NY Times Front Page: Reverse Mortgage Risks Mounting

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.”

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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

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  • Its the same story 82 yr old man and 58 yr wife….Instead of selling their home or not being able to sell home they get a Reverse Mortgage so they can live in the present and they know risks and then when bill is due they cry abuse.
    NY Times has great writers

  • What a damaging article, and it’s being picked up by other papers.  It paints the RM industry as a bunch of ex-subprime brokers with intentions to rip off seniors. 

    The article is an intentional slam at the industry, regulations (“lack thereof”), and Republicans.  Interesting timing of its release.  Is there any question that the NYT is backing Obama’s re-election? 

    The NYT ommitted important information, including how non-borrowing spouse situations and the related risks are discussed at counseling. 

    The emotional tone of and comments made by many people in the Comments section is particularly disheartening, but not surprising given the tone and content of the article. 

    Makes a person really proud to work in this industry, and question the First Amendment. 

    Geez!!

  • So many comments, so little time to refute most of them.  What this says to me is all the mailers that go out, all the call center bombardment efforts only add to the negative reputation.  The rest I chalk up to misinformation and delirium. 

    I look at it this way- I hope I never need to use a brain surgeon (for me or family members) but I certainly don’t want the gruesome imagery it portrays filling my mailbox and kitchen table each and every day.  Its benefit is best discovered through trusted advisers and those that have benefited from its deployment in the past, hopefully with stellar results.

  • Raymond,

    Where were you four years ago?

    Here is what Florida State Democratic Party Chairwoman Karen Thurman said back then: 

    “John McCain should be ashamed of himself for preying on
    seniors like a bogus reverse-mortgage peddler.”  For several years it was posted on the Florida State Democratic Party website.

    (http://rmdaily.wpengine.com/2008/09/19/mccain-called-bogus-reverse-mortgage-peddler-and-other-news-from-the-week/)

    So you see we are not only peddlers per the Florida State Democratic Party but bogus peddlers who prey on a protected segment of society.  As a result you SHOULD be ashamed of yourself as the former Chairwoman states.  (LOL)   

  • As long as we are in this industry, we will be the “whipping boys” of the press and our detractors.  Just look at how the former Florida State Chairwoman attacked Senator McCain four years ago saying he was preying on seniors like bogus reverse mortgage peddlers.  Lance may have a point that the same is true of Democrats as well.
      (http://rmdaily.wpengine.com/2008/09/19/mccain-called-bogus-reverse-mortgage-peddler-and-other-news-from-the-week/)Just because there is a Madoff does not make all financial advisors thieves.  Yet that logical position does not seem to apply to our industry.  Why?

  • What’s even more disturbing are the comments left by uniformed consumers. The public is even more uninformed than the writer of the article if that’s possible. I, and several of my co-workers, emailed that writer directly to make sure she actually knows what’s she’s talking about next time. I encourage others to do so as well.

  • how about just pulling the program altogether and then tracking the # foreclosures and seniors “being pushed out of their homes” because they cant afford their mortgage payments, medical care and the myriad of other expenses inflating faster than their fixed income social security checks.  it’s like love lost… you don’t missed it or appreciate until it is gone!  needless to say the number children of seniors getting a new found attitude about the benefits of the program vs. having to support their parents or having their parents moving in with them!
     

  • Carole,

    I laughed reading your well written response.  

    This is a mortgage transaction which had nothing to do with equity.  The size loan HUD guaranteed was based on a percentage of the total value of your home and HUD required that all existing mortgages be paid off at loan closing.

    The mortgage is like any other except it is collateral based rather than mortgagor ability to repay based. It is also stated income and stated asset (SISA) and negatively amortizes with no payment requirements until the due and payable clause is triggered.

    The $100,000 you mention is contingently yours until you take it.  In other words, borrowers can take it out at any time but any monies which have not been taken out by the time the last surviving borrower who uses the home as his/her primary residence dies, is closed and is not available to heirs.

    But I agree you got a great deal.  I hope you have a wonderful retirement.

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