FDIC Consumer News Publishes Reverse Mortgage Feature

NewImage.jpgThe spring issue of the Federal Deposit Insurance Corporation’s Consumer News includes a section on understanding the risks and costs of a reverse mortgage.  Produced quarterly by the FDIC Office of Public Affairs in cooperation with other Divisions and Offices, the publication is intended to present information in a nontechnical way for consumers.

In Advice for Seniors: Understand the Risks and Costs of Borrowing With a Reverse Mortgage, the FDIC says a reverse mortgage is often advertised as a great source of easy money for older homeowners to supplement their income, pay healthcare expenses or use the money as they please. However, the FDIC says that reverse mortgages may not be the best option for everyone.

“Not all advertisements clearly indicate that a reverse mortgage is a loan,” said Mira Marshall, an FDIC Section Chief specializing in consumer issues. “In fact, a reverse mortgage is a very complicated loan that uses home equity as collateral, just like the mortgage you probably used to purchase your home.”

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The article addresses basic information about the product and to consider whether or not you or your heirs want to keep the house.

“Because the costs and fees can be extremely high,” said Mike Evans, an FDIC Fair Lending Specialist, “most experts generally advise homeowners not to take out a reverse mortgage if they plan to stay in their home less than five years or if they simply need extra money for small expenses.”

If you decide that borrowing money is the way to go, contact several lenders and compare the costs and benefits of the options they offer said the FDIC.  They also address using funds to purchase another financial product.

“Most financial experts also agree that it is never a good idea to use the funds from a reverse mortgage to purchase other financial products or services,” added David Lafleur, an FDIC Senior Examination Specialist. “Not only will you immediately incur expensive interest charges and other fees in connection with the reverse mortgage, but having large deposits or annuities may make it tougher for you to qualify for certain entitlement programs that take assets into consideration, such as Medicaid. Also, if you tie up money in CDs or annuities, you will be giving up easy access to funds you may need to meet your expenses.”

The spring 2010 issue of FDIC Consumer News also includes eight ways to avoid problems including increases in rates and fees and reductions in credit limits. Other articles discuss questions to ask before depositing money through an “agent” or broker instead of directly with a bank.

Advice for Seniors: Understand the Risks and Costs of Borrowing With a Reverse Mortgage

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  • The reverse mortgage, like all other mortgage financing, is not right for “all” borrowers. In this case not right for all seniors. All experienced lenders knows this. The costs prohibit using a reverse mortgage if the senior is going to place the home on the market in the next few years. The exception is when the home is in foreclosure and has been placed on the market for sale. Then it is a race to see if the senior can save the equity they have built in their home. We tell every senior, seeking information on a reverse, that you must pay back all borrowed money – ether the senior of their estate. This is part of the normal sales presentation, and, I hope backed up when their are counseled. We tell them that they should seek assistance from their kids first. If this is not possible then proceed with a reverse. With these percautions we can grant a reverse mortgage knowing that the senior is “informed” about the transaction they are about to enter. When you are 45 years old you can make a mistake and then have years to correct your error. Not true when you are 80 years old.

  • The report is not bad, but what I don't like is that it said that Reverse Mortgages only give part of the value of a home, but Home Equity Lines of Credit (HELOC's) can give as much as 100% Can someone let the FDIC know that it is not 2006 anymore? Most major lenders won't give more than 80% and some won't go higher than 50% In any case, the reality is that the vast majority of seniors won't qualify for a HELOC anyway. This was very misleading.

    • Mike,

      You hit the nail on the head! So did Wealthone. It seems we are caught up in the maze of reporting by people missing crucial, vital information as well as misleading information.

      I don't particularly like the report because it is misleading. We are painted as “The Beware Of The Big Bad Reverse Mortgage people”. This is so far from the truth. Good job Mike and to Wealthone as well.

      John A. Smaldone

  • Once again, the writer is missing crucial, vital information and providing out-dated and misleading information. Where is there a 100% cash out program on the forward mortgage side TODAY? Where is the info on waiver of fees. Who is originating non-HECM loans right now.

    Here's one for you- don't drive a Pinto unless you fully understand the risks posed by a rear end collision.

    I appreciate the FDIC talking about the program but misrepresenting information is irresponsible.

    What if the reverse mortgage industry told their clients taking lump sums not to deposit in FDIC banks due to the fact that FDIC's capital is negative about $20 Billion and that they are dependent on the US Treasury, ie, taxpayers, to guarantee its obligations. That would not be responsible- would it?

