Washington Post: Reverse Mortgage Could Be Saving Grace, Not Without Issues

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. 

Singletary writes: 

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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

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  • Imagine the surprise of the WP journalist when the number of endorsements for this fiscal year are revealed less than 87 days from now.  While there are definite problems with the CFPB report, it also brings things to the surface which need airing.

    One which is not listed above is the need for HUD to provide its ideas on financial assessment.  With each passing day, we are funding HECMs which will end up in default and little is being done to cut those numbers back.  If the default percentage is now at 10% of all outstanding HECMs, where will be it by the time a policy is finally implemented?  The looming headline risk is substantial and so far the cures from counseling and servicers appear to be more promise than reality. 

  • Good article,  I find it hard to believe that seniors do not understand even after they have been counseled AND hopefully have been educated by their reverse mortgage consultant. The paperwork along with the amortization schedule is just so black and white. Here is what you will owe at closing, in 5 years, in 10 years and so on. I do not know what else we can do here? 

    • Vince,

      As someone who originated many, many adjustable rate HECMs and even some Cash Accounts and other proprietary products, what are you talking about?  

      OK tell me where do the borrowers who took HECMs out ten years go to find out what their balance due will be on June 2014?  Not in anything I ever gave them. 

      What about the ten percent who are in default, where do they go to find out how much they owe 18 months from now?  There are even some fixed rate HECM borrowers in that number.

      Our ranks are too full of amateurs.  They know how to educate but don’t understand a thing about the information they use to educate.

    • Mr Vince.  The problem is what we do not know, what the counselors do not know and what the lender will not reveal until too late.
      I have had a Reverse Mortgage with Wells Fargo since Dec 2007. In Nov of 2009
      The rules changed without my knowledge.  Wells Fargo, using escrow payments for taxes as an excuse lowered payments to me by $132 per month. Please note that the
       $132 was not for Taxes. (I now pay my taxes myself). They claim that they are allowed to reduce payments at will to anyone that has Wells Fargo deducting for Tax payments. Please be careful here with the arithmetic. They reduced my income $100 per month for Tax payments and an additional $132 Total $232)
      When I closed down the Tax payments they continued to reduce the monthly by $132.
      I encourage all those that have escrow payments made for taxes immediately close it down before their lenders activate this argument.  I also urge all those interested in getting this program not allow the lender to pay taxes for them. All lenders should bePROHIBITED  from reducing payments to the borrower for any reason. And, Counselors, sales organizations and sales people should immediately make the customer aware that the lender can reduce payments at ay time they chose to do so.    Sincerely respectfully  Frank Locascio

      • Mr. Locascio,

        You should immediately contact your originator and have that person investigate what is going on.

        Are you current on your insurance and other property charges such as land lease payments or home owner association dues and assessments?  Were you ever in default on any property charges including property taxes?

        Make sure you know what Wells Fargo servicing group is saying about the money they are withholding.  Once you have command of the facts and still believe Wells Fargo is wrong, call HUD.

  • What don’t the seniors understand about the Reverse Mortgage?
    What are the deceptive or misleading practices?
    I think Elizabeth Ecker may not understand the Reverse Mortgaage. I get so mad at idiots writing abot things they have little or no knowledge of.

    • Dale,

      No doubt you really believe that seven years later all of your customers remember everything you told them!!  I have had several clients who developed mental disease to such an extent they only occasionally recognize their own spouse or children.  There is no way they remember much about what I told them about a HECM.

      One dear 93 year old woman changed her line of credit three years after she got her HECM and is in deep dementia now four years later after her payouts started.  She went to B of A to find out her balance due because she forgot me and how I taught her to read her monthly statements.  She could not believe she owed so much and said that the two payments that went into her account each month were from Social Security not one from Social Security and the other from her HECM.

      Like many originators in our industry you know far too little about our customer base or what the onslaught of old age does to these dear people over time.  They lose touch with many practical matters including what you told them just a few years ago about their HECM.

      Elizabeth might even know a few things about reverse mortgages and our customer base than some “idiots” who write so ignorantly.

      •  “Like many originators in our industry you know far too little about our
        customer base or what the onslaught of old age does to these dear people
        over time.”

        This will happen whether they have a reverse mortgage or
        not.  Does every financial decision a senior makes  need to hinge on their cognitive abilities 7
        or 10 years down the road, is this what you are saying?  Hell, why not
        start requiring a note from two different doctors affirming they are of sound
        mind.  His or any other originators “greenness”
        has nothing to do with it. 

        My experience over the years is that seniors who have mismanaged
        their finances over their lifetimes do not suddenly change their ways once given
        a second chance by the reverse mortgage. 
        They often end up back in trouble 5 years or so down the road.  How do you regulate that?

  • Dale,
    Elizabeth is not the one writing the article in the Washington Post, she is only reporting on the article.
    I am troubled by this sentance from Ms. Singletary’s article “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.” How many seniors did she talk too and does SHE really understand how these work? I really find this hard to believe as I have never expierenced this in all the RM loans I have done. I always ask a very basic question when going over the amortization schedule and the rest of the loan “Do you understand what this means?” I then ask them to explain it to me, and without fail they can.
     

    • EricSD,

      Try doing that when some years after they get their HECMs.  You are a little too green to understand what happens to people and what happens to them as the years go by.  If you are fortunate, you will know first hand.  I have watched as several have experienced it.  It does not come all at once and many actually recognize what is going on but have no way to stop it.  For them it is terrifying.

      I find too many originators have no idea what the aging process is and what it does to our borrowers.  In many cases it is tragic.  The aging process is difficult.

  • As a senior, and one who has sold reverse mortgages, and one who has a reverse mortgage, I have a few observations about seniors.
    First, most of them have very short attention spans, much like a  5 year old. Counseling is generally scripted and far far too long. Seniors are bored after 5 minutes, and after an hour would rather be dead.
     I started my presentations by asking my clients what they wanted to know about the program, or what bothered them, or what they had heard about it from others. That usually started a spirited discussion and we covered most of the important stuff that way.
    Did they retain it? Probably about as well as younger folks can explain how a forward mortgage works.
    I’d add more incite, but I’m bored. See ya.

  • I agree with the comments here.  I truly feel that my clients have a good understanding of the program, I take a bit of personal pride in the educational part of what I do.  

    Although James points are valid, I wonder sometimes if many of the naysayers are simply jumping on the media bandwagon “Banks Bad!  and consumer too dumb to make own decisions”

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