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What's In a Name?

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Posted On: 07/22/2009

Q: My husband and I built a home and closed on it in 2004. My name is not on the mortgage but is on the deed. My husband died in 2006, and I notified the lender at that time. I have never signed any papers to transfer the mortgage but I have been making the payments. What are my responsibilities if I can no longer afford the payments? If I cannot sell the house and at least break even, and if I cannot afford the payments any longer, what are my options? Can I sign the house over to my son and let him take over the mortgage payments?

A: Under the Garn-St. Germain Act the ability of a lender to call a loan is limited in certain cases, including “a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety,” “a transfer to a relative resulting from the death of a borrower,” and “a transfer where the spouse or children of the borrower become an owner of the property.” Translation: The lender cannot call the loan in your situation.

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Notice that the lender has not given you any trouble; it has acted properly. Notice also that you’ve done your part by telling the lender that your husband passed and by making your payments.

If it happens that you can no longer make the payments, then one idea is to have your son make up any shortfall with the understanding that he will inherit the property. This would allow you to stay in the property, leave the title untouched and keep the current financing. Another idea is to look at today’s interest rates -- they’re substantially below the rates available in 2004. Maybe it would make sense to refinance with a fixed-rate if you can get lower payments, perhaps with your son as a co-signer.

For your benefit, and for your son’s benefit, you should both have a written will and living will in place. You should not touch the title without legal advice. For specifics, please see an attorney or legal clinic.

Q: How safe is it for me to get an FHA reverse mortgage?

A: It’s good for you, but maybe not so good for HUD.

To get an FHA reverse mortgage -- what the government calls Home Equity Conversion Mortgages -- you must be at least age 62. The size of the loan is based not on your income but on the value of your property. There are no monthly mortgage payments in the sense of principal and interest. The FHA provides insurance that assures you will get your money if the lender goes out of business or cannot otherwise fulfill its obligations.

That FHA insurance for a reverse mortgage also does something else: It protects the lender if the value of the property when it’s sold is insufficient to pay off the loan.

The problem for the FHA is this: Since 1989 about 460,000 reverse mortgages have been issued -- but about 340,000 have been insured since 2005. The typical HECM lasts about six years. But roughly 28 percent end within four years.

Reverse mortgage insurance claims pose little risk when home values are rising. However, when home values are falling claims can increase quickly. In other words, a home financed three or four years ago may be worth less today -- thus resulting in a claim against the HECM insurance pool. Unlike the FHA’s single-family program, which generates big money for the Treasury, HUD recently asked Congress for $800 million to support the FHA reverse mortgage program.

From your perspective as an individual borrower none of this is a problem. You don’t need $800 million, all you need is one reverse mortgage guaranteed by the government. If you can get an FHA-insured HECM and that works well for you, that’s fine.

A reverse mortgage is different than a traditional or “forward” mortgage. Before going further get information from more than one lender and before signing anything run everything past a local attorney who specializes in elder law. And if you’re really worried about the program, maybe get your money upfront in a lump sum instead of using the reverse mortgage as a line of credit.

Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to peter@ctwfeatures.com.

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