CNN: Reverse Mortgages Safer, But Still With Pitfalls

Although recent changes to the federal reverse mortgage program make the product safer for seniors, the loan still has its problem areas—specifically the issue of non-borrowing spouses, says a recent CNN Money article.

The Federal Housing Administration, which insures Home Equity Conversion Mortgages, has already addressed a problem some borrowers encounter: spending down their loan proceeds without leaving enough to cover the costs of property taxes, homeowners insurance, and homeowner’s association fees and forcing them to default on their loan, CNN Money says.

Almost 10% of reverse mortgage borrowers had defaulted on their loans and had either lost or were in danger of losing their homes as of September, according to FHA data cited by the article.

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But new changes to the HECM program limit the amount of loan proceeds borrowers can access up front, with further changes looming in the form of a financial assessment that will also consider borrowers’ ability to pay their loan obligations, including taxes and insurance associated with the property.

“New federal rules have made reverse mortgages safer, but there are still some major pitfalls,” says CNN Money. “One big issue the new rules don’t address… is that many couples take out reverse mortgages in the name of the older of the two spouses, in order to maximize payouts.”

Because HECM loan proceeds are based in part on the borrower’s age and life expectancy, loan amounts typically increase the older the borrower. As a result, some borrowers leave younger spouses off the title of the home, thus excluding them from consideration when determining the amount of the loan.

“We heard from a lot of surviving spouses getting evicted from their houses; lots of folks didn’t even know they were taken off the deed and found out when [their] spouse died,” Jean Constantine-Davis, an attorney with AARP, told CNN. “[Reverse mortgages] are counterintuitive and much more complicated than regular mortgages, which are complicated enough. A lot of people sign them without thinking, ‘I could be put out of my house.'”

AARP sued the Department of Housing and Urban Development, which administers the HECM program, regarding non-borrowing spouses getting evicted from their homes after the loan term ends. A judge has sided with the plaintiffs in the case, tasking HUD with finding a solution for the issue, which has not yet been determined.

Read more at CNN Money.

Written by Alyssa Gerace

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  • The CNN article represents a big step backward in the effort to get media coverage at a minimum CORRECT, if not favorable. It’s too bad there isn’t some penalty for ‘bad’ reporting; the comment string following the article clearly documents the damage done by this one piece, and the number of “shares” and “likes” just compounds the problem.

  • We deserve what we’ve got because as an industry we’ve not been willing to do anything other than complain. Seniors who need this program are being harmed by all this misinformation. Do we care enough to champion their cause?

    We as believers in the HECM program need a media presence that seniors and their families can see, hear, or watch. It should be a national program we all participate in. I believe we need national ads on radio and television or in print that sets the record straight and corrects the misinformation that scares seniors away from this tremendously important program. (Perhaps we could do state ads collectively or donate money to NRMLA for them to create ads that provide good information for seniors.) Are we ready to put our money where our mouth is and collectively bridge the gap for seniors? Or do we continue with ads whose sole purpose is to garner leads? What loan officer in the nation wouldn’t be willing to donate a few bucks a month to a fund for reverse mortgage TV ads? Accurate, intelligent discourse can blow away the nonsense once and for all. The misinformation will continue until we as an industry get truly fed up and are willing to PAY to get the right information out there. We should all jam the phone lines at CNN about how we feel.

    As Edmund Hillary put it, “It is not the mountain we conquer, but ourselves.” It’s not just CNN, it’s us — it’s our inactivity as a group, as an industry, that has failed everyone. “Actions speak louder than words, but not nearly as often” (Mark Twain). We have only ourselves to blame if we don’t act but instead permit the lies to go unchallenged.

    Kathie Adler

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