Cautious approach the wisest when it comes to reverse mortgages

Although reverse mortgages hold out the possibility of financial stability for older Americans, it is best to exercise a good deal of caution when considering this option.

It might not be the panacea some people believe the concept to be.

“The very loans that are supposed to help seniors stay in their homes are in many cases pushing them out,” according to an Oct. 14 story in The New York Time.

“Reverse mortgages are becoming popular in America,” according to the Department of Housing and Urban Development. “Reverse mortgages are a special type of home loan that lets a homeowner convert the equity in his/her home into cash. They can give older Americans greater financial security to supplement social security, meet unexpected medical expenses, make home improvements and more.”

And, they can be dangerous to an individual’s financial health.

The instruments allow people 62 and older who own their homes outright or have substantially paid down their mortgage to borrow against the value of the property. The loans don’t have to be paid back until the person relocates or passes on.

Which all sounds nice, but, as usual, the devil can be in the details.

“But federal and state regulators are documenting new instances of abuse as smaller mortgage brokers, including former subprime lenders, flood the market after the recent exit of big banks and as defaults on the loans hit record rates,” Jessica Silver-Greenberg wrote in the Oct. 14 story in The Times. “Some lenders are aggressively pitching loans to seniors who cannot afford the fees associated with them, not to mention the property taxes and maintenance. Others are wooing seniors with promises that the loans are free money that can be used to finance long-coveted cruises, without clearly explaining the risks. Some widows are facing eviction after they say they were pressured to keep their name off the deed without being told that they could be left facing foreclosure after their husbands died.”

And a June 25 story on the website of Senior Journal details the call of Consumer Union, the policy and advocacy division of Consumer Reports for greater regulation of the instruments.

“Reverse mortgages should only be used as a last resort because they can carry huge costs that can quickly drain a homeowners equity,” Norma Garcia, senior attorney and manager of Consumers Union’s financial services program, was quoted as saying. “The reverse mortgage industry insists that it can police itself but it’s clear we need common sense oversight by the (Consumer Financial Protection Bureau) to protect seniors.”