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Business First of Buffalo

Reverse mortgages build

Thomas Hartley

Business First

Reverse mortgages are so new that they still confuse many banks and consumers.

But after being available for several years in Western New York, and because of recent changes, reverse mortgages, where a property owner converts their home equity into cash, are expected to become more popular.

"It's a fledgling business that is growing," says Nicholas Buscaglia, administrative vice president of M&T Bank, the only Western New York-based bank offering reverse mortgages. "Nationally, 38,000 reverse mortgages were funded in the last fiscal year, according to the National Reverse Mortgage Lenders Association. That's up from 18,000 done the previous year."

For M&T, Buscaglia says, the reverse mortgage business expanded particularly in the last three to four years. Volume in Western New York went up 60 percent in the past fiscal year.

M&T acquired the reverse mortgage business in 1998 when it bought Syracuse-based Onbancorp, which offered them, but didn't push them very much.

"At the time, we had no originators. Now we have more than 10 in our network, including three in Buffalo, who do nothing but reverse mortgages," Buscaglia said.

For Grace Weseman and Richard Weseman of Lockport, who had only Social Security to live on and had nearly run out of savings, the reverse mortgage they acquired last fall through M&T Bank has meant the difference between having to move into a low-cost senior citizens apartment, or staying in the house that has been their home for 51 years.

"The reverse mortgage was a godsend," says daughter-in-law Jule Weseman, who is married to the Weseman's son, Paul. "They have both been hard workers -- he owned a gas station in Lockport for more than 30 years and she worked in the high school cafeteria until just last year.

"He is 86 and she is 83 and they were outliving their money. It was costing them $910 per person a year for Blue Cross and Blue Shield health insurance and Social Security didn't even begin to cover their costs with the cost of living going up every six months, heating going up 20 percent a year, car insurance going up 25 percent.

"No matter how much my husband and I could help, it wasn't going to be enough. The next step would have been to sell the home and get a low-income apartment for $500 to $600 a month. And that wouldn't have been in a good neighborhood," she said.

With the reverse mortgage, the Wesemans, instead of losing their home, scrimping on groceries and giving up occasional dinners out attending a German polka party now and then, are able to do some things they wanted to do in retirement, their daughter-in-law says.

"They would have run out of money soon. But now they have an $80,000 line of credit that they can draw on," she said.

The biggest reason for the recent stepped-up interest in reverse mortgages, Buscaglia said, is the rule change for calculating the mortgage interest premium so that a homeowner pays less than under the old formula when they refinanced.

"Before, if you refinanced, you had to pay the mortgage interest premium all over again. Now, on a reverse mortgage, you only pay the MIP on the new money," he said.

For example, on a $100,000 mortgage, a person formerly had to pay a mortgage insurance premium of $2,000 or 2 percent. If the mortgage was refinanced, they had to pay the $2,000 again. Now, with the new legislation though, if the mortgage is refinanced for the same $100,000, the borrower won't pay a penny more in MIP. If the mortgage is refinanced for $100,500, the homeowner will pay only $100, or 2 percent on the additional $500.

M&T Bank has offered reverse mortgages since its 1998 purchase of Onbancorp.

"We feel it is a very good program, especially in an area like Western New York, which has an older population," Buscaglia said.

Other banks are also giving signs of getting into reverse mortgages. One of them, the Bank of Akron, expects to close on its first reverse mortgage this spring.

"We are looking at an affiliation through the Independent Community Bankers of America, which has an affiliation program. It is way too complex for a small bank like us to do on our own," said E. Peter Forrestel II, president of Bank of Akron.

ICBA Mortgage, a service corporation of ICBA, has formed an affinity partnership with Financial Freedom, a subsidiary of Lehman Brothers Bank FSB, and the nation's largest lender and servicer of reverse mortgages, to market and distribute reverse mortgages through ICBA member banks such as the Akron bank. The alliance provides smaller community banks with a complete line of reverse mortgage products that can either be turnkey or wholesale correspondent- based.

Forrestel said his bank will enter the reverse mortgage business slowly and provide them for customers who are known to the bank and for whom a reverse mortgage makes sense financially and for their quality of life.

Forrestel said he doesn't know of any other financial institution based in the area that is offering reverse mortgages, or planning to, except M&T Bank and his bank.

M&T, which has seen its volume of reverse mortgage business in Western New York grow by 60 percent in the past fiscal year, is one of the largest banks in the nation offering reverse mortgages.

"We're seeing more and more banks getting involved in them, which is good for the industry," said Buscaglia, who serves on the board of the Reverse Mortgage Lenders Association.

In addition to banks, reverse mortgages also are offered by mortgage brokers and mortgage bankers.

"It is a fledgling business but I believe reverse mortgages are going to be as big as home equity loans in frequency and commonality," Buscaglia said.

It is my recommendation that you inquire with your current mortgage company to see if they offer "reverse mortgages." If not than simply call a lender like Flagstar, Prosperity Mortgage, Bank of America, Suntrust etc., and see if this would be of benefit for you to do.

If you have any questions please don't hesitate to call me. I will put you in touch with a loan officer very familiar with this program.