Just learned of this feature, LESA. Am a current Reverse Mortgage holder and received a solicitation from a mortgage co. There is a lot to absorb regarding RM’s and unless you are an educated real estate professional, it is virtually impossible to understand all the ramifications of these deals. Even with the “counseling” as required, total understanding remains murky. I would have many questions about refinancing, but my main question would be: Unless you need a LESA why would you consider one? Aren’t you better off without one unless you do need it. I believe the confusion and even bad reputations of RM’s is due to the complexity of all the regulations, economics of the loans, government involvement, but, probably, most of all is the inability of people to manage their money in any sort of reasonable and or sane manner. For way too many people all the money in the world would never be enough. Meaning that people will spend every nickel they get their hands on as fast as they can, without ever grasping the principles of savings and providing for future expenditures. I can live quite well on my meager SS and am glad they have the reverse mortgage program available. Even though I have refinanced once, I have the nagging feeling that we did not gain that much, and the processing is horrendous now. So, the question remains, “Aren’t you better off NOT getting a LESA unless you are absolutely unable to manage your finances?”
Let me make sure I understand the basis of your question. Because the vast majority of all borrowers who receive a Life Expectancy Set Aside (LESA) do so as a result of a mandatory reason as determined by HUD financial assessment rules (either due to past credit issues, insufficient income to fully meet the HUD residual income requirements, etc), I can only assume you are referring to borrowers who elect to take the LESA to pay their taxes and insurance but are not required to in order to receive the loan? This is an extremely small percentage of the borrowers who actually wind up receiving the LESA and for them, the decision is based on their own personal circumstances.
For example, I have a borrower for whom I closed a loan within the past year whose only reason for doing a reverse mortgage is that she can no longer afford the taxes on her home but can’t bear the thought of moving. She has a ton of equity in the house, has no heirs and cannot qualify for another loan (HELOC) to help her make the tax payments as they come due and would not want the payments on the HELOC even if she could find a lender to give her the loan. She elected to take the LESA so that the taxes and insurance on her home are now paid for her and the funds are not considered borrowed until the lender actually makes the payment on her behalf.
She told me that she is comforted by the fact that she has a line of credit available to her if she ever needs it for home repairs, etc. for which she cannot pay otherwise. But what really allows here to sleep at night now is that she doesn’t even have to worry about the payment of her taxes anymore or scrimp and save each month to make sure she has the money to pay those taxes in the 4 installments that she had been struggling to meet. She says she doesn’t think she will even need the line of credit for other withdrawals because she thinks she will be able to meet all other home needs absent the quarterly tax assessments that have been draining her cash resources. She loves her home and does not want to move but was afraid she would have to because the taxes have just gotten so high (and she is right, they are pretty high!).
So in this borrower’s case, the voluntary LESA works extremely well. But as I started with saying, most borrowers don’t choose the voluntary LESA, preferring to have the funds available to them instead. It just depends on your own unique circumstances. Like the loan itself, there is not one answer that applies to all borrowers and our job here is to provide folks with the answers so that they can make the best decisions to meet their individual needs.
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