Fair Press For Reverse Mortgages

Reverse Mortgages: Was The Consumer Reports Article Fair?

The September 2009 issue of Consumer Reports has caused a lot of controversy around the subject of reverse mortgages. The article titled "Reversal of Fortunes" tells the heartbreaking story of a man who has recently lost his wife and now will likely loose his home. But was the reverse mortgage to blame? Could there be more to the story? In fact there is a lot more to the story. You can read a related article in response at this link.

Often the press for reverse mortgages is one-sided. It is very easy to blame this loan product because it is complicated. But precisely because it is complicated, it often requires professional counseling (especially for the government HECM.) A reverse mortgage can be a solution to financial trouble and for those with poor credit or insuficient income the only source of funds available. It does not suddenly make someone rich. It offers relief that both the lender and the borrower hope will be enough. In some cases it is enough and in some cases, like the gentleman in the Consumer Reports story, it was not enough.

Changes In The Economy Complicate Matters

No one knew that the housing market was going to get as bad as it is today. Sure, a lot of smart people figured the good times wouldn't last forever, but this.......no one knew. The decline in home values has hurt everyone across the board. Not just the poor, but the rich also. Seniors who took out reverse mortgages have been hit hard as have many homeowners with conventional mortgages.

Reverse mortgages could actually insulate seniors from financial problems associated with dropping home vallues--because once they have their mortgage, they get their money at the terms agreed upon on. And if the home value drops to the point where they got more money out of it than it's worth now, the senior comes out ahead. The lender is protected by insurance paid for when the loan is granted--that's why reverse mortgages can seem expensive--it's the insurance paid to the government for HECMs.

And now it seems that the insurance wasn't enough, and the taxpayers may be taking the hit. According to Consumer Reports, "The annual sum of reverse mortgages taken over by a federal insurance fund has more than quadrupled in four years, from $81.3 million in 2004 to $381.3 million in 2008."