Don't be mislead by some bad press reverse mortgages receive. Reverse mortgages have layers of consumer protection.
Reverse Mortgage Consumer Protection Layer
Seniors Are Happy with Reverse Mortgages
If you were to read and believe some of the rather sensational stories about reverse mortgages, you would think that all reverse mortgage lenders are scam artists and that all seniors who have taken a reverse mortgage are unhappy. The opposite is actually true. According to an AARP survey, 90% of seniors who have reverse mortgages are satisfied.
Reverse Mortgage Advocates Work Hard to Protect Seniors
There are layers of consumer protection built into the reverse mortgage loan process. Congress, HUD, and reverse mortgage advocates have worked very hard to see that seniors are protected. Following are a few of the ways that seniors are protected during the application process.
Reverse Mortgage Consumer Protections
- Total Annual Loan Cost (TALC) disclosure - The Truth-In-Lending Act aka Regulation Z requires reverse mortgage lenders to give applicants a TALC early in the process. TALC clearly shows the interest and costs of the loan and allows easy comparison between different products and different lenders.
- Allowed to Remain in the House - As long as the home is occupied as a primary residence by one or more borrowers, regardless of the home's value, the loan doesn't have to be repaid.
- Home's Sale Price Is Sufficient - When the last borrower has passed away or moved and the home is sold, the lender is allotted the sale proceeds of the home up to the loan balance, and anything above that is returned to the borrower or heirs. If the loan balance exceeds the sale proceeds, the lender cannot go after other assets.
- Counseling - Most reverse mortgages are HECM loans insured by FHA. All HECM loans require counseling by an approved counselor as part of the application process. Many other reverse mortgage lenders use counseling for proprietary products as part of their best practices.
- AB329 One example of how government is working to protect seniors is a new California law called Reverse Mortgage Elder Protection Act of 2009 or AB329. According to an article in Reverse Mortgage Daily, "... the bill requires that lenders provide prospective borrowers with a clear and informative written disclosure statement and a written checklist pertaining to the risks and suitability of a reverse mortgage, prior to borrower attending loan counseling."
- No Cross Selling of Financial Products - Some lenders in the past used the reverse mortgage as a tool to sell expensive and inappropriate annuities to seniors. Think about it--you pay to take the equity out of your home, then pay again to tie it back up in an annuity!? in some cases eighty-year-olds were induced to tie their money up for ten years or face penalties as high as thirty percent! This is no longer allowed.
There are many protections provided by government today. However, the best protection is understanding and competition--understand your reverse mortgage and shop with several lenders to get the loan with the best terms and lowest cost.
Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.