Reverse Mortgage Abuses
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What a surprise! An article in todays SanFran Chronicle reports that reverse mortgages have "the potential to spawn another subprime-style financial crisis." This, according to a report released by the National Consumer Law Center in Boston.
The report discusses "aggressive marketing tactics" that pressure elders to use RM loan proceeds to purchase other potentially inappropriate financial products, such as annuities, and even things such as luxury items.
A reverse mortgage permit homeowners over 62 to receive a lump sum, periodic payments or credit line checks. The borrower doesn't make mortgage payments, but interest and fees accumulate over the life of the loan and the loan must be paid when the borrower dies, sells or leaves the home for more than one year. The interest compounding feature can be quite a problem. The article discusses the story of one woman that learned, when she went to refinance her home, that she owed over $600k on a home that was worth only $120k. She had only received $120k in payments on the loan.
The state of California has legislation pending that would establish a suitability checklist for reverse mortgages. The NCLC report recommends that anyone that arranges a RM establish that they are acting in the best interest of the senior.
As in all matters, you are your own best guardian. Of course, a responsible attorney can guide you through the decision making process. Borrowers beware!
Bruce A. Bierhans