Cashing out

Reverse mortgages are becoming more popular with older Americans looking to tap their home equity.

By Sarah Max, CNN/Money senior writer

SALEM, Ore. (CNN/Money) � "House rich, cash poor" is a common predicament for older Americans whose homes have appreciated in value while their incomes have failed to keep up with rising healthcare costs, property taxes and other living expenses.

Rather than sell their homes, many are taking out reverse mortgages, which allow homeowners age 62 and older to borrow against the equity in their homes in one lump sum, via regular monthly payments or, most commonly, with a line of credit.

Although reverse mortgages still represent a fraction of the mortgage market, the number of loans originated in 2004 was more than double what it was the previous year.

"Demand for information on reverse mortgages has increased exponentially," said Bronwyn Belling, a reverse mortgage specialist for the AARP Foundation.

The advantage of a reverse mortgage over traditional home equity loans is that borrowers don't pay principal or interest on their loans until they sell the home or pass away. The downsides are high upfront fees and compounding interest.

Reversing 101

There are three national providers of reverse mortgages, the Federal Housing Administration, Fannie Mae and the Financial Freedom Senior Funding Corp. The most popular reverse mortgage by far is the FHA's Home Equity Conversion Mortgage (HECM).

To qualify for any kind of reverse mortgage, you must be at least 62 years old and own most of the equity in your home. Loan amounts are determined by your age, the value of your house and current interest rates.

A 75 year old with a $300,000 house could qualify for a $193,000 HECM, for example. A 65 year old with a $200,000 house could borrow about $108,000 against the house.

The FHA caps loans based on the maximum FHA mortgage limit for an area, currently $172,632 to $312,895. Fannie Mae has a slightly higher limit, while Financial Freedom loans are designed for more expensive houses and have virtually no limit.

The interest on the HECM, was recently 4.37 percent for loans adjusted monthly and 5.97 percent for loans adjusted annually, according to Peter Bell, president of the National Reverse Mortgage Lenders Association, while Fannie Mae's HomeKeeper carried an annual rate of about 5.88 percent. The Financial Freedom reverse mortgage, which is tied to the 6-month LIBOR index had a rate of 7.92 percent.

Most borrowers, said Bell, opt for a line of credit, allowing them to borrow money as they need it and pay interest only on the amount they draw down. When borrowers sell their homes or pass away, the principal and interest owed on the house is subtracted from the proceeds of the sale.

The interest can add up pretty quickly. A homeowner who borrows $100,000 from the house at today's annually-adjusted HECM rate would owe $200,000 in interest and principal on that loan 12 years from now, and that's assuming rates don't increase.

If the amount due is greater than value of the house, the loss is absorbed by the lender. But that's not common. "Your home continues to appreciate in value," said Bell. "It's not unusual for borrowers to have substantial equity left in their house."

High up-front fees

If you're not sure how long you think you'll stay in your house, think twice about a reverse mortgage. The reason: Up-front fees for a reverse mortgage can easily add up to $10,000 for a $200,000 loan limit, regardless of how long you keep the loan or how much you borrow.

"This is not a loan you would want to get for the short term," said David Carey, senior product manager for Fannie Mae's HomeKeeper. "If you don't hold this loan for five or 10 years you're going to pay a lot of money for it."

Up-front costs for the HECM include:

• Origination fee equal to $2,000 or 2 percent of the loan whichever is greater.
• Mortgage insurance premium equal to 2 percent of the maximum claim amount or home value, whichever is less. (This up-front insurance is waived only if the all of the loan is used to pay for long-term care insurance.) There also is an ongoing annual premium equal to 0.5 percent of the loan balance.
• Other closing costs, such as title insurance, and fees for appraisal, credit reporting, escrow, document preparation and recording vary depending on the size of the loan but $1,700 is typical according to Carey.
• Servicing fees of $30 to $35 a month, added to the balance of your loan.

Also keep in mind that because you don't pay down your debt until you sell, move or die, the interest you owe could add up to quite a bit over time. Mandatory mortgage insurance ensures that you (or your heirs) don't end up owing more than the house is worth. But it's entirely possible to drain all or most of your home's equity.

