In response to a recent New York Times article identifying risks associated with reverse mortgages, University of Pennsylvania emeritus finance professor Jack Guttentag, a.k.a. The Mortgage Professor penned a column this week noting numerous misrepresentations of the reverse mortgage program that appeared in the article.
From fees to default rates and association with sub-prime lending, Guttentag refutes the points one by one, calling the reverse mortgage “one of the best engineered financial tools of our generation.”
“The major challenge to the program is that millions of seniors whose lives would be enriched by it don’t take one, either because they don’t know about it, or increasingly because they have been frightened off by the media,” Guttentag writes.
“…the media focus has been almost entirely on what can go wrong, with an emphasis on issues most likely to frighten seniors: the fear of losing their home, unaffordable fees, the specter of default, and association of reverse mortgages with the sub-prime debacle. The front-page article by Jessica Silver-Greenberg in last Monday’s New York Times follows this distressingly familiar pattern.
Losing the Home: The first sentence of Silver-Greenberg’s article states: “The very loans that are supposed to help seniors stay in their homes are in many cases pushing them out.” In the body of the article, two cases are cited in which the widows of seniors who had taken out HECMs were forced out of their homes. In neither case were the widows part of the HECM contract.
The rules are very simple. Seniors who take out HECMs have the right to live in their homes, without repaying the HECM, until they die. The amount they can draw on the HECM is based on their age — the older they are, the more then can draw. If there are two owners, both must be covered by the HECM, and the draw amounts are based on the age of the younger one.
In one of the two cases cited, the widow was too young to be eligible for the HECM, but they went ahead with it anyway. In the other, the widow was old enough but not on the deed, and the HECM was executed in her husband’s name. (In some cases, the younger spouse is taken off the deed in order to draw a larger amount.) Both widows claim that they were misled by their loan officers, and that is always possible. But the loan officers involved were not interviewed and both seniors were counseled by an independent counselor, which is required under the program….”
Written by Elizabeth Ecker