Some seniors stung by old lending practice

A REVERSE MORTGAGE might be a godsend for some, but for Kurt Weaver and his mother, Lucy, it has been a nightmare. Lucy, 85, is currently trapped in a reverse mortgage she signed in 1994. Her contract contains a "shared appreciation" clause that was commonly offered back then.

This requires her to eventually pay the lender 50 percent of the increase in value of her home since the loan was taken out. (This practice has since been abolished on new reverse mortgages.)

In 1994, Lucy's Berkeley home was appraised at about $383,000. It is now worth over $1 million, possibly even $1.5 million, Kurt said. Lucy is looking to refinance because of increased household expenses. But in order to refinance, she would have to find a lender willing to write a new loan that would pay off the original loan, whose balance is about $355,000, along with 50 percent of the house's increased value. This could mean a loan of more than $700,000.

Kurt said his mother had a stroke the year before she signed the mortgage and already had a neurological disorder in the past and wasn't aware exactly what she was agreeing to. Kurt said he probably wasn't fully aware either because he and his siblings allowed their mother to be independent.

Lenders have since abolished these clauses, which are also called "equity share" or "contingent interest" clauses. Fannie Mae, which previously offered suchclauses in its Home Keeper reverse mortgages, stopped the practice in 2000. Upon pressure from the AARP, Fannie Mae later decided to not collect the shared appreciation from borrowers who already had the clause in their contracts.

"We felt it wasn't worthwhile. It wasn't in the best interest of seniors," said Dave Carey, Fannie Mae's reverse mortgage program manager.

But Lucy's mortgage was originated by Transamerica Home First Inc. and later purchased by Financial Freedom, now one of the biggest reverse mortgage lenders in the country, which recently signed on actor James Garner as a spokesman.

So the Weaver family wants Financial Freedom to waive the clause, just as Fannie Mae did. But the situation is complicated.

Jim Mahoney, chief executive of Financial Freedom, said his company no longer owns the old reverse mortgages that feature the clause. Such mortgages have been securitized and sold off to investors. He declined to suggest

what else the Weaver family could do to remedy its situation.

In the past, Financial Freedom was a named defendant in coordinated class action lawsuits associated with shared appreciation reverse mortgages. The suits were eventually settled without there being a change in the past clauses of borrowers.

Kurt has been reaching out to local politicians about the issue.

"I think the only thing that might help would be sympathy for old people, but what's bad is it's still a contract," said Berkeley City Councilmember Betty Olds, whom the Weavers contacted. "She should have had some legal advice."

The Weavers' attorneys have since been in contact with Wells Fargo, which is the trustee for a securitized pool of several high-yield loans, including Lucy's. Kurt said someone at Wells Fargo agreed to contact the individual investors in order to see whether they would approve waiving this clause.

Meanwhile, the Weavers aren't sure where to turn for help. Kurt said they applied for a new reverse mortgage equity line of credit from Wells Fargo but were denied because Wells Fargo was unwilling to approve a large enough loan amount. The same issue happened with the FHA, he said.

Debora Blume, a spokeswoman with Wells Fargo Home Mortgage, said the company does not comment on specific loan cases. But as to whether Wells Fargo offers refinancing to people with "shared participation" clauses, she said it would be on a case-by-case basis and based on what the borrower's payoff might be and the amount that could be generated by a new reverse mortgage.

"The amount generated must be enough to pay off the 50 percent equity share portion of the loan," she said.

This leaves Kurt and his mother Lucy in limbo.

"We want Financial Freedom to act ethically and consistently with the rest of the banking and lending industry in regards to the contingent interest, or equity share, clause and waive this from their previous contracts," Kurt said.

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.