More students sold on studying real estate

Like the market itself, real-estate education is hot. But some experts warn this industry is headed for a decline.

By Lisa Leigh Connors | Staff writer of The Christian Science Monitor

After watching Chicago real estate explode in the past five years, college senior Jorge Lopera was inspired to learn more about the commercial market. Yet when he started at DePaul University three years ago, there weren't many opportunities for undergraduates.

Much to Mr. Lopera's delight, DePaul is offering a new bachelor of science degree in real estate starting this month.

Now Lopera has six months to squeeze in all the required credits to graduate in June with a double major in finance and real estate.

"With the real estate major, you're seeing the whole investment-analysis side," says Lopera, who is enrolled in real estate law and urban-planning development courses. "I'm getting completely different exposure through these courses."

Real-estate education is red hot, thanks to a booming real-estate market nationwide. As a result, colleges everywhere are adding new programs and building on existing ones to keep up with industry and student demand.

Some experts warn, however, that the market may have hit its peak - and the field could be headed for a decline.

"If you went back to the late 1990s, you probably saw very similar situations with classes in the securities industry for stockbrokers or Internet-related enterprises," says Peter Schiff, president of Euro Pacific Capital, an investment firm based in Newport Beach, Calif.

"The real-estate industry is going to be one of the worst industries to be associated with in the next 10 to 20 years. We are in a major bubble."

Instead, Mr. Schiff says, students should turn their attention to agriculture, horticulture, engineering, and foreign languages, such as Mandarin.

"That's where a lot of trading and wealth is going to be emanating from the world," he says.

"The US needs to move back to a wealth-producing, manufacturing, and exporting economy."

But as long as people demand space for businesses, there will be a market for leasing and selling, determining value, and issuing loans, says Gerard Mildner, professor of urban studies and planning at Portland State University in Oregon.

"There's an old saying about the legal profession - they can make money in good markets and bad markets, either forming new companies or managing bankruptcies," says Professor Mildner.

"In some ways, the real estate industry is similarly insulated. There's obviously more money to be made in a strong market where you're developing new properties, but not everybody is developing properties. A fair number are managing properties."

Last spring, Portland State started offering an undergraduate degree in real estate finance and a minor in real estate development. Mildner was instrumental in creating the university's Real Estate Center and he also helped set up the graduate certificate program.

"Sometimes real estate gets overlooked by business schools and undergrads," says Mildner, "perhaps because it's not as sexy as other parts of corporate America. But one of the things that these degree programs can do for people is to help them see over their small segment and broaden their career horizon."

That's why Christopher Magalhaes, a junior economics major at New York University, is working toward a noncredit real estate certificate. He may not pursue real estate as a career, but he feels it's crucial to have a good understanding of as many fields as possible.

"It's important because I know that some day I may want to buy a house," says Mr. Magalhaes.

"I may also want to try my hand in commercial real estate at some point in my life, so I don't want to limit myself." This year, more than 5,000 students enrolled in NYU's Real Estate Institute - an increase of 500 from 2000.

While real estate schools specifically train students to sell houses, most college programs concentrate on the commercial end - appraisals, development, investments, and management.

About 10 years ago, only about 30 colleges offered real estate degree programs. Today, that number has more than doubled to 62, according to Don Moliver, director of the Real Estate Institute at Monmouth University in West Long Branch, N.J.

At Monmouth, professionals can enroll in an MBA program with a specialization in real estate. The school also plans to add an undergraduate degree in the future. "It's something that is growing," says Mr. Moliver, "and I'm pleased to say that if you look at schools that offer real estate, they really are among the best in the country."

Although universities are adding to their programs, they have actually been slow to respond to the real- estate boom, says Moliver, because in some circles, the old perception that it's a trade and not a profession still exists.

"In the early days, the genesis of it was primarily women, maybe on a part-time basis who were selling houses and the commercial side was only men," he says.

"Today, it's a highly competitive industry and most of the people in the industry got their education by the seat of their pants. What we have is a lot of seasoned folks who are saying, 'Let's take these young people who are joining the industry and send them out for training.' "

It's evident there is a demand for educated professionals. In the past year, DePaul has received a record number of job listings in the field, from investment to mortgage lending companies, says Susanne Cannon, director of the university's three-year-old real estate center at DePaul.

