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WSJ: Rethinking Reverse Mortgages Once Again

Reverse mortgages are increasingly being used as a retirement planning tool, but still have some pitfalls for unwary borrowers, writes the Wall Street Journal this week in the second installment of a two-part series on rethinking reverse mortgages.

After publishing the first part in the series, WSJ collected input from readers, including assertions that a reverse mortgage prolongs the inevitable, with downsizing being a more viable option. 

The article also reviews concerns expressed in a recent Consumer Financial Protection Bureau report, including a focus on the proportion of fixed rate reverse mortgages relative to the overall number. 

“The CFPB report pegged much of the blame on an increase in retirees taking lump-sum payouts. In the 12 months ended September 2011, almost three-quarters—73%—of borrowers took all or almost all of their funds upfront, a rise of 30 percentage points since 2008.

Ironically, a contributor to this trend appears to be one of the newer, low-cost government-backed reverse-mortgage options. While most HECM reverse-mortgage options carry adjustable rates and offer a line of credit or annuity-like payouts over time, the sole fixed-rate HECM choice is available only with a lump-sum payout.

“Consumers like the idea of fixed rates,” says Megan Thibos, author of the CFPB report. “They focus more on that than on the rest of the loan, and that is something we worry about.”

Read the original Wall Street Journal article

Written by Elizabeth Ecker