Reverse mortgages have long been available to owners of private homes
and condominiums. With a reverse mortgage, a senior homeowner arranges
to receive additional income by pledging a portion of the equity in
the home. When the senior leaves that house, the lender recovers its
loan plus the interest that has accrued. The costs of obtaining a reverse
mortgage are generally higher than those on a conventional mortgage,
but the borrowing senior will never have to make interest payments on
the loan, and the unused portions of the reverse mortgage grows over
time. The interest is rolled into the mortgage itself and is payable
only when the senior sells the home or leaves it permanently. Thus,
the reverse mortgage obligation becomes the debt of anyone inheriting
the home, for the estate would have to pay off this debt like any traditional
mortgage or home equity loan.
CO-OP ADVOCATES PUSHED
FOR REVERSE MORTGAGES
Pleased that seniors in its condominium members had this resource, CNYC
has long worked to bring reverse mortgage opportunities to homeowners
in cooperatives. Wording in the federal legislation authorizing HUD
insured reverse mortgages had specifically excluded cooperatives, although
no indication of the reason for this was unearthed. The National Association
of Housing Cooperatives (NAHC) was very active in drafting and promoting
Federal legislation that was passed in 2000; it lifted this prohibition
and encouraged HUD to consider including cooperatives in the pool of
allowable and HUD insurable reverse mortgages. NAHC is pursuing this
matter with HUD and reports that the Federal Housing Administration
will soon be authorizing government-guaranteed loans called Home Equity
Conversion Mortgages, which will be particularly helpful to lower and
moderate income cooperative homeowners. But seniors in New York cooperatives
can already benefit from reverse mortgages, subject, of course, to approval
by the Board.
REVERSE MORTGAGES FOR NEW
YORK CO-OPS
Enter Financial Freedom, a subsidiary of Lehman Brothers Bank, FSB,
which is bringing to the New York market reverse mortgage opportunities
for seniors aged 62 and older on the cooperative or condominium that
is their primary residence. Financial Freedom invites seniors who own
their cooperative free and clear (or who are prepared to use part of
the proceeds of their reverse mortgage to pay off their existing mortgage),
to borrow in a lump sum or take down a line of credit to use as they
wish. Closing costs are usually deducted up front from the loan proceeds.
Actuarial calculations govern the level of loan-to-value that Financial
Freedom will authorize in any given situation, with the age of the borrower
being a vital factor. But there is no credit or income requirement,
no mortgage payments and the principal, plus interest, is payable only
when the borrower vacates the cooperative. The prudent cap on loan-to-value
and the clear terms of the agreement showing that Financial Freedom
will not in any circumstances seek to take possession of the unit should
allay any misgivings of the Board or its advisors regarding the advisability
of agreeing to a reverse mortgage. Todays low interest rates make
this a particularly interesting option.
OLDER SENIORS CAN BORROW
MORE
The Financial Freedom Cash Account reverse mortgage enables seniors
to convert a portion of their co-op equity into tax-free income or a
line of credit without having to sell the home, give up title or take
on new monthly mortgage payments. There is no limit on the Financial
Freedom Cash Account reverse mortgages, although the loan amount is
based on the value of the home, its location and the borrower's age.
A young senior of 65, for example, would be able to borrow about 10%
of the value of her apartment, while Financial Freedom might authorize
borrowing of up to 50% of the value of the unit of a 97-year-old. To
explore the loan level available to you (or your parents) visit the
Financial Freedom website at www.financialfreedom.com,
or call 888-738-3773.
Reverse mortgages will be discussed in detail at a CNYC seminar on
the evening of Wednesday, January 15, 2003, with careful attention to
the role of the Board.