Family-funded reverse mortgage can help elderly parents keep home

WASHINGTON — Could there be a way to help senior homeowners with their cash flow needs without saddling them — and ultimately their families — with high costs?

That's a key question at a time when millions of seniors are flooding into their post-retirement years, many of them with equity in their homes but insufficient income to handle expenses over the long term. If they want to stay in their homes, they can opt for a government-insured reverse mortgage, which may provide them cash in exchange for repayment plus interest after they die, move out or sell. Or they can apply for a home equity line of credit from a bank.

But there are problems with both choices. The dominant government-insured reverse mortgage program comes with high upfront lender fees, mortgage insurance premiums and newly toughened financial qualification requirements. A home equity credit line may be difficult for seniors to obtain because they cannot qualify on credit or debt-to-income grounds in today's stricter underwriting environment.

As of Friday nationwide, however, some seniors had a new option — one that ties into increasingly popular "peer-to-peer" lending. It's a family-funded reverse mortgage known as the "Caregiver" loan. It allows any number of children and grandchildren to pool resources to provide a flexible line of credit at interest rates far below what commercial reverse mortgage lenders charge and with far fewer hassles. In intra-family lending, there's no bank or mortgage company. Family members are the bank.

Here's a simplified example: Say you and two siblings want to help Mom and Dad, who are in their late 70s. You and your siblings are all doing well enough that you have at least some cash to spare. Ultimately, you want to retain your parents' house for the estate once your parents pass away, keep costs to a minimum and only sell the property when you, not a faraway bank, choose to.

So you sit down with Mom and Dad and determine that, at least for the foreseeable future, they will need about $1,500 in additional income a month. You and your siblings agree to apportion the payments among yourselves in some way, maybe a commitment of $500 a month each for a period of years. You also pick an interest rate that achieves a good result for you and your parents — say 3% annually. That's much lower than a commercial lender could charge but higher than what you've been earning on your bank deposits or money market funds. There are no required fees upfront — hey, it's Mom and Dad.

What you need at this stage is help with putting all the details of your agreement into a legally binding reverse mortgage, recordable at the local courthouse. Enter National Family Mortgage, a Massachusetts company that has helped facilitate and service nearly $290 million in intra-family home loans in recent years — typically parents helping kids buy first homes. Now National Family is expanding its menu to include reverse mortgages.

see more at: http://www.latimes.com/business/realestate/la-fi-harney-20150503-story.html