Consumer Reports Investigative Report on Reverse Mortgages, Hardly Balanced

imageConsumer Reports is back and they’ve decided to jump on the Claire McCaskill bandwagon attacking reverse mortgages in their September 2009 edition.  Consumer Reports calls Reversals of fortunes an “investigative” report on reverse mortgages but it’s nothing more than a one sided argument against the product.

The article is perfectly crafted to ensure the reader has a gut wrenching feeling when they see a picture of Earl Minor holding a picture of his wife who passed away in a few years ago. 

In 2005, the Minor’s decided to use a reverse mortgage to pay off medical bills.  His wife was 86, but Earnest wasn’t yet 62, so the couple wasn’t able to qualify.  The broker suggested taking his name off the deed so that the loan would be issued solely to his wife.

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"The broker told me my name could be put on the mortgage as soon as I turned 62, but that never happened," Minor says.  Unfortunately for Minor, when his wife passed away in 2007, he was notified by Financial Freedom that the death made the mortgage payable and that foreclosure proceedings would begin if he did not refinance or pay off the balance.  

When his wife closed on the reverse mortgage, she was able to pay off their $70,000 mortgage balance as well as about $91,700 in medical bills, a new roof, and other expenses.  The closing costs totaled up to roughly $15,000, which enabled his wife to receive $161,700.  That sounds like a great benefit to me, but instead of recognizing the loan was able to help the couple, Consumer Reports focused on the payoff which  totaled more than $200,000.

According to Minor, the home is now valued at only $130,000 and he can’t find money to pay off the loan. Attempts to negotiate refinancing or some other solution with lenders have been fruitless. 

In a letter to Consumer Reports, Financial Freedom said it "acknowledges Mr. Minor’s unfortunate situation and has repeatedly delayed foreclosure—which is required under HUD guidelines—for almost two years since his wife’s passing to allow Mr. Minor time to find a solution."

The article continues to describe other unfortunate scenarios and features plenty of McCaskill plugs.  What it doesn’t describe is any positive stories that stem from reverse mortgages.

To give everyone a little background on how the article came to fruition, National Reverse Mortgage Lenders Association President, Peter Bell, told attendees at the TMBA event in Austin, TX that he spent four and a half days with Consumer Reports going over the program and answering any questions.  

He felt confident that the reporter would provide a fair and balanced article but that isn’t what happened.  Bell pointed out that the article doesn’t have a byline, which could mean that after the journalist wrote a a balanced article, the editor changed it to reflect their own views. 

In response, NRMLA plans to send a letter to Consumer Reports and Bell told attendees that borrowers need to do the same.  He suggested that lenders sit down with borrowers and explain to them that unbalanced reports like this might scare people who may benefit from a reverse mortgage.  “We need to generate dozens if not hundreds of letters to consumer reports,” says Bell. 

I couldn’t agree more.  Letters from borrowers to publications like Consumer Reports or politicians about how reverse mortgages have improved lives will have more of an impact than letters from lenders. 

Everyone needs to read the article in full, if you don’t subscribe to Consumer Reports you can read the story at the link below.

Consumer Reports – Reverse Mortgages (September 2009)

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  • I've had a problem and dropped my subscription many (25) years ago after they had , I thought, a very unbalanced article on, I think, life insurance. Even some of their stove reports are not that great, but marginally better than their sorry attempts at evaluating financial products.

  • Consumer Reports is for people that WANT to be told what is the best. Kind of a one stop shop. They have been found guilty in the past of a number of exaggerated concerns, a proven fact.

    Yes they take ZERO advertising dollars, but you know what? That puts the pressure back on them even more to sell magazines and subscriptions, because that is the main source of revenue for them. So if you can't come to the table with something unique from the competition, you will have those few sources of income dwindle and you cease to exist.

    CR Must maintain a bit of uniqueness to survive, and unfortunately they have done this in the past be distortion of the facts.

    Remember the Suzuki and Chrysler K Car rollover fiascoes of the 80's? All proven to be within the norms for those type vehicles.

    How about the more recent sensational failure of baby seats that were bogus less than a year ago?

    In 1998, the magazine tested pet food and claimed that Iams dog food was nutritionally deficient. They later retracted the report claiming that there had been “a systemic error” but never correct the error.

