October 18, 2012

A Risky Lifeline for the Elderly Is Costing Some Their Home

Anyone considering a reverse mortgage for themselves or their parents should read this story .. Not because it’s accurate but because it does raise the important considerations anyone should be aware of when they consider a reverse mortgage. “New instances of abuse …”

It is important to work with a reputable company. Talk to the person that will handle your loan for a few minutes – that’s the starting place. Confirm that they are a member of the National Reverse Mortgage Lenders Association – that means they have agreed to operate ethically and in the best interest of the client. (www.NRMLA.org) Then ask about their professional background and how long they have been in the business. You want someone that operates as a financial advisor rather than a salesperson.

wooing seniors with a promises loans are free money”

My mother and your mother told you there is no such thing as a free lunch – and there is no such thing as free money either.  A reverse mortgage can be a wonderful blessing in your life and can be used to cover necessities and can be used to optimize Social Security by delaying starting benefits.  However, it is a loan and there are requirements to pay it back to the lender, with interest. However, a reverse mortgage does not require monthly mortgage payments and your estate will not be responsible for any repayment beyond the future value of your home. It is important to note payments for property taxes, insurance, utilities, maintenance and other expenses must be made.

“some widows are facing eviction …” If your advisor suggests taking either spouse off the deed … Hang up the phone or toss the bum out. It’s lousy advice and is what happened in two of the examples in this article. A reverse mortgage is for seniors age 62 or older and the risk associated with taking a younger spouse off title is a lousy bet. Consumer Financial Protection Bureau is working on new rules” Uniform standards will help a bit – but there will always be those who will not comply with even the strictest rules. The best option is to deal with someone who adheres to these higher standards without having to be told to do so by the CFPB. The reverse mortgage solicitation attached in the news story is offensive in every way to reputable folks in the industry.

There is a misconception about the complexity of reverse mortgages – the fundamental difference between a reverse mortgage and traditional mortgage is rather than making monthly payments – the interest and monthly mortgage insurance incurred on the reverse mortgage is deducted from equity reserves. That can relieve a senior from monthly mortgage payments or provide valuable monthly cash flow.  Seniors must plan and make sure they have other sources of cash flow to continue to make their property tax, insurance and HOA payments – as they would whether they had a mortgage or not.

“the loans are highly regulated …”

The FHA insured home equity conversion mortgage (HECM) is highly regulated and advanced independent counseling is required before any transaction can be completed. While this counseling should not take the place of education and detailed analysis available from a reputable reverse mortgage loan advisor, it is a good quality check to make sure all bases are covered. “void left by the big banks have moved smaller mortgage …”

Bad advice can come from any source and that’s why you need to check out who you’re dealing with. Deceptive sales pitches and high-pressure tactics have no place in the reverse mortgage industry – period. Wells Fargo, Bank of America, and MetLife got out of the reverse mortgage business for various reasons but mainly because

1) It was difficult to control a large number of loan officers and assure high standards were met at all levels

2) Each faced significant public relations exposure were they to foreclose on even one borrower who was unable to meet their tax and insurance obligations whatever the reason and            

3) Competition in the reverse mortgage space once the HECM Home Equity Conversion Mortgage became the standard – made the business less profitable and a much smaller segment of the big banks business.

“… complaints, according to elder-care advocates and federal officials, have been rising during the past year” It makes sensational press to highlight a senior facing foreclosure and eviction from his or her home. No matter what the circumstances is a terrible outcome. All the more reason to seek out education about the proper use of a reverse mortgage, when it makes sense and when it does not. All the more reason to find a reputable company and individual to work with that is interested in helping you live better.  Your adviser must make sure that adequate plans are made and all the elements of a reverse mortgage are explained and patiently.  I invite the seniors financial adviser  children, or other person they will consult with about a reverse mortgage to be at every meeting and walked the same path as the senior. Only then will I proceed completing the reverse mortgage. Taking people from where they are to where they want to be … That is what we believe and practice at Signet Mortgage. The fact that all of our reverse mortgage consultants are all current or former CPA’s or financial planners and have had years of experience in the business are illustrative of the high standard we operate under.


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