A lack of borrower awareness around continuing obligations, small debts and ongoing issues related to the COVID-19 pandemic could cause borrowers taking out a reverse mortgage to “backfire” for some retirees. This is according to an article published by retirement website NextAvenue, and republished by MarketWatch.
Being aware of continuing obligations the borrower has after they take their reverse mortgage out is a necessity for keeping the loan in good standing, requiring borrowers to continue paying property taxes and homeowner’s insurance premiums in addition to other fees that may apply to some borrowers, such as homeowner’s association (HOA) dues. However, one borrower almost lost his home in a foreclosure because he says he “was not aware” that he needed to maintain insurance.
“With a reverse mortgage, the homeowner remains responsible for paying property taxes, homeowner’s insurance and maintenance costs,” the article reads. “If those payments aren’t made in a timely fashion, the home can go into foreclosure. Problem was, [reverse mortgage borrower Carl] Abrams wasn’t aware he needed homeowner’s insurance. His reverse mortgage servicer had force-placed insurance on his home when he wasn’t paying for it. But after a fire in his basement, the servicer started foreclosure because of Abrams’ lack of insurance and nonpayment of property taxes.”
Abrams avoided foreclosure after seeking help from a consumer attorney who helped get him onto a repayment plan, but he tells NextAvenue that he almost lost his home.
Reverse mortgages do work for some people, the article reads, particularly since the state of retirement in the United States is precarious. Still, home equity reached a new record level for senior homeowners recently, and economists and other academics are more open to discussing the ways in which a product like a reverse mortgage can be used to bolter retirement security for the senior in the right situation, the article says.
“Problem is, reverse mortgages remain a complicated, confusing product that come with high upfront fees and the risk of foreclosure,” it continues. “The risks are especially worrisome for lower-income homeowners whose finances are so fragile, they run the risk of missing payments of property taxes and homeowner’s insurance.”
This is an issue exacerbated by the COVID-19 pandemic, the article says, since seniors have not been spared from the widespread economic impacts that it has caused to transpire throughout the country. However, the foreclosure threat is reduced due to reforms made by the government in the reverse mortgage program, the article says.
“For now, the foreclosure threat is negligible. That’s because of the federal government’s pandemic-induced foreclosure moratorium that lasts through year-end,” it says. “But once the moratorium lifts, analysts say, reverse mortgages will almost certainly shoot up. Other reverse mortgage reforms in recent years have made the loans safer than before, however.”
Read the article at NextAvenue.