Consumer Reports Spotlights Reverse Mortgage Reforms

Consumer Reports has often criticized reverse mortgages in the past, but in a recent article, the publication has taken a more balanced viewpoint in calling attention to the Home Equity Conversion Mortgage program.

The article focuses on HECM program changes that have occurred in the past three years, highlighting that while these much-needed updates have increased protections for reverse mortgage borrowers, do the potential risks outweigh the reward?

“To be sure, the loans remain a poor choice for some, and at Consumer Reports we believe more reforms are needed,” the article states. “But some experts say that for certain homeowners, with the new regulations in place, it may make sense to consider a reverse mortgage.”

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One such expert the article mentions is Robert Merton, the Nobel Prize-winning economist who last fall had some positive messaging for the promise of reverse mortgages and their viability for the millions of middle-class Americans nearing retirement.

“Will we still have problems with reverse mortgages? Of course we will,” Merton says in the article. “Do we need improved design, lower closing costs, and better regulation? Yes. But a well-functioning reverse mortgage is going to be key for the hard working- and middle-class people to have a good retirement.”

Consumer Reports then delves into the “troubled history” of the HECM program as well as the “tougher new rules” that have made reverse mortgages into products that can be used strategically to improve retirement portfolio longevity.

Read the Consumer Reports article.

Written by Jason Oliva

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  • Jason,

    You did a great reporting job as usual. However, I cant say that what Consumer Reports or Robert Merton stated, overly exited me! I know in the beginning of the consumer report it does compliment the product for the changes made over the past few years but then they come back and say:

    “To be sure, the loans remain a poor choice for some, and at Consumer Reports we believe more reforms are needed,” the article states. “But some experts say that for certain homeowners, with the new regulations in place, it may make sense to consider a reverse mortgage.”

    More reforms, more regulations as Robert Merton says, are they kidding? First off, to just make the statement, more reforms, more regulations without spelling out what reforms and regulations they are talking about is without substance!

    After all the reforms and regulations we all have gone through, especially since the FA ruling, are they really serious? Then to make it worse, they don’t even spell out what additional reforms and regulations they are talking about adding!

    We need to start being reasonable and realistic, we are dealing with our senior citizen population. These are people who have been through a lot! Not to mention the wars they have fought on behalf of our country and the American people, the economic upheavals they have faced and look at many of retires 401-K’s and IRA’s. What about the millions of dollars many seniors lost in the stock market?

    We also need to look at so many older seniors, in their 70’s and early 80’s that have worked at the same jobs for 30 and 40 years, just to find their pension plans were cut short or even lost due to the economic crises experienced in 1987 and the crash of 2008. Not mentioning the so many seniors that were laid off or their companies went out of business short of their retirement years.

    The point I am trying to make is that many of these seniors still hung on to their homes, which may have been paid off or paid down considerably. The reverse mortgage was created to HELP seniors reach their dream of retirement through the equity in their homes.

    Reading what the Consumer Reports stated and what Robert Merton was quoted as saying, does not give much hope for the reverse mortgage becoming that tool box of dreams for our seniors to use, does it?

    The straight facts are is that many of the changes that have occurred have been good in many ways. It is a better product for the senior and the secondary markets especially.

    FA has giving seniors the protection of not having to possibly face foreclosure. What I mean by that is that at least with FA, we have planned to cover the cost of property charges in the future, for those that qualify. Those who don’t qualify most likely should not have been able to take out a reverse mortgage in the first place!

    But there comes a time we have to stop the changes and the piling up of regulations or as I said earlier, the HECM program will be out of reach for our seniors!

    As it is, there are some portions of the FA ruling that need to be looked at, which are unreasonable and in some cases impossible to achieve. Take HOA fees as an example, how do you get a verification payment history of a year or two on an owner of a condominium from a management company that services the association. Impossible, sure, they can verify that HOA fees are current, no liens filed or ever filed but a payment history, forget it!

    These are some of the points I am trying to make. These so called regulators, reporting agencies and professors as well as these expert economists need to come down to earth and live in the real world. They need to understand our industry, they need to understand the needs of our seniors, period! They also need to understand what a senior faces today compared to 30 or 40 years ago.

