Reverse Mortgages and Consumer Protections

Most reverse mortgages come with a number of safeguards to protect seniors' rights. Top agencies across America such as the American Association of Retired Persons (AARP) and the U.S. Department of Housing and Urban Development (HUD), advocate for seniors and provide extensive education and counseling. Here are five of the protections for seniors considering a reverse mortgage:

1. Counseling - Most reverse mortgages are HECM (heck 'em) loans which are FHA insured. Counseling is mandated for these loans. Other types of reverse mortgages also usually require counseling as part of their "best practices." HUD offers a list of counselors in your area. These trained reverse mortgage experts will go over in detail all aspects of a potential reverse mortgage and the consequences. The counseling sessions cover what a senior should know and include a section on alternatives to the reverse mortgage.
2. Disclosures - The Truth In Lending Act (TILA) mandates disclosure in advance
   of all costs and the key terms associated with taking out a loan. Reverse mortgages have a specific required disclosure called the Total Annual Loan Cost (TALC) that is part of every Truth-in-Lending disclosure for a reverse mortgage. For a look at a sample reverse mortgage disclosure, and detailed information about the disclosures required, Consumer Compliance Outlook (part of the Federal Reserve Bank of Philadelphia) has an excellent Web page here.
3. Advocacy Groups - There are a number of groups that specialize in senior rights. If you have an existing relationship with a particular group or agency, it would be worthwhile to contact them. Some of the best information can be found at the AARP Website. The AARP Foundation offers a reverse mortgage consumer protection guide which you can download and print here. Another useful group is the National Reverse Mortgage Lenders' Association. Their member reverse mortgage lenders follow their published "best practices." They also offer education on consumer protections here.
4. The Permanent Feature - A reverse mortgage loan does not have to be repaid during the lifetime of the homeowner. As long as the home is occupied as a primary residence, the interest on the principal balance will continue to accrue and no repayment is due. This feature can create much peace of mind. Homeowners rest easy knowing they can remain in their homes for life.
5. Asset Protection - The balance due cannot exceed the value of the home's sale proceeds. This means that when the homeowner passes away, or decides to move out of the property, there is insurance which covers the difference between the loan balance and the home's value. If the home is not sold to pay off the loan balance, then the entire balance would be due regardless of the home's value. So it is possible for the heirs to keep the home after the homeowner's death but they would have to pay off the reverse mortgage loan.

With today's latest legislation and HUD agency safeguards, seniors can feel confident that there will not be reverse mortgage loans on their properties until they fully understand the loans and their consequences.