Another Tale of Woe

by Peter G. Miller
January 18th, 2008

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We wrote the other day about reverse mortgages and annuities — and how the two should not be sold together. Several of our lender readers wrote in to say that their companies literally ban such related sales.

Now we have still-another tale-of-woe relating reverse mortgage pitches to annuity sales, this time from USA Today.

“After her husband died, Ernestine Boach felt she needed financial guidance. It was 2003, and Boach had just turned 62. An adviser urged her to take out a reverse mortgage, available mainly to those 62 and older, and use the money to buy deferred annuities.”

As the paper explains, “it turned out to be a huge mistake. Boach wasn’t well-suited for a reverse mortgage, which is a loan against home equity that doesn’t have to be repaid until the owner dies or sells the home. The estate repays the loan, plus interest and fees. The home is typically sold to make the payment.”

Is it not possible for HUD to have a regulation such that no one who sells reverse mortgages should also be allowed to sell annuities? The problem is obvious: The homeowner is sold a reverse mortgage to fund the purchase of an annuity. Both sales produce fees and commissions and when the homeowner tries to get out of the annuity there is then a huge withdrawal penalty.

This isn’t right and it ought to be stopped.

The complete story from USA Today is at: Reverse mortgages aren’t for everyone.

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This entry was posted on Friday, January 18th, 2008 at 2:37 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.

One Response to “Another Tale of Woe”

sanderson Says:
January 19th, 2008 at 12:06 pm
Exactly….Annuities should not be sold when doing a reverse mortgage. The credit line growth is a great feature of the loan and there is no reason to buy an annuity. I agree it should be stopped and what also should be stopped is reporters who report this type of news as though the 2 transitions go hand in hand. The purchase of an annuity is not necessary to obtain a reverse mortgage. The negative part of the story always has to do with the annuity and not the reverse mortgage. Rm’s are a great way for seniors to access equity in the home without having to make a payment or the loan needing to be paid back until such time as the borrowers no longer lives in the home as their primary residence, vacates the home for 12 consecutive months, or passes away.