NY Times Editor Talks Reverse Mortgage Cautions, Concerns

The Washtington Journal via C-SPAN television hosted an interview this weekend with New York Times Financial Editor Patrick Scott on the topic of reverse mortgages. The segment comes following a New York Times article warning consumers about the risks associated with the loans. 

“It’s a pretty complex home loan,” Scott tells the Washington Journal program. He later fields questions from borrowers regarding their financial situations. 

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The segment covers marketing, risks, the exits of large banks from the business and market potential.  

Though not an overall favorable perspective, Scott says there are situations where reverse mortgages can work.

“The concern is as baby boomers’ medical costs [and others increase] they are looking for more ways to have money in retirement and will be looking to these loans,” he says.

Written by Elizabeth Ecker

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  • Mr. Scott has some knowledge on HECMs and is better educated than most financial reporters but he is not well versed on them.  His whole focus is on the needy and desperate.  He is confused about the difference between equity and appraised (or full) value.  He like many others talk about a traditional forward mortgage as increasing equity over time.

    The way Mr. Scott talks about equity is the same way far too many in our own industry speak.  Somehow as a traditional mortgage is being paid down, somehow in some magical way equity is going up but that is nonsense.  Unless a person knows which way home value is going, how does anyone know whether equity is going up or down?  After all equity as presented is a subtraction problem where both components are in flux.  Home value is not static.  In fact for years one of my neighbors never saw her equity go down with her reverse mortgage since the growth in home value exceeded the increase in the balance due despite taking some payouts and never making any prepayments.

    When a traditional forward mortgage is being paid down, the only thing that is true is that the balance due is going down.  What is occurring with equity is unknown.  For example, five years ago the equity in my house was say $400,000 then three years later the equity was $300,000 despite making timely monthly mortgage payments and not increasing debt.  So what was driving down the equity?  The value of the home was dropping.

    Ignorance is bliss.  It makes many self-declared experts.

    • I agree. He doesn’t say anything about using a tenure payment or HELOC within a reverse mortgage. All he talks about is lump sum reverse mortgages.

  • Thanks for posting this, but Patrick Scott provided little useful information to consumers.  He did characterize them as complex, but it would be more useful to clearly explain how they work, which isn’t really that complex.

  • It gets more and more frustrating as a Reverse Mortgage lender, when the people who discuss them are not lenders themselves.  If our media would step up and ask a Reverse Mortgage Specialist the actual role a Reverse can play in ANY Seniors life they would actually have a meaningful story.  With these types of scare tactics and “good story telling” they just continue to hurt Seniors and take away more of their quality of life.

    Shame on the NY Times

    • Ms. Hanson,

      IF the senior will tell me what their concerns are in full, it is usually pretty easy to speak directly to them.  The problem I find is that stories of this nature discourage seniors from even contacting an originator.  They do not feel confident they will hear the truth.

      Dr. Guttentag (the so called “Mortgage Professor”) had a very good rebuttal but unless someone reads his blog or specifically looks for it on the Wharton website, it is very doubtful they will ever see it.  Even if NRMLA put it on their website or in the Reverse Mortgage magazine, very, very few seniors who read the NYT would read it.  If the author made a total retraction, few would see it.

      The fact is the damage is done and there is very little that can be done to undo it.  BUT that is the way this industry has always been and will remain for perhaps  years to come.

  • WOW, it never ceases to amaze me that articles in the Times and segments on TV can be done buy those who are not educated on a subject.  I am a Sr. Loan Officer for REVERSE for the past 5 years and have seen loads of change in this time.  As a 64 year old myself, I can get a REVERSE, but I await my wife’s 62nd birthday to do so.  Those that don’t, are kidding you when they say they didn’t know they’d have to pay for the mortgage if their spouse over 62 died before they reached 62.  They know, they just conveniently forgot, hoping a government ear will hear and let them stay in the home despite their defaulting on a loan.  The rest of us pay for their convenient forgetfulness.   

