For many seniors, a reverse mortgage can be a saving grace, Washington Post columnist Michelle Singletary reports this week. But the product isn’t without issues, the column says.
Stating the circumstances under which a reverse mortgage does make sense, such as seniors have found themselves cash-poor because of poor money management, job losses or medical expenses, the column also reviews findings of the recent Consumer Financial Protection Bureau report on the reverse mortgage industry, including the potential for reverse mortgages to become a much more prominent loan type in the future financial landscape.
For most Americans, their home is their largest asset. In 2009, half of homeowners 62 and older had at least 55 percent of their net worth tied up in home equity. In looking at the reverse-mortgage market, the consumer bureau notes that only about 2 percent to 3 percent of eligible homeowners currently have a reverse mortgage and that just 70,000 new reverse mortgages are originated each year.
“But reverse mortgages have the potential to become a much more prominent part of the financial landscape in the coming decades,” the bureau said in its report.
The bureau found some troubling issues. For instance, even though borrowers have to get mandatory pre-loan counseling, many still don’t understand the intricacies of a reverse mortgage.
I’ve talked to a number of seniors who have gone through the whole process, and their lack of understanding of the product was worrisome. Further, some counseling agencies only receive payment when the reverse mortgage is closed, which could undermine counselors’ impartiality, the bureau points out.
…A reverse mortgage isn’t a bad product. But consumer groups have long complained about deceptive or misleading marketing practices. The bureau’s report raised enough red flags to warrant the agency taking whatever steps necessary to protect people considering this financial option.
Read the full article at WashingtonPost.com.
Written by Elizabeth Ecker