    In 1996 CR tested motor oils and said there were no material differences in all of the brands tested. However they recommenced Synthetic oils for additional protection even though they couldn't prove they any were better it was better. Why?

    The problem is in something as complex as an automobile it is difficult for the experts to agree, much less a company that also tests dog food.

  • the good news? – you have to pay to get this magazine or to view articles online, and magazine subscriptions seem to be one of the first things to be cut back in tough times…..

  • “This is a sad and unfortunate scenario but in the end, Minor didn’t take the responsibility to get onto the loan when he turned 62.”

    It's this type of stuff done by loan officers that puts us all in a bad light. An 86 year old woman? Is the RM suitable for an 86 year old woman..whose husband has to come off the deed to qualify? When he turns 62 two years after they do the RM he CAN”T just be put on the deed and the loan unless HER RM is paid off and they apply for a new one. They most likely would not have qualified for enough to do so because of the big age difference.

    • You're right, my point was that he didn't seem to take any responsibility for the fact that he would have to do something to get back on the loan. It seemed like he was placing the blame on the broker for not being put on the loan when he turned 62.

  • Even in our own reporting..

    “This is a sad and unfortunate scenario but in the end, Minor didn’t take the responsibility to get onto the loan when he turned 62”

    We all, in the trenches, know Minor can not “get on the loan”. He would have had to refinance, and with his age, loan amount, and current value, not an option.

    A potential borrower that reads this RMD article might think that Minor simply overlooked the formality of adding his name to the deed upon turning 62…and take inappropriate action themself.

  • I think everyone is forgetting it was the BROKER that provided Mr. Minor with bad/inaccurate advice. The SOURCE of the bad information is key, not the RM product. This is, clearly, not to say all brokers are bad, but let’s place the blame where it belongs here.

  • Obviously The Rep did not explain to Mr Minor that even if he was back on the Deed he would not be on the loan. As A counselor when I run into this situation I make sure the Party coming off is aware they will become ” Homeless” when the borrowing spouse Dies if they don't have the funds. Some times I run into this situation where the spouse that's coming off has no idea of the cosequences of His? Her action. That's why there are Certified Counselors'

  • The Consumer Reports article, “Reversal of Fortune,” clearly states Mrs. Minor was 68, NOT 86 when the HECM was closed. The loan officer who originated the loan acted unethically by advising Mr. Minor to remove his name from title, especially since Mrs. Minor was documented to have had serious health issues. In fact, the purpose of the reverse mortgage was to help pay for her medical bills.

    In my reverse mortgage career, which dates back to 1990, I have advised only two customers to remove the younger spouses from title in order to obtain a reverse mortgage. Both were in default on their existing mortgage and would have lost their homes had they not obtained the reverse mortgage.

    While I can understand some people in our industry wanting to see nothing but happy talk about reverse mortgages in the press, reporters would not be doing their jobs if they weren't calling out those among us who do the public a disservice.

    The most-frequently publicized abuse of reverse mortgages is the sale of inappropriate financial products in connection with a reverse mortgage. NRMLA must strengthen is ethics advisory on cross-selling so as to prohibit it altogether. There is no such thing as “ethical cross-selling.” This includes arrangements in which an insurance agent and reverse mortgage originator exchange referrals which result in the senior being sold an inappropriate financial product along with the reverse mortgage.

  • I've always wondered, how do you guys feel when an “advisor/insurance agent” recommends a prospect to you. Is this as evil and will these people always be only selling those much trotted out and bally hooed “inappropriate products”? Is the senior being helped if an RM is appropriate and can both parties be doing their jobs ethically and professionally? This could be more than academic for me, since I have told some parties that they should look into an RM. Unfortunately, most people I am in contact with these days are co-op owners.

    • dduck12,

      If the recommendation is going the other direction, i.e., from the HECM originator to the insurance or securities licensee, there is an inherent problem as to when it takes place since if it occurs after counseling, then there is no independent third party to question the advisability of using proceeds for that specific purchase. If the senior has decided to purchase a product and is now looking for the financing, that is something else again and counseling should have had the opportunity to address that issue, since in most cases, counseling will take place after the purchase decision is in play.

      Also there is the relative difficulty of each transaction. Purchasing is usually a less difficult and grueling transaction than a HECM which has two signings of tens of pages of documents and counseling along with at least one signing with a public notary. When someone has available proceeds to buy a financial product with a reverse mortgage, convincing them to buy an apparently helpful product is much easier than convincing someone to buy it when funds are not readily available and now they must shop for a loan that requires counseling.