    By the way, Reverse grew from 3% to 70% Fixed because in 2008 there was no such product as Fixed and it was added late in the year and a few were sold before year end. It became extremely popular as most seniors were asking for it.  They could put their heads on their pillow at night knowing they’d be fixed at, say, 4.99%, for the rest of their lives.  AND they don’t PAY it.  The loan simply Accrues, or gets added to the loan amount until they die or sell their home and pay it off.  Seniors cannot get a REVERSE through me until they have had their “AH HAH Moment!”, meaning they get it, they understand, they don’t care if they owe $1M in 10 or 20 years when their home is worth only $700K for example.   In most of these cases,m they are going to lose their home now.  So if 95% of them get a RWEVESRE and stay in the home for the next 10, 20 or 30 years without default, I say that’s a good thing.  If 5% of them default in 20 eyars, isn’t that better than all of them being forced to sell now?    Once they have this epiphany, they go for counseling from an FHA/HUD Counselor who questions them for an hour.   I could go on and on, and would love to invite any and all authors to interview  me BEFORE they publish their next article. 

    As an expert in  my field, I spend thousands a year on education, testing, licensing and more.  I am an educated MBA, former VP Sales at IBM, Wang, Grumman Data and owner of 7 computer firms and one Mortgage Brokerage firm.  Not all of us REVERSE folks are “slime buckets” taking advantage of little old ladies!       

    • Mr. Johnson,

      Myth and misinformation riddle your comment.  Here are a few examples.

      The first fixed rate HECM was most likely offered in late 2006, not some three years later in 2009 and here is why.

      Per the HUD Outlook report for the period of April 1-15, 2008, the very first fixed rate HECM was endorsed in the period of April 1-15, 2007, yes, 2007!!!  In fiscal 2007 (the twelve month period ENDED September 30, 2007), the HUD Outlook publication for the fiscal year 2008 clearly shows that 120 fixed rate HECMs were endorsed during fiscal year 2007.  Per that same publication In fiscal 2008, there 2,667 fixed rate HECMs endorsed.  Where do you get the idea there were no fixed rate HECMs before 2009.  Fixed rate HECMs were available every single day of both 2008 and 2009 and most likely all of 2007 since the time between case number assignment and endorsement averages about four months putting the first offer date in very late 2006.  

      If you believe you are right, please cite your source.  

      Fixed rate HECMs are not fixed for anyone’s life.  They are only fixed for the life time of the loan which may be far shorter than the life of any borrower.  

      Why don’t seniors pay accruing interest?  To be clear all mortgage interest accrues, even on forward mortgages.  If ANY part of the accrued interest is paid out of the sale proceeds from the sale of the home or through the estate of the borrower, then the assets of the borrower are paying at least a portion of the accrued interest.  They may not write the check but it is their assets that pay most if not all of it. Because of income tax considerations I have advised many seniors to pay part or all of the accrued interest when a deduction for interest was available and needed.  Not all seniors can deduct their accrued interest and most can only deduct a portion of it.  But even if it can be deducted, paying it is not always a good idea, if it will not result in a needed income tax benefit.  The very worst idea is to pay accrued interest on a fixed rate HECM before it is due and payable unless the related cash will not be needed again.

      Well, here are the facts about non-borrowing spouses.  12 USC 1715z-20(j) states the following (“USC” is the legal abbreviation for United States Code):   

      “Safeguard to prevent displacement of homeowner

      The Secretary may not insure a home equity conversion mortgage under this section unless such mortgage provides that the homeowner’s obligation to satisfy the loan obligation is deferred until the homeowner’s death, the sale of the home, or the occurrence of other events specified in regulations of the Secretary. For purposes of this subsection, the term ‘homeowner’ includes the spouse of a homeowner.”

      Some of the non-borrowing spouses might have not received “adequate education” (who knows?) but on the other hand the law says the loan does not have to be satisfied until the death of not only the homeowner but also the spouse of the HOMEOWNER.  Nowhere in this provision is the word “borrower,” “mortgagor,” or similar word used even ONCE.  HUD claims not only does the word “homeowner” mean borrower but so does the term “spouse of a homeowner.”  If that were true then there would be no need for this provision since a borrowing spouse cannot be displaced if the other spouse passes away first, no matter, if the decedent spouse was a borrower or not.  I agree with many at HUD as well as AARP and legal counsel at AARP who say the official position of HUD is wrong.  BUT for now the official position of HUD even though very questionable at best, must be followed.

      Finally, I pray no one interviews you with the education you have right now.  And, yes, I have been an originator in the industry longer than even five years; I have even been at Security One Lending longer than that.

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