    They also, and I am emphasizing the Federal Government in this bunch, need stop trying to run the life’s of the American people! They need to start realizing our senior population are proud people who helped forge our nation into what it is, these are intelligent self sustaining people, they deserve a reverse mortgage as an aid for their retirement years, they deserve to have social security increases each year like members of congress get, they deserve to be able retain their dignity!

    I apologies for ramping on but when I see quotes from sources such as these, it infuriates me to death and I am sure it does to many of you!

    John A. Smaldone
    http://www.hanover-financial.com

  • The Consumer Reports article is excellent if the goal is to take the side of the consumer and imply that the originator deceived Karen into signing over her interests in the home to her husband despite her inheriting the home. Donna also conveniently forgets to mention that Karen and her husband had to go through counseling where what happened to her would have been mentioned by any counselor worth her/his salt.

    Donna biasedly weaves her story to imply that the originator is the evil party to the transaction. That may be true but absolutely nothing Donna presents verifies Karen’s side of the story. Donna simple presents the story as anecdotal evidence and expects us to believe that it is not the hearsay that it in fact is.

    Truly we all feel sorry for Karen but she made her decision not with a misunderstood nod but under the requirements of the Statue of Frauds in her state, signing a one to two page easy to understand deed transferring her interests in the home, not to the lender, but to her husband. Ultimately she inherited all ownership rights of the home including the reverse mortgage lien otherwise it is highly unlikely that she would not be eligible for the deferral of the payment on the balance due as a qualified non-borrowing spouse.

  • Continuing from my prior comment (somehow it got posted before I finished), Donna presents her lack of understanding of reverse mortgages when she says: “The loan allows older homeowners to borrow against the equity in their home.” This means that a senior can simply put a reverse mortgage on a home with an existing mortgage whether that mortgage is paid off during closing or not. We all know that is false but few correctly say or write that the reverse mortgage lien is against the entire value of the home and that all other existing liens must be removed before the reverse mortgage can be closed. Now that hardly sounds like a home equity loan except to the most strident reverse mortgage industry participants; it certainly does not fit in with typical industry meaning of the term “home equity” mortgage.

    Donna then tries to stir up the hornets’ nest when she writes: “Still, some consumer protection experts say the reforms haven’t gone far enough and that loan servicers are dragging their feet helping surviving spouses take advantage of the new rules that allow them to remain in their home.” Yet the new rules have absolutely no impact on borrowing spouses who survive their spouses. Notice her comment seems to
    address ALL surviving spouses, not just qualified non-borrowing spouses. Either this talented writer is intentionally misrepresenting which surviving spouses are impacted or she is not the writer, I give her credit for being.

  • Here is what Consumer Reports claims is true about the changed non-borrowing spouse rules:

    “Stronger spousal protections. As Karen Hunziker found out, if a spouse isn’t listed as a borrower and the borrowing spouse dies or moves out (say, to a nursing home) for more than 12 months, the loan has to be repaid immediately or the surviving spouse faces foreclosure. Last June, HUD adopted a policy that allows a non­borrowing spouse to remain in the home as long as it is their primary residence and taxes and insurance are paid.”

    Rosato does not distinguish between death of the borrowing spouse and the borrowing spouse leaving the home for more than six months (or in the case of medical care, 12 months). If the borrowing spouse leaves the home for more than 6 months (or 12 months for medical), where is the deferral that permits even a qualified non-borrowing spouse to remain in the home WITHOUT paying off the existing HECM. The information being provided by Rosato is almost as distorted as what she claims that the originator intentionally provided Karen Hunziker.

    ——————————————————————————————

    So here is the latest myth from the article: Consumer Reports says a qualified non-borrowing spouse can defer the balance due when the borrowing spouse leaves the home for more than 12 months to live in a nursing home.

    Of course, to avoid confusion, the fact is that when the last borrower residing in the home as that person’s principal residence leaves the home for more than 12 months for any reason, the loan becomes due and payable even if there is a qualified non-borrowing spouse who would have the right to deferral if the borrowing spouse had passed away.

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