      I think most HECM reformers would have far less concern when the recommendation is coming from the insurance or securities licensee than vice versa. However, I think most insurance and securities licensees would want the HECM in place before making their sales pitch; that way the issue about not having the money to purchase product does not need to be addressed.

      • Thanks Cynic,

        I am a fan of Seinfeld and remember the show where George says “what's the difference, all the pipes come together?”. If I recommend that a person(s) look into a RM (with or without a thought to selling something), if it is appropriate, it is ok. But pity the poor RM originator who has the brains/education to mention an appropriate product (no, not a deferred annuity and very unlikely an immediate annuity, but perhaps a “rated annuity”) he does not sell and the regulators start foaming at the mouth at screaming “cross selling”. (Sorry Sen. McCaskill, perhaps you can find an other ax to gore, since some people are going after you and your husband's occupation.)
        I'm just pointing out that it is a little ludicrous that whichever the way the recommendation originates is important regardless of the final outcome, which should be evaluated on its own merits or defects.
        Sorry, I realize you guys are under the microscope and I empathize with your situation.

  • The article also failed to highlight the fact that they received $161,700 from the reverse mortgage on a home that is only worth $130,000. Sounds like they maximized their asset despite the unfortunate situation Mr. Minor finds himself in now.

  • The response by the Reverse Mortgage Lenders Association does the industry no credit whatsoever. Indeed, it merely confirms wider perceptions that the industry is dominated by scammers, spivs and fools hellbent on flogging fiscally irresponsible products which are unfairly painted as lilly white.

    THe NRMA Presdient Peter Bell said:

    “This is a sad and unfortunate scenario but in the end, Minor didn’t take the responsibility to get onto the loan when he turned 62.”

    What a disingenuous and spitful response from an evil little man.

    It is patently obvious to anyone with any understanding of the law that the lender would never agree to such a reinstatement of the younger husband name on the title deed snce unless it ad prior notice. It was never an option for Ear Minor. Indeed, the lender has no legal obligation to acede to such a request and by doing so, dramaticlly changes the negative equity risk profile of the loan it had written years earlier without compensation. This is a case of sales and advice risk and nothing more – the fault lies with the adviser.

    The NRMLA response is simply rubbish.

  • What a disturbingly biased article. Closing costs average around 5% of the loan amount, less than homeowner's would being paying in the event of a sale.
    The product been an incredible boon to many. It may not be for everyone and to prevent problems for those who are inappropriately advised, there should be special licensing requirements.
    As for Sen. McCaskill, it is a fact that her husband makes considerable money from the nursing home industry. She should recuse herself from any legislation due to the conflict of interest.

    • jbrodey,

      While I agree with a lot of what you say, it seems highly inappropriate to attack the Senator over what her husband may of may not be doing. Conflicts of interest are not a disqualification on promoting or voting on legislation; conflicts of interest can disqualify Congressional members from sitting on certain oversight committees. Her hearings on HECMs are not a conflict of interest; however, she should disclose his involvement in that industry at the initial portion of committee hearings on HECMs where she is a participant so as to make it readily apparent and transparent what her natural inclination and bias might be.

      What is your source for an average of 5%? Is that your experience or an you provide an objective source for that figure? Why is it that we look at selling costs when selling is not an option that a senior like Mr. Minor was looking at?

  • jbrodey,rnrnWhile I agree with a lot of what you say, it seems highly inappropriate to attack the Senator over what her husband may or may not be doing. Conflicts of interest are not a disqualification on promoting or voting on legislation; conflicts of interest can disqualify Congressional members from sitting on certain oversight committees. Her hearings on HECMs are not a conflict of interest; however, she should disclose his involvement in that industry at the initial portion of committee hearings on HECMs where she is a participant so as to make it readily apparent and transparent what her natural inclination and bias might be.rnrnWhat is your source for an average of 5%? Is that your experience or can you provide an objective source for that figure? That percentage has been kicked around for years with no foundation except subjective belief. rnrnWhy is it that we always go back to selling costs when selling is not an option that a senior like Mr. Minor would like to be considering? We need to be providing suggestions that fit the desires of the seniors not those that “defeat” objections. That nonsense is for the “bottom feeders” who thrieve on it. Yes, sometimes it is appropriate but too many times it is not.

