Citing recent instances in which the Consumer Financial Protection Bureau (CFPB) cited reverse mortgage lenders for their advertising practices, a new column at Forbes aims to explore ways in which senior borrowers can stay ahead of issues that may arise due to insufficient or inaccurate information about the loan itself.
“Although it can be a useful tool for tapping equity without paying monthly loan payments while in the home, it can also be risky if the borrower is not fully aware of what they (and their heirs) might be committing to,” the column reads. “That’s partly why the government has recently cited some reverse mortgage lenders for deceptive and misleading lending practices, which have led to senior homeowners losing their homes in some cases.”
Primarily, the cusp of the column is designed to be informative, as many of the ideas expressed are those shared by people in the reverse mortgage industry. Namely, the idea of education’s place as a top priority. However, the column does take some normative positions on what it considers “drawbacks” of a reverse mortgage to be, largely related to the loan requirements.
“Among the most pronounced drawbacks of a reverse mortgage are the rules around the homeowner’s tenure and when the loan has to be paid back,” the column reads. “For example, lenders require the borrower to live in the home in order to postpone repayment. However, if there’s a medical emergency and the borrower has to stay in a hospital or facility for an extended period of time, some lenders will require the owed amount to be paid in full. Otherwise, they can seize the property.”
The owner of a Dallas-based reverse mortgage brokerage described for the column advice he offers, advising families to “bring [the borrower] home for a night” in order to avoid breaking such a rule, he said.
“Another common landmine for seniors is not paying property taxes. This can also result in the property being seized. Some seniors can be confused about what exactly they have to pay, especially when they’re signing a 200-page document,” the column reads.
Still, one potential advantage of a reverse mortgage is highlighted by the column in comparison with a home equity line of credit (HELOC).
“Homeowners who had [HELOCs] during the financial crisis might recall that banks were freezing lines of credit at the time,” the column reads. “This could be worrisome for folks who need that money available in case of emergencies or unexpected expenses. The benefit of HECMs is that the lender can’t reduce or freeze your line of credit.”
Read the column at Forbes.