With the baby boomer generation rapidly aging into retirement, reverse mortgages are becoming more and more popular. These loans allow seniors to basically cash out the equity in their homes permanently as a source of retirement income. Borrowers must be at least 62 years of age with a paid-off or almost paid-off mortgage. The homeowner receives a lump sum of money or monthly cash advances or even a line of credit. The loan is due upon the death of the borrower, or if he moves or sells his house.
Yet a recent report from the Consumers Union is claiming that there are plenty of reasons for seniors to be wary of these loans.
“The public, policy makers and legislators should be aware that this time, yesterday’s subprime lenders are now preying on a growing elderly population who are trying to remain financially independent in their own homes during a depressed economy,” according to the report from Consumers Union, the California Advocates for Nursing Home Reform and the Council on Aging Silicon Valley.
The Consumers Union report also
“found that the use of reverse mortgage loans is exploding as lenders and brokers push them with more urgency while shouldering almost no responsibility for whether the loans are suitable for the borrowers.”
It went on to add,
“Compounding our concern, reverse mortgage loan bailouts funded by taxpayer dollars have climbed as a result of lender claims against the Federal Housing Authority (FHA) insurance fund for HECM [Home Equity Conversion Mortgage] reverse mortgages. As of March 2010 there were as many as 20,631 HECM loans in default and the subject of foreclosure representing a maximum claim amount of more than $3.68 billion.”
Serious allegations indeed. Yet reverse mortgage defenders say that regulation has already been tightened recently, making these products safer than in the past. For example, a new HECM program has made it possible to pay almost nothing in upfront fees, which used to be quite prohibitive. And the government has also required more mandatory loan counseling before seniors take the plunge on a reverse mortgage.
“I think they’re rattling the cages here without having much concrete to offer or any evidence to back up their allegations that there are widespread problems,” said Peter Bell, president of the National Reverse Mortgage Lenders Association [NRMLA] as quoted in the Wall Street Journal.
Still, based on its research, the Consumers Union recommended in its report that “reverse mortgages should be considered suitable only when a senior has no other viable option.” Seniors, consider yourselves duly advised!