What is a reverse mortgage? This interview with Big State Home Buyers answers the question as well as outlines the recent law change and its affect on reverse mortgage.
Kevin: Welcome back to the Price of Business. I’m your host, Kevin Price, talking to you about you and your business. He’s a regular contributor on the Price of Business. Love talking to this guy. He’s very bright, extremely capable and really one of my favorite contributors. And he’s a great guy, as well. High integrity and incredibly persuasive and successful business owner and always a delight to talk to, Brian Spitz. How are you, sir?
Brian: I’m great. How are you doing, Kevin?
Kevin. Good, good. Tell us real quick, first of all, BigStateHomeBuyers.com, phenomenal company, helping individuals get out of the homes they can’t afford, creating great investment opportunities for those who are really interested in pursuing the American Dream themselves. And so, it’s a phenomenal company, phenomenal concept. Tell us a little bit more about Big State Home Buyers and introduce us to your guest today.
Brian: Sure. Big State Home Buyers is a local company here in Texas, that specializes in buying properties from individuals who have either inherited them, gone through a divorce, are tired of being landlords or simply can’t afford the property any longer. We deal with private individuals. We make a very seamless, easy, hands-off transaction for them. We pay cash. Close quickly.
We also sell properties to local investors who want to build their rental portfolios or want to flip properties themselves. So we do a turnkey service for both buyers and sellers.
Kevin: All right. And your guest today?
Brian: Our guest today is Rick McInturff, who is a Maryland-based loan officer and we are talking about something that I’ve just learned new things about, Texas reverse mortgages, and a new loan amendment that has gone through for 2014.
About Proficio Mortgage | 0:01:55.6
Kevin: Okay. Rick, tell us a little bit about your company and by the way, what part of Maryland are you in?
Rick: I’m in, just north of D.C., in a little town called Olney, Maryland.
Kevin: Yeah, I know the area very well. I used to live in Hyattsville. Yeah. Go right ahead.
Rick: So Proficio Mortgage is a wholly-owned subsidiary of Proficio Bank. It’s a bank out of Utah. And they have offices in, actually in Texas. They have offices in Houston and in Dallas. But they’re a top five reverse mortgage lender in the country.
Kevin: Very good. Your first question, Brian.
What Is a Reverse Mortgage | 0:02:38.4
Brian: Well, I guess just off the bat, what exactly is a traditional reverse mortgage?
Rick: Well, a reverse mortgage, the 99.9% of the reverse mortgages that are written right now are HUD-endorsed reverse mortgages. So the federal government has put this program together. It started in 1989 and allows for a homeowner to tap into the equity in their home.
So it is a loan, just like any other mortgage loan, but it allows for someone over the age of 62 to tap into a certain percentage of their home and that percentage can be used for very useful purposes. Obviously to pay off an existing mortgage or to tap into some equity that they can use to help supplement their income. This is not income, but it is cash available for them to use for any purpose that they want.
So as more and more folks retire with more and more debt and less and less savings, the reverse mortgage is a useful tool to help supplement that.
Recent Changes in the Law | 0:03:36.6
Kevin: Yeah, so tell us about the changes in the law. We hear a lot about reverse mortgages. Of course, one third of the population is now baby boomers and you still have some of the Greatest Generation and of course, Silent, and a lot of the Silent Generation left. So, the demographic makes something like reverse mortgages really attractive.
Talk about what law changes are going on that people should be aware of.
Rick: Well, the new changes went into effect in November 1st of last year and one of them went into effect just recently. What they did is get rid of several different things that allow someone to tap into the maximum amount of money as a lump sum. So they got rid of this fixed rate lump sum product and now have broken it up into a couple of different programs that allows, it kind of restricts the amount of money that someone can get at the onset of the loan.
And so they’re saying, okay, we’ll give you access to 60% of the access the first year, and then, the next year, day 366, we’ll give you access to the other 40% of the available funds that you have coming to you. And they studied it really well and their whole point is that people are taking that lump sum and then they don’t have money to pay their taxes or homeowners insurance and then they’re in technical default and all of a sudden, that’s not a good loan for that person any more.
A couple of other deals that they put together were they decreased the amount of money a person has access to. So by doing that, then it allows for the program to have solvency within FHA.
And then lastly, one of the things that is unrelated to the federal regulations, but related directly to the state, is that Texas approved on Proposition 5 on a ballot, they said that we will now allow reverse mortgages for purchase. Texas was the only state in the country that you could not purchase a home using the proceeds from a reverse mortgage and now that is allowed now.
Kevin: Interesting. Go ahead, Brian.
Percentage of the Mortgage They will Lend | 0:05:37.0
Brian: What percentage will they lend up to?
Rick: Well, just off the top of my head, being in the business long enough, you know how the whole thing breaks down. There’s no chart per se that says loan-to-value, but I know that right now based on the index by the way that they’re using is the one-month Libor. So, if you put the one-month Libor into the calculation, it would show that a 70-year-old borrower would have access to roughly 50% of the value of their home.
So if they, if a 70-year-old person is purchasing a $300,000 mortgage with the reverse mortgage program, they’d have to put down $150,000 and the loan, the reverse mortgage would provide the other $150,000.
Kevin: Very good. It’s good for people to know and the thing about it is when these laws change, it affects a population that frankly has a harder time to keep track of those kinds of things.
So while you’re creating awareness about this, do you think overall it’s good for the consumer?
Are Reverse Mortgages Good for Consumers | 0:06:39.6
Rick: I believe that it’s great for the consumer because there are many occasions where someone contacts myself or any other reverse mortgage person in the country and they’ve run out of options. They’ve talked to their family. They’ve talked to their social services division. They’ve talked to their state. They’ve talked to their lender. They’ve talked to different entities and they find that they don’t have really an avenue to go, other than selling. And oftentimes, the selling is great for some, but sometimes folks don’t know where to go. Sometimes the cost or their expenses are the same or more if they want to go rent somewhere. So at least it’s still an option and I find that it’s a great option.
With roughly 10,000 people a day turning the age of 65, it’s certainly something that is opening up opportunities for more and more people.
Kevin: Very good. Final thoughts as we wrap it up, Brian?
What Do People Do with the Properties | 0:07:27.5
Brian: That’s quite a demographic. What do most people do with the properties once they’ve either passed them along or moved out of them? What do you see the most common use is?
Rick: Well, typically the property is sold. In fact, it’s very timely that you ask that question. New York Times has an article today based on several instances on the whole thing. And typically what happens is if there’s equity left in the home, then the family gets to decide how they want to pursue the thing. Do they want to take out their own loan to pay off mom’s reverse mortgage? Or do they simply want to call their local realtor and put the house up for sale and take the proceeds after the home is sold and the reverse is paid off. So, the majority of folks actually sell the home.
Kevin: Very interesting. So give that website real quick before we let you go.
Kevin: Proreverse.com. Brian Spitz’s of course is at BigStateHomeBuyers.com. Gentlemen, thanks so much for a great segment.
Brian: Absolutely. Thank you.
Rick: Thank you.
Kevin: When we come back, we’re going to have much more for you. I do want to remind you, the best content here shows up over there at USDailyReview.com. And this is the Price of Business.