Boston Globe: Considering a Reverse Mortgage? Proceed With Caution

While reverse mortgages may no longer be a loan of last resort, they should still be approached cautiously, writes the Boston Globe in a recent article.

The article details a hypothetical scenario: A homeowner is at least 62 years old, hasn’t saved as much as he wanted to before retiring, but had to stop working because of health issues. He will receive Social Security benefits and a monthly pension, but even those income streams will leave a financial gap because of unexpected expenses and home repair costs.

But a late-night TV commercial advertising reverse mortgages seems like it could be the perfect solution. “It may be,” the article states. “But be careful.”

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Most people understand traditional 30-year or 15-year mortgages, but not necessarily reverse mortgages, which is why they should be approached cautiously, the Boston Globe writes.

Although no monthly loan payments are required for a reverse mortgage, borrowers have to maintain the home and pay property taxes and homeowner’s insurance, which got many into trouble a couple years ago.

In 2012, the Consumer Financial Protection Bureau (CFPB) found that a large proportion of borrowers — nearly 10% — of the home equity conversion mortgage (HECM) were at risk of foreclosure because they hadn’t paid their property taxes and insurance, the Globe notes.

However, changes have made the program safer in recent years, as people are now limited in how much they can withdraw during the first year. In addition, early last month changes to the reverse mortgage program made more proceeds available to borrowers and offered more protection to non-borrowing spouses.

Despite program changes, there are lingering concerns that some older homeowners are using reverse mortgages not to supplement other income or to handle unexpected medical expenses or make needed home improvements, but as a pot of money that they are too quickly depleting, the Boston Globe writes.

“To a lot of people, a reverse mortgage is a loan of last resort for [seniors] without any other options,” said Peter Bell, president and chief executive of the National Reverse Mortgage Lenders Association (NRMLA). “But a reverse mortgage can be a useful part of a retirement plan. However, you shouldn’t use it as a bailout.”

To read the full Boston Globe article, click here.

Written by Emily Study

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  • So far calling HECMs, the New Reverse Mortgage, has not found root in the mainstream press. The Globe correctly describes the changes rather than classifying the changes as creating a new product, i.e., not a New Reverse Mortgage but Saver v.3 due to the August changes.

    This is a very good article not only for its reasonable accuracy (although it misses a few issues such as the bifurcation of upfront MIP) but it is not negative even if the tone is one of caution about getting a HECM.

  • WHAT exactly does “Proceed with Caution” entail? That is what I want to know. First they should enumerate what steps a prospective borrower should take in this regard and then compare it to the regulatory requirements already in place to “protect” and inform the consumer. I doubt there would be little that was overlooked and this exercise would go a long way toward nipping this type of negative warning in the bud.
    Even our trade association president contributed to the misunderstanding and confusion surrounding this useful product.

  • The Cynic is correct. Although the “tone” of this article is cautionary the facts are stated correctly. Considering some of the other garbage out there lately this is an important factor.

    • Michael, I concur – I thought the article (which appeared in our local paper) was one of the most balanced and accurate I have read in the mainstream press. Unfortunately, it appeared in our paper under the headline, “A reverse mortgage isn’t right for everyone”, similarly negative in tone to the Boston Globe’s, “Approach a reverse mortgage cautiously”.
      Most readers don’t get past the headline, which only reinforces their pre-existing negative bias – ‘I knew it!’ – and they move on.
      We’re making strides toward ‘fair and balanced’ coverage in the copy….now if we can just get it into the headlines we’ll be in great shape!

      • REVGUYJIM,

        Headlines are not written to push people away from reading an article, that is crazy. They are the one thing that editors insist they control because they know how to write headlines to draw audiences to read their articles and thus buy their publications. So your point is lost on me.

        We should forget about headlines and learn to be grateful for articles where the content is reasonably accurate no matter what its tone. If headlines cause more to read an article which is reasonably accurate, why should we care what it says? While we may know our field, few of us have been an editor of a successful print publication. Headlines are just that.

  • Ron,

    Are they the same? Not exactly!

    A loan of last resort addresses the preferential order which should be given a reverse mortgage when considering alternatives. Under this concept a reverse mortgage should be the last alternative in any situation.

    To be bailed out by a reverse mortgage connotes the idea that the borrower is in a desperate situation and a reverse mortgage is used to meet that need. It does not address the preference that should be given to a reverse mortgage when looking at alternatives for a solution to a bailout or other situation.

    Each connotes a very different view of the use of reverse mortgages.

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