  • dduck12,rnrnIf the recommendation is going the other direction, i.e., from the HECM originator to the insurance or securities licensee, there is an inherent problem as to when it takes place since if it occurs after counseling, then there is no independent third party to question the advisability of using proceeds for that specific purchase. If the senior has decided to purchase a product and is now looking for the financing, that is something else again and counseling should have had the opportunity to address that issue, since in most cases, counseling will take place after the purchase decision is in play.rnrnAlso there is the relative difficulty of each transaction. Purchasing is usually a less difficult and grueling transaction than a HECM which has two signings of tens of pages of documents and counseling along with at least one signing with a public notary. When someone has available proceeds to buy a financial product with a reverse mortgage, convincing them to buy an apparently helpful product is much easier than convincing someone to buy it when funds are not readily available and now they must shop for a loan that requires counseling.rnrnI think most HECM reformers would have far less concern when the recommendation is coming from the insurance or securities licensee than vice versa. However, I think most insurance and securities licensees would want the HECM in place before making their sales pitch; that way the issue about not having the money to purchase product does not need to be addressed.rnrn

  • Well we certainly disagree here. I can't believe you would not find Sen. McCaskill's efforts to further restrict an industry which operates in competition with her husbands financial interests to be unethical behavior. Are you kidding? It's not much better than Phil Gramm's despicable role in getting the 'Enron Loophole' incorporated into the Commodity Futures Modernization Act which gave them an exemption from the OTC trading regulations while HIS WIFE WAS ON THE BOARD OF ENRON.

    As for the 5% closing cost figure, that is my experience although it has reached 8% in some instances. I would be comfortable saying 6% is my average.

    With regard to the analogy made between closing costs and the cost of selling one's home. The point has nothing to do with whether the sale is an option for the client or not but serves to put these costs in perspective vis a vis other real estate/financing transactions.

  • How is it that it is OK for McCaskill to attack the RM industry with McCarthy type hearings and not “appropriate” for people to attack her (not her husband, I agree)? Especially, if she has not corrected her incorrect words, which she could say were misspoken or based on faulty data (or some such politician's way of wriggling out).Everyone sticks their foot in their mouth and I respect politicians that attempt to apologize (although her's are way off base, her statements, not her feet).

  • Thanks Cynic,rnrnI am a fan of Seinfeld and remember the show where George says “what’s the difference, all the pipes come together?”. If I recommend that a person(s) look into a RM (with or without a thought to selling something), if it is appropriate, it is ok. But pity the poor RM originator who has the brains/education to mention an appropriate product (no, not a deferred annuity and very unlikely an immediate annuity, but perhaps a “rated annuity”) he does not sell and the regulators start foaming at the mouth at screaming “cross selling”. (Sorry Sen. McCaskill, perhaps you can find an other ax to gore, since some people are going after you and your husband’s occupation.) rnI’m just pointing out that it is a little ludicrous that whichever the way the recommendation originates is important regardless of the final outcome, which should be evaluated on its own merits or defects.rnSorry, I realize you guys are under the microscope and I empathize with your situation.

  • Well we certainly disagree here. I can’t believe you would not find Sen. McCaskill’s efforts to further restrict an industry which operates in competition with her husbands financial interests to be unethical behavior. Are you kidding? It’s not much better than Phil Gramm’s despicable role in getting the ‘Enron Loophole’ incorporated into the Commodity Futures Modernization Act which gave them an exemption from the OTC trading regulations while HIS WIFE WAS ON THE BOARD OF ENRON.rnrnAs for the 5% closing cost figure, that is my experience although it has reached 8% in some instances. I would be comfortable saying 6% is my average. rnrnWith regard to the analogy made between closing costs and the cost of selling one’s home. The point has nothing to do with whether the sale is an option for the client or not but serves to put these costs in perspective vis a vis other real estate/financing transactions.

  • How is it that it is OK for McCaskill to attack the RM industry with McCarthy type hearings and not “appropriate” for people to attack her (not her husband, I agree)? Especially, if she has not corrected her incorrect words, which she could say were misspoken or based on faulty data (or some such politician’s way of wriggling out).Everyone sticks their foot in their mouth and I respect politicians that attempt to apologize (although her’s are way off base, her statements, not her feet).

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