Once touted as one of the best ways for an Older American to supplement their retirement years, reverse mortgages are coming under pretty intense scrutiny. Reverse mortgages allow homeowners 62 and older to borrow money against the value of their homes and not pay it back until they move out or die. As the real estate market weakened and home values fell, the bigger banks and lenders left the reverse mortgage market, leaving many Older Americans prey to unscrupulous lenders who are making promises that can’t be kept.
The NY Times reports that state and federal regulators are finding new instances of abuse as these smaller lenders and mortgage brokers, including former subprime lenders, enter the reverse mortgage market. As it was before the bubble burst on the last housing market, these lenders are aggressively pitching loans with fees attached that the seniors can’t afford. Then once the loan is in place, the senior is still responsible for property taxes and home maintenance, costs that often run into hundreds, or even thousands of dollars per year. Other reverse mortgage lenders are offering loans with promises of money that can used to finance vacations or to pay down debt, without fully explaining the risks. These lenders are even writing these loans and pressuring couples to keep a spouse’s name off the deed, without explaining that this same spouse could face foreclosure if her spouse should die without adding her name to the deed before his death.
And as to foreclosure on these loans, the Times reports that more reverse mortgages are ending in foreclosure. While the number of reverse mortgages has declined in recent years, the rate of default is at a record high — roughly 9.4 percent of loans, according to the consumer protection bureau, up from around 2 percent a decade earlier. And to make matters worse, more and more borrowers are putting their nest eggs at risk by increasingly taking out the loans at younger ages and in lump sums, federal data and a recent bureau report shows. If a borrower uses the lump sum to pay down debt or to finance a cruise, they may not have the means to repay the loan, leaving them in a precarious situation where they could face losing their home. These are the risks of the reverse mortgage program. Anyone thinking about applying for this program must be sure they are fully informed about all of the risks be fully aware of the penalties and fees before making a decision. There are local HUD Housing Counselors available to help walk you through this process. You may also contact your local Area Agency on Aging or your local Aging and Disabilities Resource Center for help.
To read the full NY Times article
