Consumer Reports Puts Reverse Mortgages On Its List of Financial Scams, Why?

image The March issue of Consumer Reports lists reverse mortgages as one of five Financial “Scams” that consumers should be aware of in 2009.  The report points to videos from James Garner (which aren’t even being aired anymore) and other celebrities as evidence of ways financial firms are enticing seniors to take equity out of their homes through reverse mortgages.

According to the report, reverse mortgages should only be used as a last resort and points to Financial Freedom suggesting borrowers to use the money for "special things you’ve always wanted to do, such as travel or hobbies."

It’s clear whoever wrote the report has it out for Financial Freedom. See below

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Financial Freedom is a subsidiary of IndyMac Bank, which was taken over by the Federal Deposit Insurance Corp. in 2008. A sale of IndyMac is pending.

The dangers are outlined in a lawsuit filed against Financial Freedom. The suit claims that the company advised its business partners to encourage seniors to take out as much money as possible in reverse mortgages so that the fees and interest paid to lenders would be maximized.

The complaint goes on to say that Financial Freedom encouraged and trained partners, some of whom were insurance agents, to sell insurance products to seniors with the money gained from the reverse mortgage. In turn, Financial Freedom would obtain additional interest on the extra money borrowed.

What does Consumer Reports suggest its readers do instead of a reverse mortgage?  Receive counseling…

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  • If I remember correctly, FF was a casualty in that lawsuit. It was misfiled!!! It was against another co. with a similar name. It just goes to show you that bad press, even if retracted or inaccurate, hurts!

  • I am glad Consumer Reports recomends counseling but I wish they had talked with a reverse mortgage counselor before they wrote that story. If they had, and heard what we hear everyday, I am certain they would have had a much more positive view of reverse mortgages. In many cases a RM is the only thing that allows a senior to avoid foreclosure or have any money left for themselves at the end of the month. Not many of the clients I counsel are doing this on a lark. Options that might have once been available like working later, relying on investment income or getting a home equity loan or not possible in this economy. In such cases a reverse mortgage has turned out to be a lifeline for these struggling seniors.

  • According to the Consumer report article counseling is free. Could I get that phone number please? My customers aren’t receiving counseling for free. P.S. I tried to go on the Consumer Report website to send them an email questioning their journalism or lack of it but they don’t have such an option, although they very clearly give you an option to DONATE! to their NON-PROFIT organization. Wow!

  • I did not read the report but I understand that it says that reverse mortgages should be used only as “a last resort.”

    If the 1.5M people who are in foreclosure now (probably only about 10% are over 62) and the 3M that are expected to go into foreclosure in the next two years had a reverse mortgage most would not be facing that situation. If anything, reverse mortgage should be expanded to include all of those people. Their lives as the lives of the seniors who have one now would be better off because of it. I challenge Consumer Reports to call 100 people who have a reverse mortgage to see what they have to say about them.

  • How about a class-action lawsuit against Consumer Reports? Any attorneys out there need something to do? Articles like that cast an unwarranted shadow on individuals who originate RMs. What you have is the tilted opinion of one individual with obvious bias and absolutely no experience. Shameful!

  • They never impressed me with their car ratings either.

    I believe that any publication, or the media, tries to expose the bad in everything for shock value. Maybe their thinking is that by providing “good” news they would be boring, and by endorsing something they could be named in a lawsuit by a disgruntled consumer.

    The fact is that they wrote plenty of warnings regarding the pitfalls of forward mortgages, LTC, annuities, life insurance, etc. without destroying the market for these products to any great degree.

    IMHO, NRMLA does not do enough to get the true story out there. Whether this is due to lack of budget, PR expertise, or lack of initiative, they could do a better job.

  • I have absolutely no guilt about originating RM. I have seen it save lives and homes. My borrowers refer to it as a “God send”. I have never had a borrower tell me they made a mistake by doing a RM. I sleep well at night knowing I have helped some either improve or maintain their quality of life.

  • The real culprits are the lenders who make high interest home equity loans to Seniors, saddling them with monthly payments they have no way to make. By the time they turn to us for help with a Reverse Mortgage, their existing mortgage is so high that we are unable to bail them out.

