An article appearing on the front page of the New York Times Monday outlines risks associated with reverse mortgages, calling some of the marketing practices associated with them “aggressive.”
Citing information from an industry report conducted by the Consumer Financial Protection Bureau in June as well as input from borrowers, the National Reverse Mortgage Lenders Association and consumer advocates, the article notes a growing rate of default on the loans, a rising percentage of fixed rate loans versus adjustable rates, and the dangers associated with removing one spouse’s name from the home title in order to qualify for more loan proceeds.
The story appeared online late Sunday. By Monday, dozens of comments had appeared in response to the online version, which had the headline: “A Risky Lifeline for Seniors Is Costing Some Their Homes.” The print version carried the headline: “Abuse Growing In Loan Option For the Elderly.”
The New York Times writes:
“Concerns about the multibillion-dollar reverse mortgage market echo those raised in the lead-up to the financial crisis when consumers were marketed loans — often carrying hidden risks — that they could not afford.
“There are many of the same red flags, including explosive growth and the fact that these loans are often peddled aggressively without regard to suitability,” said Lori Swanson, the Minnesota attorney general, who is working on reforming the reverse mortgage market.
…Although the numbers of reverse mortgages have declined in recent years, the rate of default is at a record high — roughly 9.4 percent of loans, according to the consumer protection bureau, up from around 2 percent a decade earlier. And borrowers are putting their nest eggs at risk by increasingly taking out the loans at younger ages and in lump sums, federal data and a recent bureau report show.
Peter H. Bell, president and chief executive of the National Reverse Mortgage Lenders Association, a trade group, said that he met with officials from the Department of Housing and Urban Development to begin hashing out a way for lenders to adopt a uniform standard to determine whether seniors can afford to take on the loans.
Used correctly, reverse mortgages can be a valuable tool for seniors to stay in their homes and gain access to money needed for retirement. Seniors who have built up equity in their homes can borrow against a percentage of that and take out a lump sum or a line of credit. The loan doesn’t have to be repaid until the homeowner moves out or dies, but borrowers still have to pay property taxes, maintenance and insurance….”
Read the full article with comments via The New York Times.
Written by Elizabeth Ecker