Expanding Reverse Mortgages on November Ballot
Texans head to the polls later this month to vote on constitutional amendment propositions. Though water funding is receiving the most attention, there are 8 others to consider, including one that expands the use of what’s called a reverse mortgage in Texas.
A reverse mortgage is a financial tool that allows senior citizens to receive equity payments each month while staying in their home. The reverse mortgage is paid back, with interest, only after the house is sold when the owner either moves out or dies.
You’ve probably seen ads starring an aging TV star, like actor and former U.S. Senator Fred Thompson, talking about it.
Now Prop 5 doesn’t authorize reverse mortgages. The state’s already had them for several years. But currently you already have to be in a conventional mortgage before you could then start a reverse one.
So if you’re an elderly couple wanting to move into a smaller home and get a reverse mortgage, you’d have to go through the mortgage process twice and pay twice.
“This proposition will allow Texas to offer reverse mortgages for purchase which essentially allow Texas seniors and other to combine transactions, to purchase a home and immediately start a reverse mortgage," Texas AARP's Tim Morestaed says. "And by combining those two transactions [they] only pay one set of fees and save money.”
AARP Texas supports the passage of Prop 5. Nationally, however, the group has cautioned its members on the use of reverse mortgages out of concern that aggressive mortgage brokers aren’t taking the time to explain the possible pitfalls, like the possibility of foreclosure for not paying insurance and property taxes.
“While reverse mortgages aren’t necessarily a good fit for everybody…they are for some," Morestead says.
Prop 5 also makes a change by adding new disclosure requirements. Scott Norman is President of Texans for Proposition 5, an industry group backing its passage.
“We want to have a very unique Texas disclosure, that says look you have to pay your taxes and insurance, just like you would ordinarily, or you could be subject to foreclosure," Norman says.
Over the years Texas has been slow to adopt new mortgage products. It only began allowing home equity loans in the last 10 years. Norman says that slow pace has helped keep the housing market stable.
“The Texas legislature has done a masterful job protecting home owners. And I think that’s one reason Texas faired so well in the economic crash, because we had these homestead laws," Norman say "Proposition 5 actually makes those homestead laws stronger.”
The proposition sailed through the Texas legislature with only one dissenting vote, in addition to garnering endorsements from industry groups and several major Texas newspapers with little organized opposition.
Early voting starts October 21st. Election day is November 5th.