very common is that people will borrow money in the way they've always borrowed money. They'll re-finance the house, set aside enough money to supplement the payment. Even though the income doesn't support that kind of payment at all, they'll set aside a year or two, or maybe five years' worth of payments.
Eventually, the money runs out, but the payment doesn't. At that point, they'll re-finance again, over and over. Each time, they're borrowing more and more money. You look at a &
36;120,000 mortgage and chances are that it started out at &
36;40,000, four or five years. Had they done the reverse mortgage, five years ago, they wouldn't have a payment, they'd have the money to do whatever it was they were doing at the time and wouldn't have had the crunch catch up with them and have to re-finance again.
At some point, they run out of gas, they can't refinance any more, and they've used up all the equity in the house; then they have to sell and move someplace else.
Q: At what economic point should someone consider a reverse mortgage?
It depends on the age, the older the borrower the higher percentage they can borrow. At 62, the minimum age, the loan-to-appraised-value is just under 50 percent. With an 80-year-old borrower, it's closer to 85 percent. It also depends on the value of the home. The maximum value for FHA purposes in Jackson County is &
36;153,805 ' even if someone lives in a &
Q: Is it possible that you could outlive the reverse cash flow, run out of money and lose your house?
The loan stays in place for the life of the borrower. The only exception is if the borrower is inclined to move to another house. One of the first questions to be answered is whether the people are prone to move. The closing costs are not inexpensive. If you were to pay this loan off in two to four years, the cost would be roughly equal to that of a finance company. If it's a lifetime loan, you never pay it off and didn't cost you anything at all.
Q: What happens to the remaining equity when you die?
The bank does not take any of the equity, it's like any other mortgage. You pay back what you owe. A lot of people think they're signing the house away to the bank, that a bank is going to take a portion of the ownership of the house or all of the ownership. There is nothing that could be further from the truth. Occasionally an heir will be upset because there is little or no equity and the loan has to be paid back, but it's not really reasonable to be upset about paying the loan back. The borrower and heirs aren't liable and neither is the bank. These are nonrecourse loans.
To suggest a subject for this column, please contact business reporter Greg Stiles at 776-4463 or e-mail