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Mandelman Matters: Reverse Mortgages Deserve Broader Understanding

A marketer recently blasted a year-old article on reverse mortgages he says mischaracterizes the product and misleads consumers. 

Martin Andelman, who writes about matters relating to the economic downturn and foreclosure crisis on his blog, Mandelman Matters, refuted a 2013 CNBC article by Diana Olick called “Reverse Mortgages Backfiring on Some Seniors.”

That article highlighted instances of senior couples taking out a reverse mortgage where only one of them is on the home title and the loan. If the borrowing spouse dies first, the surviving spouse, Olick wrote, “is forced to refinance to pay off the reverse mortgage, but since the home has dropped in value, or income is inadequate for refinancing… the house goes into foreclosure.” 

Andelman says he began researching the reverse mortgage product about a year ago and is “constantly amazed at the negative press and misconceptions” surrounding the loan. 

“[T]he bottom-line is they are an absolutely wonderful product that almost everyone over 62 years old should have, and yet in a year of talking to seniors about them, I have never found a single person who understood them accurately… and that includes many from the mortgage industry,” he writes. 

While no one should take their name off a reverse mortgage or home title without a clear understanding of the ramifications of doing so, the same is true of any kind of mortgage, he says. 

If the couple highlighted in Olick’s article had taken out a regular mortgage and left the younger spouse off the loan, similar troubles would have arisen.

“Would the bank simply have transferred the loan into the name of the surviving spouse? Not a chance,” Andelman writes. “The surviving spouse would have had to refinance the property in order to pay off the lien that was in the other’s name alone.”

The way to consider reverse mortgages is as a “source of capital” like other types of mortgages, he says: a source of funds, secured by real property. 

Andelman takes it a step further, suggesting that borrowers can even use proceeds from a reverse mortgage to fund a new business. 

Read more at Mandelman Matters.

Written by Alyssa Gerace