  • I believe that the lawsuit referenced in the Consumer Reports is concerning FF’s first propriety product that has not been available for at least 10 years now.
    I hope FF contacts the individual at Consumer Reports and educates him/her about the correct information about the law suit and sites the actual percentages of borrowers obtaining RM for paying of their mortgages, money to live on and to cover ongoing medical expenses.

    It would also be helpful if NRMLA and other major RM lenders submitted written responses to Consumer Reports correcting the vast amount of misinformation in that article.

  • Nancy brings up a great point. Is their a spokesperson for NRMLA that responds to editors of companies like Consumers Reports? This article is so far from reality and unfortunately reaches so many people that will believe what they read, as they are supposed to be a trusted source of information.

    It would be great if somebody like NRMLA could set CR strait about what a reverse mortgage really does and have them do a retraction but it will not happen, because it would be bad for business.

  • The article is fraught with miss information. As an independent nonprofit organization I would have thought Consumer reports would have done some due diligence before writing such a damaging article.

    Counseling is REQUIRED before an application can be taken. Counselors are approved by HUD and the do charge a fee.

  • A RM is an option to assit those 62 and over to stay in their home. If it pays off an existing mortage, supplements income and/or provides them a Line of Credit for emergencies or things they want to do, they deserve it. I would challenge those critics that beleive the product is the last resort to contact those that have taken Reverse Mortgages out and ask them about the positive quality of live, peace of mind and independece it provides all the while living in their home they cherish and are able to maintain a life of dignity.
    “Give me my flowers now, do not wait until I die”

  • The article is fraught with miss information. As an independent nonprofit organization I would have thought Consumer reports would have done some due diligence before writing such a damaging article.

    Counseling is REQUIRED before an application can be taken. Counselors are approved by HUD and they do charge a fee.

  • as I see it congress caused this fiasco, number one by allowing companies to come in Like Met Lif, Genworth. Companies that have insurance business selling using a reverse mortgage to be able to tap the equity. Another major probem is by capping our fees, while no industry has to work with this handicap. The 2% orgination fee brokers we where earning has gone away in most cases. Instead of leaving it to the free market to cut fees. We are cappedcausing brokers making seniors taking out all the equity and investing to earn more money to play catch up.I was told by a customer she was called by a telemarketing comapany (I wont mention names but the car looks good in the ad).
    on the new sales pitch you can write all the checks you want but neglect to mention you have to take out the cash and you lose the credit line growth and accumulate intest cost. Time for laws seperate licenses with conflict of intrest with insurance and financial products.

  • Scam??? Talk to the 81 year old senior who was 4 weeks from foreclosure and up to his eyeballs in credit card debt. We paid off his three liens and all of his credit card debt saving his house and leaving him debt free. It certainly was his last resort. Without us he would have been out on the street because no one else could help him. I think NRMLA should have a long, long talk with Consumer Reports.

  • I looked at the Faces of Foreclosure page on their website. It appears that based on age all three of those shown could have qualifed for a reverse mortgage. Wonder if Consumer Reports suggested that option? NOT…………..

  • Great responses: Again, I believe real life Senior FHA
    HECM loan Testimonials by actual clients would be great public relations. The financial challenges most Seniors face with make a Reverse Mortgage all too valid. I’m so impressed with the integrity of those in the RM industry I have met; many of you blog on this web site. The Country should be very proud of the roll the Reverse Mortgage Industry plays Specia in helping Seniors in the closing years of their life.
    By the way, I have asked Admin at RMD to provide a spellchecker for comment writeers, but he says his softwear will not permit; I apologize for insulting this ver intelligent audiance at times. Even with two dictionaries in fron of me I still make mistakes–blame it on an old Senior’s senility.

  • The author of this article incorrectly quoted Consumer Reports as putting reverse mortgages on its “list of financial scams.” Nowhere in the Consumer Reports article is a reverse mortgage referred to as a “scam.”

    The CR article correctly states that a reverse mortgage is costly, recommends that a prospective borrower first obtain counseling from a HUD-approved counseling agency (although it’s no longer possible to get it free of charge), and not to sign documents until they have been “reviewed by a lawyer you trust.” When I take an application, I disclose and explain the admittedly high fees, refer the borrower to counseling, and strongly suggest they have the sample documents reviewed by their attorney or other trusted adviser. I make myself available to their lawyer or adviser to answer questions about the documents and disclosures and use such contacts as an opportunity to ask for referrals.

