Despite falling loan volume and past problems associated with the loans, reverse mortgages “could and should be a tool for seniors to carefully consider,” writes a U.S. News and World report out this week.
Noting the decline in volume as well as certain issues regarding reverse mortgages such as the risk of tax and insurance default and pending financial assessment tools toward their prevention, the article overall states that while reverse mortgages may have a less-than-pristine past, they are worthy products that deserve a look for those entering and already in retirement.
U.S. News writes:
“…Borrowers who stay in their homes a long time will probably rack up accumulated payment and interest charges greater than the amount of their home equity. Even this may not pose a problem to homeowners. Reverse mortgages are what’s called “non-recourse” loans. This means lenders cannot come after borrowers for additional payments. So seniors can age in place and continue to live in their homes as long as they wish. When they die or decide to leave the home, their families have the choice of paying any accumulated charges on the reverse mortgage or simply turning over the keys to the lender and walking away from the home with no further financial obligations.
Despite this potential, loan volumes have been modest and the concept has never caught fire with consumers. The loans are complicated in the first place, and have carried high fees for much of their history. They have also been subject to financial abuse, as overly aggressive marketers convinced seniors to take out loans that were not in their best interest. Repeated efforts by the industry and the government to improve the practice and image of the business have not turned things around, as judged by falling loan volumes.
…Despite these problems, HECM loans could and should be a tool for seniors to carefully consider. Economist Alicia Munnell, a leading retirement expert and head of the Center for Retirement Research at Boston College, stated the case well in a commentary article after the CFPB report was issued:
“Americans are going to need reverse mortgages,” she wrote. “Most households are going to find that their retirement incomes fall short of their retirement needs and will experience a decline in living standards. Being able to tap their home equity—often their single largest asset—provides a source of income that could supplement Social Security and the income generated by their meager 401(k) balances.”
Written by Elizabeth Ecker