WSJ: Reverse Mortgages Made Safer

Regulatory changes are aiming to make reverse mortgages safer, writes the Wall Street Journal in a report this week, cautioning that the loans are still not for everyone. 

The changes are working to ensure borrowers can uphold their loan obligations and make it “harder for borrowers to dig themselves into a hole,” the WSJ writes. 

“Used wisely, reverse mortgages enable older adults to tap the value of their homes without having to uproot themselves and sell,” the report states. “But experts warn retirees to tread carefully with these complicated loans. Used improperly, a reverse mortgage can leave a retiree broke and without a roof over his head.”

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The WSJ spoke with elder law expert Bernard Krooks of Littman Krooks LLP who noted that reverse mortgages are more complicated than other types of loans, particularly forward mortgages. 

AARP policy advisor Lori Trawinski also weight in noting that like any loan, a reverse mortgage comes with obligations that must be met. 

“The important thing about these mortgages that people really need to remember is that they are loans, and as with any loans they come with a set of obligations,” Trawinski told the WSJ. 

The decision to take a reverse mortgage should consider input from advisers, accountants and estate-planning attorneys, WSJ says, including an overall outlook on the borrower’s financial situation. 

“While it can be a useful part of estate planning, it’s not for everyone,” Krooks said. “It shouldn’t be done without being looked at in terms of overall financial needs.”

Read the WSJ report

Written by Elizabeth Ecker

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  • I saw this WSJ piece this morning. My favorite element:

    “The Department of Housing and Urban Development last year made regulatory changes that limit most reverse-mortgage borrowers to taking 60% of the available equity out of their house as determined by FHA standards, in the first year. In subsequent years, borrowers can tap the reminder of the equity in their home.”

    Tap the reminder of the equity? Even correcting for the typo, this is a very misleading statement.

    Come on WSJ – we expect better of you, and certainly our seniors deserve better. Bad information is everywhere to be had; harder by far to come by is accessible, accurate information.

    Financial survival in retirement is already a challenge for many seniors. Access to accurate information should not be.

    • Seniors are always looking for the best possible information regarding reverse mortgages, but as you stated there is just too much junk. I have a novel approach to eliminate all possible foreclosures involving a homeowner who has taken advantage of this great program—–Eliminate the need to pay any school taxes. This burden can amount to several thousand dollars per year that a senior can use for medical bills and prescriptions. It’s an unfair tax and should be eliminated.
      Are there any comments??

  • The WSJ made some great points in its article. However, with all the regulatory changes we have seen and more to come, the HECM program is becoming less and less of a program for those who truly need it.

    Don’t get me wrong, I am not saying the HECM program is still not a good retirement planning tool because it is. The program will also help those in need of paying off debt and increasing the amount of funds coming into their house hold to improve their way of life.

    What I do want to point out is that by reading the article, one may think the regulatory changes and other methods of the way we do business now is strictly for the benefit of borrower. Not entirely true, even though the program today targets a borrower that qualifies to a higher standard, it now protects the lender more than it ever did as well.

    The risk to the lender and the investment community has been reduced drastically compared to what it was at the expense those in most need of the program as it was originally intended to be back in 1990!

    A lot to be said about the article, it was very good but pro and con, the truth always prevails!!!

    John A. Smaldone

  • Like many other authors, Mr. Lauricella seems confused as exactly how to address a HECM as a mortgage. First he states: “Mistake No. 1 is approaching reverse mortgages like any other loan.” Later he quotes Dr. Trawinski of AARP as saying: “‘The important thing about these mortgages that people really need to remember is that they are loans, and as with any loans they come with a set of obligations….'”

    The author also quotes Mr. Bernard Krooks, a New York elder law attorney as saying: “‘But there’s no question that taking out a reverse mortgage is vastly more complicated than taking out a home-equity line or a mortgage to buy a house,'” Yet that makes little sense at all. As to the consumer, HECMs are generally easier to take out than other types of mortgages since there is so little financial assessment underwriting when compared to even a HELOC. The complications are not in the taking out of the mortgage but rather in the terms of the HECM mortgage itself.

    One major problem about the information consumers are provided is the emphasis on one part of the HECM (proceeds) while the other part (its debt aspects) is little more than covered and acknowledged. While proceeds are emphasized, little is ever said about the need for a prudent plan for the use of those proceeds over the life of the HECM. In fact time and time again many originators have stated in their comments on this website that the proceeds are the property of the borrowers and no one should be telling borrowers how to use them.

    Upon first coming into the industry here in California back in early 2005, it was common to hear borrowers being told that they should plan how to use the proceeds for the three years following funding and then come back to refinance their HECMs so that they can get more proceeds then. Of course most borrowers were warned about possible drops in values and questionable increases in lending limits but what most of the the borrowers remembered was come back for more money later. Those “promises” stirred up so many complaints for one exceptional origination producer, he completely left the industry a few years ago. He just could not understand how seniors could blame him for falling home values but the truth was it was the emphasis on more money later that created the complaints.

    Overall the article was positive but it was also filled with misconceptions and wrong perceptions. As Laurie states in her comment in this thread: “Come on WSJ – we expect better of you.”

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