Reverse Mortgages Are Subject of Hot Debate
June 30th, 2009
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When John Dugan, comptroller of the currency, warned a few weeks back that reverse mortgages pose significant risks to consumers, it touched off a big debate. Dugan said that although reverse mortgage loans do have some benefits, they also have some of the same characteristics of the riskiest subprime mortgages. He called for more oversight to make sure homeowners are being protected.
Reverse Mortgage Provides Cash Now
Reverse mortgages allow homeowners aged 62 and up to tap into their home equity. Benefits of these loans include homeowners not having to repay the money until they leave their home and being able to receive the funds in a lump sum or in installments. Also, the money can be used for any purpose.
Dugan’s concerns about reverse mortgages include:
—The fact that some lenders aggressively market investment, insurance, or annuities to seniors who apply for reverse home loans
—Misleading marketing claims by some lenders
—The lack of escrows for tax and insurance payments; not paying these fees can result in foreclosure.
Are Reverse Mortgages Too Complex?
Since Dugan aired his concerns, lawmakers, lenders, and others have weighed in with their concerns. Some say reverse mortgages are too complex and could be costly for seniors. “You may borrow $100,000 and 10 years later owe $200,000,” Sen. Claire McCaskill of the U.S. Senate Special Committee on Aging said at a field hearing this week. Others say reverse mortgage fraud is a growing concern, including inflated home appraisals.
Reverse Mortgages Can Help Seniors
But Jeff Lewis, chairman of Generation Mortage, of Atlanta, told the Chicago Tribune, “The whole purpose of our program is to make loans to seniors who don’t fit into the traditional market. Pointing that out as a harbinger of doom is ludicrous. Without [reverse mortgages], if people couldn’t get to the money in their house, they’d just have to sell them.
There certainly are pros and cons to reverse mortgages. Take the time to compare reverse mortgage quotes from several lenders to determine if this loan product is right for you.
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June 30th, 2009 at 6:54 pm
It’s illegal to market investments like annuities if you sell reverse mortgages. This was part of a mortgage reform bill passed last year. In addition, the 90% of reverse mortgage borrowers who choose the FHA reverse mortgage product (called an HECM) get the benefit of required counseling before closing on their loan. The practices of these lenders and the fees for this product are also limited by HUD. Recent reforms have removed a lot of the risk of reverse mortgages. And I don’t believe seniors are more easily confused than anyone else–at least if I made that generalization to my parents I know I’d get an earful.
June 30th, 2009 at 6:56 pm
Oops, meant to say that 90% of reverse mortgages sold are FHA products which are regulated.