By the end of this academic year, about 300 students will have taken an introductory real estate analysis course already offered at DePaul, up from 266 the year before. At least 50 students now declare real estate as their major.

"As industry has moved from the cowboy developer and the small-shop real estate broker into much larger institutional investors, the demand for qualified professionals in all areas of real estate continues to escalate," says Ms. Cannon.

This is welcome news for Lopera. When he hears chatter about the real- estate bubble bursting, he doesn't want to believe it. He hopes to one day invest in Chicago condominiums and to buy land in Arizona and Texas and develop it.

"I don't see it bursting, but at the same time, I do see areas of Chicago that might be overdeveloped," says Lopera. But if it doesn't work out as a career, "I'll always be able to use the degree for myself because I will personally want to invest in real estate."

In hot real estate market, 'rondos' are new trend

Low mortgage rates but pricey single family homes? Rental units turned into condos are another option.

By ADRIENNE P. SAMUELS, Times Staff Writer

---

Don Madio used to rent his apartment.

Now he owns it.

Madio, who lives in the Audubon Condominiums in the Feather Sound area, is one of thousands joining the nationwide trend of buying into "rondos," or rentals converted into condos.

Rondos are a cheaper and better located option than single-family homes in Pasco County, said the 72-year-old insurance agent.

"The only reason I was thinking about (buying) was because the interest rates were so doggone attractive," said Madio, a 15-year renter. "I have a garage, an end unit with a balcony and a fireplace, two beds, two full baths and my own private entrance overlooking the golf course."

He is seconds from Interstate 275, across the street from a Publix, near a hospital and in a community where the developer throws New Year's Eve parties for residents.

All for $169,000.

Five percent of Tampa's apartment stock and 11 percent of Pinellas' have or are expected to "go rondo." That's about 10,300 conversions since 2003.

Like a single family home, a rondo's pull comes down to location, price, amenities and quality. That's why Atlantic American Realty Group snagged the Cloisters apartments (now Fountains at Countryside), just north of Westfield Shoppingtown Countryside. Built in the 1980s, the 168-unit complex has concrete firewalls between some units.

Each unit is gutted. All pipes, flooring, air conditioning and kitchen equipment are replaced. A butterfly garden, Pilates room and 11-person jacuzzi are planned.

Prices range from $101,500 to $157,000 - far lower than $167,000, the median single family home price for Tampa Bay. Forty-one units sold in three weeks.

Villa Sonoma, near Tampa's International Plaza, doesn't offer golf lessons or wine cellars. The location and construction is enough.

"We've sold 60 percent in just eight weeks," said Michael Caggiano, sales manager.

Some conversions are expensive, depending upon location. At the "15 minutes from downtown Tampa" Waterford Luxury Condominiums in Palm Harbor, 1,000-square-foot one-bedrooms start at $150,000. Other models cost up to $237,900.

Renovation and construction prices add to the cost of the home - sometimes. Waterford, formerly the Essex Luxury Apartments, is two years old, so there is no need for new appliances or to upgrade anything, said Jon Preciado, sales manager. Eighty of the 170 "as is" units have been sold.

Still, not everyone is convinced rondos are a good investment. For one, the units might flood the market, causing a drop in prices and reverting unsold communities into half-rental/half-owner.

Others don't think it's wise to spend upward of $130,000 on a tiny apartment with no garage.

"The prices are insane," said John Boitano, 60, one of a handful of renters still living at the Cloisters/Fountains at Countryside. (Conversion developers are required by law to allow existing residents to live out their lease.) "If you're going into the $150,000 range, buy yourself a home and get the land."

Some buyers also worry about sounds traveling through walls, inefficient windows and roaches from neighbors.

Preciado suggests buyers get a home inspection and read the condo documents - which include maintenance fee information.

"In every condo conversion I've seen, ultimately you're at the mercy of the original builder," said Preciado. "We have cinder block and some framing (but) unless you have separation between the walls, you're going to hear something.'"