    The author of the CR article believes a reverse mortgage should be a last resort, which is also the opinion of most financial experts who are not in the reverse mortgage business. I happen to believe that a reverse mortgage should be one of several financial options, but it is not an indispensable solution that is right for everyone.

    Regarding Q-Tips and AARP: Consumer Reports recommends against cleaning the inner ear with a cotton swab. So does my son, who is an audiologist. AARP definitely does not give Consumer Reports money. In fact, CR has criticized AARP’s practice of forming partnerships with financial services firms (such as MetLife and Genworth, to name a few).

    AARP was taken to task by the IRS for violating its status as a non-profit organization. AARP settled, paying millions in back taxes and forming a for-profit subsidiary to handle its lucrative royalty arrangements. Read more:

    http://query.nytimes.com/gst/fullpage.html?res=9E04E0DF173FF936A25754C0A96F958260

    I don’t necessarily agree with everything Consumer Reports prints, but I wouldn’t question its integrity. CR doesn’t accept paid advertising; all of its money comes from paid subscriptions and donations, and CR won’t accept test samples from manufacturers, insisting instead on real-life production models purchased by anonymous shoppers.

    In 1999, Consumer Reports published an exhaustive study of reverse mortgages in California. For those who are interested, it may be found here:

    http://www.consumersunion.org/finance/revpresswc899.htm

  • Well, it took about 10 years or so to get the Reverse Mortgage idea out from the gutter pre the old Equity Sharing practices.

    Now, because of a bunch of uneducated morons in the media industry, it’s going right back down.

    Consumer reports suggests COUNSELING??? Do they not comprehend that is a requirement before you can even do a reverse mortgages???

    Wow!

  • Apparently the person(s) writing the article got off mission. It appears they attempted to grade some of the marketing efforts of FF. Then to offer a judgemental type opinion without the facts. Where is the hands-on factual basic comparisons of the product(s) itself? Where and when did they complete a non-bias survey of the recipients of the product? I did not see any writer interviewing HUD/FHA about this government insured and endorsed product with all the consumer safeguards attached.

    Unfortunate for CR and I suspect many of us; we now have to suspiciously view this consumer “Bible” as well… as just an opinion based on ?????? And as we in the heart and soul of this great opportunity to change lives for the better; this unfounded article will hurt those it should be helping the most…our most precious seniors.

  • So many great comments and suggestions. Hooray for David White! Someone please publish an article about banks who gave seniors high interest HELOCs who are now faced with foreclosure; how these people may have been saved by getting a RM instead. And is there any way to get CR to publish a retraction? How about a ten-second commercial from HUD or FHA that simply says “A Reverse Mortgage is a government-regulated program, not a scam!”

  • NRMLA sent a letter to the editor at Consumer Reports as soon as we saw this article when it first came out over a week or so ago. This is “standard operating procedure” for us, to respond to press reports that we feel mischaracterize reverse mortgages. We do not distribute our letters to editors for a number of reasons, a primary one being that it is a common courtesy to give editors time to look into the piece being protested and figure out if they want to print a correction, retraction, our letter or another piece from us.

    I would also encourage members of the industry to write to them individually, as well. If anyone decides to do so, it is important that your letter be polite, respectful and stick to pointing out factual inaccuracies in their report. It would also be useful to have borrowers send letters explaining that their reverse mortgage has been valuable to them and that they received helpful assistance from both their loan officer and reverse mortgage counselor.

  • For those who ask to whom letters should be sent, they should just be addressed “To the Editor” and sent to Consumer Reports. I don’t have the information at my fingertips right now, but our staff just got the email and physical address from their website and/or from a copy of the magazine.

    If you do send letters, and once again, I do encourage people to send well-written, thoughtful letters pointing out inaccuracies in the article, please send copies of your letter to us at NRMLA, as well.

    Also, in drafting your letters, please be sure to recognize the differences with material misstatements of fact versus opinions that might be different than your own. It is okay to dispute opinions and bolster your arguments with examples of good situations where reverse mortgages have helped homeowners, but a writer is still entitled to his or her own opinion based on the research they have done. They are not entitled to spread information that is factually incorrect.

