A reverse mortgage borrower who was not properly educated about the loan that she got herself into created serious financial concerns and housing instability, and that’s why anyone considering a reverse mortgage loan needs to fully understand all of the accompanying details and obligations that come with taking out such a loan.
This is according to financial media personality and advisor Suze Orman, speaking last week on her podcast “Suze Orman’s Women & Money.” Orman, who describes being contacted by a senior who was not fully aware of the financial implications that accompany a reverse mortgage loan, describes for her listeners how important it is to self educate as much as possible before becoming involved in a complex financial product.
“I got another email from a woman who’s 71 [years old], and this one is breaking my heart because there’s nothing I can do about it. And we must have gone back and forth, her name is Carol, and we’ve gone back and forth maybe 10 or 15 emails now,” Orman describes of the borrower. “[S]he has severe COPD, and she only has an income of about $1500-1600 a month, that’s it.”
Not being particularly educated in the realm of finance, this borrower had to make major financial decisions after the death of her husband, with $53,000 remaining on her forward mortgage balance. Orman describes the borrower receiving a call from “somebody” who “convince[d] her to do a reverse mortgage,” believing that her financial situation will be improved without having to make forward mortgage payments.
“What she didn’t understand is that when you get a reverse mortgage, that if you owe money on your house, part of the reverse mortgage proceeds are used to pay off the mortgage that you have on the house,” Orman says. “So now the house is free and clear and you owe the reverse mortgage that money, so to speak, because that comes off the amount of money they’re going to give you.”
After loosely explaining the general way a reverse mortgage works, Orman describes how the borrower who reached out to her was not aware of any of these specifics including that the initial $53,000 in loan proceeds would go to settle her existing forward mortgage, and that she was told she would only be able to access roughly $8,000 a year.
“So now she’s stuck in this house, she has no money, and now she doesn’t know what to do,” Orman says. “And we’re trying to get her out of the reverse mortgage. I connected her with the expert in the United States on reverse mortgages and getting her out of it, because the truth is, the person never explained to her what she was getting into. Because now, if we sell the house, all of a sudden she owes $90k on this reverse mortgage. The house is only worth $148k so she’s only going to get like $60k, and she can’t do anything with that now. If she simply had sold the house to begin with, we could have figured it out from there because owning a home is expensive.”
Orman goes on to explain that she later discovered that the borrower was behind on her utility payments, complicating the matter further.
“It is better to do nothing than something you do not understand, which is why this podcast may really be the most important podcast out there today,” Orman said, echoing previous sentiments she has shared about reverse mortgages in the past. “Because the entire goal of this podcast is to educate you on what you should do, but also, educate you on what you should not do. And just doing something to do it makes no sense.”
No details were given in the podcast segment about when the reverse mortgage was originated, which may have provided additional context to the regulatory environment and counseling requirements that the borrower may or may not have been required to engage in.
Listen to the podcast episode.