A fine mess

House sharing is all about diplomacy, domesticity, and someone else's dirty dishes

By Leigh Belanger, Globe Correspondent | January 6, 2005

The last straw was when the cat started using the tub as a litter box. Until then, Melissa Filgerleski, 25, a downtown paralegal, had tried not to make a big deal out of her roommate's living habits. She and a third roommate would "passive-aggressively not do the dishes in the sink," says Filgerleski, "just to see how long they'd stay there."

Sometimes weeks would pass before Filgerleski addressed her roommate's messes. But when she found cat feces in the tub one morning before work, Filgerleski shook the woman awake and urged her to clean up the mess. The roommate took the incident personally, says Filgerleski, and it wasn't long before Filgerleski began looking for a new apartment -- and a new person to share it with.

The situation is common. The average age of Boston residents is 31. Talk to any number of Bostonians around that age and you're likely to hear a roommate horror story. There are tales of stolen rent, rampant mold, illicit drug use, and missing food. The median rent for a two-bedroom apartment in Boston was $1,400 in 2003. With thousands of income-restricted students and recent graduates paying off education loans as they begin their careers, many budgets dictate splitting the rent multiple ways. For many young Bostonians, negotiating households and habits is a fact of life.

Cleanliness is the most common source of conflict in shared housing. For some, like Sam Phinizy, 27, who shares an apartment in Brookline with four others, mess "isn't a big deal," he says. He describes the household as being "pretty laid-back"; as a result, they live in a pretty messy apartment. The living room smells like snack food and dirty socks, and the floor is a jumble of electrical cords, old newspapers, loose change, and piles of clothing. Empty Coke bottles line a windowsill.

Luckily for the four men and one woman, ranging in age from 19 to 27, household conflict hasn't arisen. It could be due to the uniform standards of the group. "We did have one girl who moved in for a month and was really anal. She wanted a [cleaning] schedule" says Phinizy. "That didn't work out."

After that experience, says Phinizy, "we just looked for people with common interests." He says that the friendships in the house help relieve any tension that might arise when dishes are piling in the sink for weeks.

But while some people are eager to live with friends, others have had relationships dissolve as a result of living together. Kelly Andreoni, 23, and her fiance recently found their own place after living with a friend of theirs from college.

"In the beginning, we sat down and made what we called the Wheel O' Clean," says Andreoni. "We divided the chores into kitchen, bathroom, and living/dining room, and switched every week," she says. While she and her boyfriend did their chores as they came up, the other roommate never did. "I think he expected me to do everything," she says. After months of tension, Andreoni stopped talking to her roommate. "My boyfriend had to be the liaison," she says. After parting ways, Andreoni says that she and the ex-roommate are no longer friends.

For some, cleanliness comes before friendship. When the situation with her unclean roommate ended badly, Filgerleski, the paralegal, realized a few things. "I learned you really need to be up front with people," she says. "Now I'll say, 'this is my standard and I can't change it, so can you meet it?' " For Filgerleski, common standards are more important than common interests. "I don't need to be your friend," she says. "I need to be able to live with you."

And the ability to keep house, while a priority, is just one quality people seek in a housemate, be they friends or strangers. "Respectful" and "sane" are among the other qualities most cited by people looking for roommates on craigslist.org, a widely used online housing resource.

"We look for no drama," says Emily Shull, 29. In her Somerville household of six, candidates meet with the entire group, and "they usually have to come twice," says Amy Jollymore, 33, another resident. They specifically look for busy men or women over 25. "We don't want people thinking this is the center of their lives and they've just inherited a new bunch of buddies," says Jollymore. But members of the household, whose ages range from 28 to 33, agree that it's important to have someone likeable, who fits in, rather than just someone to fill the room. "If we don't find anyone we like," Jollymore says, "we suck it up and pay the rent."

As for cleanliness, this group has it figured out: They recently hired a cleaning service.

The future of homes and housing

20/20 foresight: looking to the future

As we move further into the 21st century, it's natural to wonder what the future will bring: In what kinds of houses and communities will Americans be living in 2020? What kind of jobs will people hold? Will fewer of us be married? Writers Kim Campbell, Clayton Collins, Marilyn Gardner, and Elizabeth Lund sought answers to these questions - and more - from eight experts whose jobs require them to predict what our lives will be like in 15 years. Read excerpts from those interviews in this section.