  • The reverse mortgage, like all other mortgage financing, is not right for “all” borrowers. In this case not right for all seniors. All experienced lenders knows this. The costs prohibit using a reverse mortgage if the senior is going to place the home on the market in the next few years. The exception is when the home is in foreclosure and has been placed on the market for sale. Then it is a race to see if the senior can save the equity they have built in their home. We tell every senior, seeking information on a reverse, that you must pay back all borrowed money – ether the senior of their estate. This is part of the normal sales presentation, and, I hope backed up when their are counseled. We tell them that they should seek assistance from their kids first. If this is not possible then proceed with a reverse. With these percautions we can grant a reverse mortgage knowing that the senior is “informed” about the transaction they are about to enter. When you are 45 years old you can make a mistake and then have years to correct your error. Not true when you are 80 years old.

  • The report is not bad, but what I don’t like is that it said that Reverse Mortgages only give part of the value of a home, but Home Equity Lines of Credit (HELOC’s) can give as much as 100% Can someone let the FDIC know that it is not 2006 anymore? Most major lenders won’t give more than 80% and some won’t go higher than 50% In any case, the reality is that the vast majority of seniors won’t qualify for a HELOC anyway. This was very misleading.

  • Once again, the writer is missing crucial, vital information and providing out-dated and misleading information. Where is there a 100% cash out program on the forward mortgage side TODAY? Where is the info on waiver of fees. Who is originating non-HECM loans right now. rnrnHere’s one for you- don’t drive a Pinto unless you fully understand the risks posed by a rear end collision. rnrnI appreciate the FDIC talking about the program but misrepresenting information is irresponsible. rnrnWhat if the reverse mortgage industry told their clients taking lump sums not to deposit in FDIC banks due to the fact that FDIC’s capital is negative about $20 Billion and that they are dependent on the US Treasury, ie, taxpayers, to guarantee its obligations. That would not be responsible- would it?

  • The article was fundamentally flawed.

    For example, the author did not understand that FHA insurance does not make HECMs nonrecourse for borrowers. That is simply a matter of law which defines all reverse mortgage transactions as nonrecourse. FHA insurance provides the means for lenders to offer high risk loans at reasonable interest rates and relatively high principal limit factors since the FHA insurance minimizes any potential losses; that is the principal benefit of FHA insurance for ALL HECM borrowers.

    Yes, the article was outdated but so is almost everything in print that is not a description of some historical undisputed fact such as — yesterday it was May 26, 2010 in California. But it is disturbing to see in a very, very recent post such outdated information being invoked by a well respected government organizations like the FDIC in making its chief arguments on why seniors should be careful in deciding to obtain a reverse mortgage..

    The real fundamental question is why was this “article” even necessary? Why not just redirect readers to the place on the HUD website which discusses the same basic issues? This article is like the FDIC providing advice on pension plan design instead of relying on advice already provided by the IRS or DOL.

  • Mike,rnrnYou hit the nail on the head! So did Wealthone. It seems we are caught up in the maze of reporting by people missing crucial, vital information as well as misleading information. rnrnI don’t particularly like the report because it is misleading. We are painted as “The Beware Of The Big Bad Reverse Mortgage people”. This is so far from the truth. Good job Mike and to Wealthone as well.rnrnJohn A. Smaldone

  • The article was fundamentally flawed. rnrnFor example, the author did not understand that FHA insurance does not make HECMs nonrecourse for borrowers. That is simply a matter of law which defines all reverse mortgage transactions as nonrecourse. FHA insurance provides the means for lenders to offer high risk loans at reasonable interest rates and relatively high principal limit factors since the FHA insurance minimizes any potential losses; that is the principal benefit of FHA insurance for ALL HECM borrowers.rnrnYes, the article was outdated but so is almost everything in print that is not a description of some historical undisputed fact such as — yesterday it was May 26, 2010 in California. But it is disturbing to see in a very, very recent post such outdated information being invoked by a well respected government organizations like the FDIC in making its chief arguments on why seniors should be careful in deciding to obtain a reverse mortgage..rnrnThe real fundamental question is why was this “article” even necessary? Why not just redirect readers to the place on the HUD website which discusses the same basic issues? This article is like the FDIC providing advice on pension plan design instead of relying on advice already provided by the IRS or DOL.

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