National Law Review: Reverse Mortgages, Beyond the Commercials

A recent article on National Law Review breaks down the federally-insured reverse mortgage product and recent changes to the program, cautioning consumers to understand the loan before getting one. But the author might need to do some more research, too. 

“You have likely seen the commercials for reverse mortgages,” it says. “While the advertisements urge viewers to ‘call now to secure [your] reverse mortgage today,’ and make them seem risk-free, obtaining a mortgage of this type is a serious decision that should not be made without fully understanding its pros and cons.”

The article calls the reverse mortgage’s monthly payment option an “annuity” and goes on to say that if a loan ends up exceeding the value of the home by the time it comes due, the house becomes the property of the lender.

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In reality, borrowers or their estates can opt to repay the loan with other resources in those circumstances. 

The National Law Review also discusses recent changes made to the Home Equity Conversion Mortgage program, partially in response to borrower confusion about how the loan works and resulting misuse. 

“In recent years, the HECM program has experienced increasing defaults and it was discovered that many borrowers are confused about what a reverse mortgage really is (thanks, at least in part, to deceptive advertising common in those TV commercials),” says the article. “Instead of using the loan as a long-term financial tool, borrowers were using it as a last-ditch effort to manage a money crisis.”

HECM reforms include limiting the amount of money that borrowers can access at closing, requiring set asides for tax and insurance payments, and plans for a financial assessment.

“Hopefully, the changes will improve the program and help seniors use reverse mortgages in the way that they were intended to be used,” the article concludes.

Read more.

Written by Alyssa Gerace

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  • This article shows that even the respected Law Review has not “reviewed” the facts about reverse mortgages before publishing totally false claims that only serve to perpetuate the lies and myths surrounding reverse mortgages.
    Yes, a small group of borrowers lost their homes by not paying their property taxes, and another small group lost their homes by not being protected by their older spouses.
    These losses pale in comparison to the millions of foreclosures of regular “forward” mortgages, and the recent changes in reverse mortgages will further protect homeowners from any similar future losses.

  • It is important to note that the author is not a named partner of her firm, if she is a partner at all. The article is full of misinformation.

    It would be interesting to find out if the Extreme Summit and/or NRMLA considers the article to be positive or negative. Which category an article falls into can be easily changed by simply tweaking the standards used in evaluating such articles.

    What such tests do not take into account is the likely number of people who will read such articles. They also do not take into account if the articles are in publications which are most likely to be read by the very same people who read similar articles or if the articles will reach different readers.

    A simple 3 to 1 ratio of positive articles to negative does not provide a lot of information about their impact. If one has a extremely significant impact in one article and then 100 articles have little at all, it is the article which produces significant impact which should be weighted as opposed to the 100. For example, the five recent article in the Journal of Financial Planning (JFP) would easily outweigh most negative articles on HECMs in that same publication; however, if the negative articles were written by well known and recognized Harvard law and financial professors, for example, with wide press and television coverage, that could easily outweigh the impact of the five JFP articles.

    It is important that we understand how articles are being evaluated and categorized by NRMLA and the Extreme Summit so that we do not believe that things are getting better when in fact all we have is a rather weak analysis of how the public is perceiving HECMs and our industry. Raw counts of articles rarely provide a reasonable picture of the impact that such articles have on the public. While any worthwhile analysis of articles requires subjective and sometimes difficult and time consuming and costly tests by competent individuals with good judgment skills, perhaps some statistically valid sampling should be completed and its results reported back to the industry.

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