Where do you think we're going to be living in 2020? Are we going to be more suburban or urban? Who will make up these communities?

I think it's a combination of [suburban and urban]. Aging will drive where people live. Some people argue that because urban areas have better healthcare, that means more people will move to the city. That may be right, but I don't think that means they're going to be moving downtown. I don't see us having the traditional suburb; I see more satellite cities, all midsized places [near big cities], where people have a combination of their work, their fun, their recreation, and healthcare. It's like being able to have everything that they want in a big city, but not in large doses.

The way I can tell you what's going to happen in a city [in terms of inhabitants] is I pay attention to who serves me French fries.... Who is it that's doing the lawn care in your neighborhood right now? [It] tells you ... who the children are going to be attending the schools. It tells you something about the political systems. It tells you about some of the social and political and economic challenges your community is going to be faced with, and obviously that speaks to demographics. The statistics show that in terms of the large urban areas, whites are moving out, blacks and browns are moving in. That's not always the case; there are a lot of blacks who are moving into the satellite communities as well.

Ninety percent of all the growth in the population will be minorities between now and the year 2050; 100 percent of all the growth in the workforce will be minorities. So that impacts all of our cities.

Between now and the year 2020, there will be a 74 percent increase in the growth of the number of people who are over the age of 50. Guess what the increase will be for the number of people who are under the age of 50? Only 1 percent. When you think about cities, think about where people will live, we cannot underestimate what impact aging will have. Nobody's ever seen this before. It's going to impact the way taxes are levied; it's going to impact the way we fund public schools.

The one thing that we have going for us is immigration. The thing is you don't need to wait [until 2050] to really start to see the impact of how much diversity we're going to have. You're going to see it in our cities now, in 2010, 2015, 2020. When you walk into a gas station, listen to the music that's being played. This is where you find out how culture is changing. Pay attention to the kinds of combinations of restaurants that are coming up in your community, the sort of Mexican/Italian restaurants.

It's about opportunity, [and] people remaking America all over again.

Nat Irvin II is founder and president of Future Focus 2020, an urban-issues think tank, and a professor of future studies at Wake Forest University.

What factors will consumers consider as they approach the designing and purchasing of homes in 2020?

People are going to recognize that the McMansions ... of today are going to be traded in for something that's more tailored. It will be a little smaller, because people are already really "getting" that square footage doesn't make them feel better.... It's [about] adapting to lifestyles, eliminating rooms we don't use anymore.

Technology in the house of the future is going to be beautifully integrated, but it's not going to be the selling point, per se. If you think about some of the things you've seen at Disney World or Disneyland, they always are visions [out] of the Jetsons. But I don't believe that's what's going to happen.

The thing that's going to be the most different is the way we go about "delivering" houses. In 10 to 15 years it will be a thing of the past to have a house built on the lot, stud by stud. It will be a more manufactured product. [As with cars] it will be the design quality that will be why people purchase houses. And they will be delivered in component parts that can be assembled, probably within a week. Through the tools of virtual reality, we will actually be able to "try on" our houses as a family before we build them. And there will be ... architect franchises, if you like, that will assist people in selecting the appropriate house for their site.

When we think of "manufactured" we think of limitation, but today you can manufacture anything and have a very wide array of options. The problem right now is that there is sameness.

In most houses today people are building a floor plan, and extruding [it] up to the ceiling plane. So it's a two-dimensional idea that gets forced through to an eight- or nine- or 10-foot ceiling. What architects do is design the third dimension, so the heights of everything vary, depending on the activity going on below it. You end up with these cozier places that look out into more open, wider spaces. Like a road map, a [traditional] floor plan tells you how to get ... from one place to another, but it doesn't tell you about the shape of the space. For that you need information about the third dimension. The tailoring of three-dimensional space is what's going to distinguish what we're doing tomorrow from what we're doing today.

Sarah Susanka is an award-winning architect and author of the books 'The Not So Big House' and 'Home by Design.'