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Housing Downturn Led to Major Reverse Mortgage Changes says AARP Report

While reverse mortgages offer older Americans a way to tap home equity during retirement, the collapse of the mortgage market in 2008 has led to major changes that impact consumer choices according to a new report from the AARP Public Policy Institute.

“For homeowners who are “house-rich, but cash-poor,” reverse mortgages can be a lifeline that enables older people to remain independent while meeting basic needs,” said the report.  “However, declining home values and the resulting collapse of the mortgage markets have had a major impact on all aspects of reverse mortgages.”

The release of additional products like the HECM Saver may bring additional choices to consumers, but it has also made reverse mortgages more complicated and therefor, led to more scrutiny from Congress and regulatory agencies charged with protecting consumers.  In recent years, Congress has passed two consumer protection laws in response to unsuitable financial products being sold along with a reverse mortgage.

One concern highlighted in the report is the fact that reverse mortgage borrowers are getting younger in recent years.  “The trend toward borrowing at earlier ages raises concerns about the long-term impact of reverse mortgages on financial security.”

With more borrowers taking out lump sums at closing, the report says that “more research is needed on the consequences of reverse mortgages for long-term financial security.”

“Providing safe and affordable reverse mortgage options and improved counseling and disclosures will be crucial in establishing the consumer confidence needed for expansion of this important financial option,” said the report.

View a copy of the report here.