KOMO News: ‘Approach Reverse Mortgages With Caution’

Seattle-based ABC affiliate KOMO-TV featured a story on a recent newscast advising seniors to approach reverse mortgages with caution, soliciting the input of a member of the National Foundation for Credit Counseling (NFCC) who says that reverse mortgages should only be considered as a “last resort.”

In its April 22 broadcast, KOMO News reporter Connie Thompson detailed that while there are some seniors who are being adequately served by unlocking their home’s equity through the use of a reverse mortgage, the “fine print” relating to interest and replacing a traditional, forward mortgage should not be overlooked.

“You may have seen the celebrity ads. But there are lot of rules in the fine print that can make reverse mortgages a tricky deal for many senior homeowners and their families who simply see them as free money,” Thompson said in her segment.

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Bruce McClary, VP of marketing at NFCC advises seniors to look specifically at the amount of equity they choose to extract through the use of a reverse mortgage.

“When the money runs out, you can’t borrow any more. You can’t dip into that well,” McClary tells Thompson in the report. “And oftentimes what happens is this leaves seniors with their back up against the wall with one less financial option and a home [they must continue to] maintain.”

Additionally, if a borrower does not stay current on homeowner’s insurance and property taxes, the Financial Industry Regulatory Authority (FINRA) advises that the lender may have the right to foreclose on your home, Thompson says. This means that while a reverse mortgage can be a helpful option for some, “it also puts your home on the line,” she adds.

“It is a back pocket option, and I would say that people should probably save it as something that’s more like a last resort,” NFCC’s McClary says.

Before committing to a reverse mortgage, Thompson advises viewers that they should look to an independent source of information before making a final decision about whether or not to proceed, which she lists as NFCC, the Federal Trade Commission (FTC), and the Consumer Financial Protection Bureau (CFPB).

“It’s critical to work with someone who requires you to take extensive, one-on-one counseling so you understand everything,” Thompson says. “And ideally, work with someone who offers loans that are backed by the federal government – known as Home Equity Conversion Mortgages or HECMs.”

Watch the full news segment at KOMO News.

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  • Should borrowers enter into a reverse mortgage contract with some degree of caution? Absolutely, yes. As many of us say, reverse mortgages are NOT for everyone.

    Yet is that the end of the consideration a senior should be making when it comes to reverse mortgages? Absolutely, not. When properly incorporated into a financial plan, it can allow a borrower to plan when to use reverse mortgage loan proceeds and even, in many cases, when to pay them back, in full, in part or not at all before the loan terminates. Reverse mortgages can be a loan of last resort but if it is, that is the optimum time to get one.

    If used properly reverse mortgages can even allow the borrower to leave more to heirs or not have to sponge off of heirs for their cash flow needs. They are versatile products when used properly can help reduce portfolio losses in times of bear markets, they are useful in keeping cash reserves to pay life’s unexpected costs, and they can even be used at a lower cost to provide a line of credit in a business. But those are but a few of their uses.

    When don’t the nonpayment of taxes and insurance put a home at risk? Imagine if you have an impound account for taxes and insurance but leave those amounts off of the payment you may be making on a forward mortgage. What will happen? After a couple of payments without the amount needed for impounds, the loan servicer will not only ding your credit but begin the default process.

    As a friend of mine says: A reverse mortgage is simply a mortgage where until termination you have the option to make monthly amortizing payments each month, pay interest only, pay what you want for that month, or pay nothing at all. It doesn’t matter what you pay because with a reverse mortgage NO ONE CARES….”

    BUT even without a reverse mortgage, the homeowner is responsible to make sure all taxes and insurance payments are current. (But isn’t that also true of a homeowner with NO mortgage?)

  • Not sure if anything should be used as last resort. With hecms if your seeking one when all your chips are down is generally too late. Its just become too hard to qualify in my opinion. Best to get one at 62 and let it ride as a proper risk management tool regardless of ones situation at the time. That is how i plan to use one.

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