The March issue of Kiplinger’s Personal Finance magazine has an interesting article regarding reverse mortgages entitled “A New Mortgage Mess on the Way?”

“As the industry grows,” says the magazine, “some see eerie parallels to the subprime mess roiling the country. Could reverse loans become the mortgage scandal of the next decade?”

The concerns, says Kiplinger, “include misleading marketing tactics and, worse, pressure to buy inappropriate insurance products with the proceeds of the loan.”

In other words, annuities.

The magazine also says that most borrowers are satisfied with their reverse mortgage and that a growing range of reverse mortgage products are available as additional lenders enter the marketplace.

I think there is a substantial difference between the general mortgage meltdown we are now seeing and reverse mortgages.

The core issue with toxic loans is that they are written in such a way that higher costs are assured — but the ability of borrowers to repay is not. With reverse mortgages you have non-recourse financing, meaning that the owner’s obligation is limited to the value of the property. If the loan is not fully repaid, that’s typically a matter for the lender and HUD to hash out.

That said, there plainly needs to be better oversight with regard to sales practices, related sales and counseling. The idea that lenders can pay for counseling is an obvious and overt conflict. Or, as Kiplinger gently puts it, “sometimes counseling is paid for by the lender, raising questions about impartiality.”

The entire article, “A New Mortgage Mess On The Way,” can be found in the March 2008 issue.

This entry was posted on Wednesday, February 6th, 2008 at 3:04 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.