The Wall Street Journal published Older Borrowers, Out in the Cold which describes how older homeowners are being left out of the governments efforts to press lenders to modify mortgages and are now facing foreclosure.
Ellen Schultz writes that these homeowners were tempting targets during the subprime boom and were often persuaded to refinance their mortgages by telling them they could lower their monthly payments. Instead, many of these loans were loaded with fees and exploding interest rates and quickly became unaffordable.
With many of these people living off of social security, it makes it difficult for them to refinance. . Even if lenders agree to reduce the interest rate and stretch out the repayment period, strategies at the heart of the Obama administration’s anti-foreclosure guidelines, "they won’t get payments low enough," says Tara Twomey, an attorney with the National Consumer Law Center.
The article briefly discusses reverse mortgage and if you read the article the day it was published you would’ve seen the following:
Meanwhile, people like Mrs. Couts are facing foreclosure. After her husband died in 2005, she took out a reverse mortgage, a deal available only to people 62 or older with substantial equity. It’s actually a sale of your home to a bank, which then pays you a lump sum or a monthly income and receives the property after your death. The arrangement enabled Mrs. Couts to stop making mortgage payments so she could afford to remain in her home on her $913 a month in Social Security.
We all know that reverse mortgages aren’t a sale of your to a bank and it turns out the WSJ heard about it… Yesterday, the WSJ published a correction and the article now reads:
Meanwhile, people like Mrs. Couts are facing foreclosure. After her husband died in 2005, she took out a reverse mortgage, a deal available only to people 62 or older with substantial equity.
With a reverse mortgage, a bank makes payments to a homeowner, and the homeowner keeps control of the house and doesn’t have to pay back the money as long as he lives there. The loan is repaid, with interest, when the borrower sells the house, moves out or dies.
The arrangement enabled Mrs. Couts to stop making mortgage payments so she could afford to remain in her home on her $913 a month in Social Security.
What I found to be more troubling was that the woman in the article was called in 2007 by a mortgage broker who convinced her that banks were canceling reverse mortgage because they were unprofitable. She was told she would have to refinance her home or lose it.
Now, assuming her reverse mortgage was a HECM this would’ve never been the case. There was a time when Virtual Bank told borrowers that they wouldn’t pay them the remaining funds left on their credit line but luckily they ended up paying.