The Aging Beat

Frances and Ken Byrum faced a difficult choice last year when they lost a supplemental insurance plan that paid most of their medical bills.

The couple, respectively 69 and 81, could pay the plan’s premiums by taking money out of an individual retirement account and draining their retirement savings faster than they had planned.

They could also sell the house they’d shared for more than 14 years and move to a smaller place that was easier and cheaper for them to maintain.

Or, the Byrums could borrow against their home’s equity with a reverse mortgage and use its proceeds to wipe out some existing debt and create a small financial cushion that could help the couple the next time they needed some extra cash.

“It was a big decision on our part,” Frances Byrum said. “There’s times I think we regret (getting the loan), but at that time we really didn’t have a choice.”

According to records obtained by The Bulletin, 62 Deschutes County homeowners, including the Byrums, took out a reverse mortgage on their homes in 2014. This represents a 59 percent increase from the total number of reverse mortgages the county’s homeowners took out in 2013, and comes after a few years of slight decreases in the county’s total reverse mortgage volume since 2010.

Meanwhile, the state’s overall reverse mortgage volume fell sharply over this 5-year-period and is now less than half of what it was in 2010.

Reverse mortgage lenders and housing counselors say the county’s increase is likely due to an improving real estate market that allows homeowners to have more equity in their homes they can borrow upon to get these loans. It could also be a sign the county’s homeowners are seeing reverse mortgages as more than just a “loan of last resort” that can help retirees who are caught unprepared for a major expense and have no other way to get funds.

“When you really understand how this product works, it can be an unbelievable financial planning tool,” said Larry Melton, the reverse mortgage manager with Director’s Mortgage, which is one of the 28 lenders that issued a reverse mortgage in Deschutes County last year.

The loans

Technically known as home equity conversion mortgages, reverse mortgages are a 50-year-old financial product insured and regulated by the Federal Housing Administration that lets people who are 62 or older get a loan based exclusively on the amount of equity they have in their homes.

People can borrow an amount equal to between 52 percent and 75 percent of their home’s assessed value, depending on their age and other factors — the maximum allowed is $625,000 — and can get this money in the form of a single lump sum payment, a series of regular monthly payments that last for a period of time, a line of credit they can use whenever they need it or any combination of these three.

Unlike a traditional mortgage where borrowers must make monthly payments, the balance of a reverse mortgage and any taxes or fees it has accrued comes due only when the last surviving borrower dies, sells their home or leaves it for a period of more than 12 months. The total amount due is usually deducted from the home’s sale price but can also be paid back with cash if the borrower or survivors don’t want to sell the house.

Borrowers do not need to make any payments on the loan as long as they live in the house, though they must stay current on their home’s tax and insurance payments to avoid going into default on the loan and losing their home through foreclosure.

Since September 2010, the Federal Housing Administration has required prospective reverse mortgage borrowers to complete a two-hour counseling session as part of their application process. The session includes a 10-question quiz to make sure they understand the product, and prospective borrowers are presented with a list of alternatives that may solve their financial situation without forcing them to borrow against the equity of their home.

“We have to discuss all of the options that are available to them,” said Shelley Nelson, default intervention manager with NeighborImpact’s HomeSource program. Her organization runs one of only five FHA-certified home equity conversion mortgage counseling programs in the state of Oregon and the only one that is located east of the Cascades.

Nelson said those options typically include selling the home and moving into a smaller place or with their children, friends or other family members. Prospective borrowers may also qualify for Medicaid, Veteran’s Aid and Attendance or another government program that can help retirees pay their long-term care or medical bills, she said, explaining the primary focus of a counseling session is to make sure the borrower knows all of the risks and responsibilities associated with a reverse mortgage before they take out a loan.

“At the end of the day, it’s a really good solution for some people but not for others,” she said, explaining people typically move ahead with their plans to get a reverse mortgage after they’ve finished one of these counseling sessions.

The borrowers

The Byrums thought about getting a reverse mortgage so they could wipe out some debt when Frances Byrum became eligible for one of these loans about seven years ago. But they instead refinanced their home with a traditional mortgage worth $85,000 in 2009 that cost about $750 a month.

Frances Byrum said she and her husband didn’t have any problems making this monthly payment until her former employer started phasing out the supplemental insurance coverage it gave retirees a couple years ago.

“It just put more expenses on us,” she said, explaining the company started making its retirees pay part of the premiums for this insurance coverage before it canceled the program entirely last year. “We were just kind of floating along and couldn’t handle the extra expense.”

The Byrums borrowed enough through their reverse mortgage to pay off what they owed on their 5-year-old loan and put another $10,000 into a savings account they could use in case of an emergency.

Frances Byrum said this was a huge boost for their financial situation, and keeping their house made it possible for the couple to take in her daughter and grandson when the two of them needed a place to live.

“Where would we be if we hadn’t done it?” she said.

Nelson said most of the people she sees through her counseling service have an existing mortgage on their house and can keep up with its payments until an unforeseen expense, or in some cases the death of a spouse, pushes them over the edge financially.

She said reverse mortgages help people in these situations because they give the borrower a chance to wipe out what’s left on the standard mortgage.

The rise

When the real estate market tanked after the housing crash in 2008, people simply didn’t have enough equity — the appraised value of a house minus its mortgage debt — to qualify for a reverse mortgage. That, though, is changing, Nelson said.

According to a report from the Beacon Appraisal Group, the median price for a home in Bend climbed by more than 73 percent from $186,000 in January 2012 to $322,000 in January 2015 (the median price has since dipped slightly). The median sale price for a home in Oregon climbed by only 22 percent during that time, which is a sign people may still not see a huge increase in the amount of equity in their homes statewide and one of the reasons reverse mortgage volume is low statewide.

Frances Byrum said she saw a 20 percent increase in the value of her southeast Bend home between the time she got her traditional mortgage in 2009 and her reverse mortgage in 2014.

Melton, with Director’s Mortgage, said the improving housing market is probably the biggest reason there was an uptick in the county’s reverse mortgage volume last year. He said borrowers are also learning more about how the product works and that its uses aren’t limited to homeowners who have fallen on hard times.

“There’s lots of scenarios where a person might use it,” he said, explaining he gets a lot of referrals from attorneys, accountants and financial planners who think a reverse mortgage might be a good fit for their clients.

Melton said he’s helped people get a reverse mortgage so they can pay for a vacation, buy a new car or give their grandchildren some extra money so they can go to college. Some of his clients live off the interest they get from a trust and would rather borrow against their home’s equity than reduce the trust’s principal and the amount of income they get each year.

Mike Dawson falls into this second category of reverse mortgage borrowers. Three years ago, Dawson and his wife, Tina Jiang, bought a three-story house off Cooley Road they planned to renovate and sell to raise a substantial amount of money for their retirements. But they ran out of money before they could finish the project and turned to a reverse mortgage because given their circumstances, it was the only loan that they could get.

“We’re retired,” said Dawson, who couldn’t find a bank in Oregon that would give him a no-documentation loan. “We have no income outside of Social Security but we have plenty of equity in our home.”