    Finally, the idea that a reverse mortgage should only be used as a means of last resort is a widely-held notion. Many senior advocates, financial planners and adult protective services professionals feel this way. We try to educate opinion-makers that this is not necessarily so, but those who think that way are entitled to their opinion.

    The concern of the adult protection professionals is that they see many seniors who get a reverse mortgage in their earlier years and spend money unwisely. Then, later on, when their needs increase, they are broke and destitute, lose the house and become wards of the state. If they has sold the house earlier and moved into some other type of lving arrangement, rather than incur the fees and interest costs on a reverse mortgage, their funds might have held out longer. This is not neccessarily an unreasonable concern.

  • Mr. Bell – thank you for your response and the helpful information you have provide on an ongoing basis.

    Regarding the concern of the adult protection professionals about seniors who get a Reverse Mortgage and waste their funds and/or have no equity left in their home: I must reiterate David White’s comment again and ask again: How are they worse off with a Reverse Mortgage than if they had refinanced and taken out equity or taken out a HELOC? At least they would not risk foreclosure and loss of their home.

  • In responce to Consumer reports. There maybe some bad apples out there selling reverse mortgages to people who don’t need to borrow money. Costs may be high but you can blame it on greedy states collecting tax money not on loan amounts but 150% on an expected loan amount which might not be reached.We are making the counsling industry rich with the $125.00 charge. Mip insurance on the value of the home at 2% making our insurance fund rich. except it probly is used to bail out foreclosures on the forward side on the backs of seniors. The banks now have higher margins earning more money when loan is paid off.. We are the lowest in the equations since we are limted to the max of 6000. We stil have banks selling insurance products as Met life agents have told me they are being trained to recognise seniors who take out a reverse mortgage to be able to solicit them andmother insurance companies who are now in the ball game. We need a rule that the procedes can not be used for insurance porducts unles proven it’s good for our
    seniors. As far as benifits being lost because of seniors taking a reverse mortgage it is not true. You can still recive Medicaid while having a reverse mortgage. and if a senior has money why should states give them money to fix their home as consumer feels they are losing out. Grants can be subordinate and do not have to be paid off if borrower has one.
    More important is if a senior facing a foreclosuer and is rescued there is no reason why they can not save some of the mortgage payments for the future. So a family member maybe able to buy thier own home in the future. We as dedicate Reverse mortgage orginators we should be helping our borrwers to be more informed and protected of them. Where was Consumer report when borrowers were being scamed with the intrested only loans and homes they were buying and could not afford them.Where was the scam reporters???. Why must every thing be geared for family but not for the parent who is growing older and need help now.

  • In responce to Consumer reports. There maybe some bad apples out there selling reverse mortgages to people who don’t need to borrow money. Costs may be high but you can blame it on greedy states collecting tax money not on loan amounts but 150% on an expected loan amount which might not be reached.We are making the counsling industry rich with the $125.00 charge. Mip insurance on the value of the home at 2% making our insurance fund rich. except it probly is used to bail out foreclosures on the forward side on the backs of seniors. The banks now have higher margins earning more money when loan is paid off.. We are the lowest in the equations since we are limted to the max of 6000. We stil have banks selling insurance products as Met life agents have told me they are being trained to recognise seniors who take out a reverse mortgage to be able to solicit them andmother insurance companies who are now in the ball game. We need a rule that the procedes can not be used for insurance porducts unles proven it’s good for our
    seniors. As far as benifits being lost because of seniors taking a reverse mortgage it is not true. You can still recive Medicaid while having a reverse mortgage. and if a senior has money why should states give them money to fix their home as consumer feels they are losing out. Grants can be subordinate and do not have to be paid off if borrower has one.
    More important is if a senior facing a foreclosuer and is rescued there is no reason why they can not save some of the mortgage payments for the future. So a family member maybe able to buy thier own home in the future. We as dedicate Reverse mortgage orginators we should be helping our borrwers to be more informed and protected of them. Where was Consumer report when borrowers were being scamed with the intrested only loans and homes they were buying and could not afford them.Where was the scam reporters???. Why must every thing be geared for family but not for the parent who is growing older and needs help now.

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