Prominent financial planner Jill Schlesinger, who has a historical track record of questioning the viability of reverse mortgage products, has highlighted what she views as their deficiencies in a new radio appearance promoting her new book. However, reverse mortgage expert John Lunde, president of Reverse Market Insight (RMI), finds flaws in the reasoning behind some of Schlesinger’s points, which he feels may betray a lack of understanding for how reverse – and perhaps even forward – mortgages work.
Schlesinger was recently interviewed by NPR affiliate station WBUR in Boston, Mass., sharing criticisms about reverse mortgages that are featured in her new book, “The Dumb Things Smart People Do with Their Money: Thirteen Ways to Right Your Financial Wrongs.”
RMD shared Schlesinger’s reverse mortgage criticisms with John Lunde, and constructed the following idea exchange based on Schlesinger’s book excerpt and Lunde’s responses.
Television advertising and legitimacy
“When you see anything advertised really late at night when you have insomnia, it’s probably a pretty good idea to avoid that,” Schlesinger told WBUR reporter Jeremy Hobson in her interview. “I put gold in that category, reverse mortgages in that category — I mean every washed-up, B, C star ends up being in these commercials.”
In her book, Schlesinger also continues the criticism of reverse mortgage products for their television advertising. For his part, Lunde expressed that writing off a product for its advertising medium is shortsighted, equating the scenario to writing off other products because of where they may be advertised.
“It would be similar to me saying I don’t believe anyone on NPR because they’re on the radio, where Rush Limbaugh and Coast to Coast air,” he said. “It throws the baby out with the bathwater.”
Horror stories vs. reality
In her book, Schlesinger cites a well-known consumer advocate’s plethora of readily available “horror stories” concerning reverse mortgage products as one of the reasons consumers should be generally wary of engaging with them.
“Sandy Jolley, a consumer advocate and national expert on reverse mortgages, can tell you hundreds of horror stories of consumers preyed upon by predatory lenders who assess extravagant fees or go to extraordinary (and sometimes illegal) lengths to foreclose on borrowers’ homes,” her book excerpt reads. “Even when lenders are behaving reasonably well (and the industry has been cleaning itself up of late), many borrowers or their heirs sustain massive losses because they don’t understand the complex terms and requirements of these loans.”
Lunde argues that Jolley’s bank of horror stories should be understood in the full context of the mortgage industry at-large.
“Her citing of Sandy Jolley’s ‘hundreds of horror stories’ should be understood in the context of well over 1 million loans originated in the U.S. to date,” Lunde says. “Even if there are hundreds of horror stories that are the worst behavior imaginable on the part of lenders, it’s worth considering whether there was a lot more good done for the other 1 million plus borrowers.”
Characterization of fees
Lunde also takes issue with the characterization of assessed fees in a reverse mortgage transaction, which Schlesinger describes as “extravagant.” Without a basis for what she would consider a reasonable fee, Lunde argues, the characterization is incomplete.
“I don’t disagree that the fees are higher than we want them to be,” Lunde said. “But that’s largely a function of how few loans are originated, how much time and effort goes into educating the public on a product that has not broken through into the mainstream understanding yet, and some technical flaws in the HUD product that have mostly been corrected now. I believe [they] have come down significantly and will continue to over time.”
Florida foreclosure and mortgage understanding
One horror story shared in Schlesinger’s book concerns a Florida reverse mortgage case, where a borrower’s daughter discovered, after her mother died, that she had taken out a reverse mortgage years before. The mother’s intention was for the daughter to pay back the loan to keep the home in the family, “but she didn’t realize that she had to file papers and become formally recognized as a legal representative of her mother’s estate before the bank would even tell her the loan’s outstanding balance,” Schlesinger’s book reads.
Once the daughter had incurred the expenses to become a legal representative of her mother’s estate and learned the outstanding balance, she had to take out a loan herself in order to pay it. However, that loan didn’t come through within the six months after her mother’s death as required by the reverse mortgage lender, and the bank foreclosed on the home with the daughter unable to do anything.
Lunde challenges that this story is just as likely to happen to a forward mortgage transaction as it is to a reverse.
“The reality is that a lender/servicer is required to follow steps and timelines in order to perform their duty and enable the lending industry to exist, and create homeownership opportunities for millions of households that otherwise would not be able to buy houses in cash outright,” he says. “The legal right to a property she’s describing is an issue that should be resolved by the deceased and intended heirs regardless of whether there’s a mortgage on the property, but having any type of mortgage creates the complicating factor of stricter timelines.”
Lunde adds that an argument about the status of homeownership in society at-large may be worth having, but that this story highlights a “superficial understanding” of reverse mortgages, and perhaps mortgages in general.
“I would find [a lack of mortgage understanding] disturbing for a professed financial planning expert,” he says.