Sunday, February 19, 2006


General: The Reverse Mortgage: Solution or problem?

Reverse mortgages are complex and it is sometimes hard to know whether they are the right answer for our financial problems.

Sometimes we experience monetary problems and look for options to help us as shown in the following excerpt from "The Reverse Mortgage: Solution or problem?":

Some of the monetary problems we encounter in life are not easily resolved. Often we must search for creative ways to augment income, reduce spending, and more effectively adhere to a budget. However, a most intractable predicament can involve the concluding passages of life, when financial decisions pass from the individual's control.

Understandably, many seniors are on fixed incomes that will not stretch to meet their needs. One program to address this dilemma, for citizens who own a home with substantial equity, involves a device known as a reverse mortgage. We will examine the pros and cons to see whether it appropriately meets the needs of those able to participate.

The following excerpt from the same article describes some of the dangers of reverse mortgages.

Let's now depart from generalities and get specific, for as it's truly said, the devil is in the details. I cannot deny that a reverse mortgage appears to fill a need. For an elderly homeowner with substantial equity, albeit severely limited income, who nurses a fervent desire to remain in possession of a cherished home, this device can make it possible. After acknowledging this, the question to be answered is: At what cost?

Most certainly, one thing to be said about this concept is that it's not cheap borrowing. As with any endeavor where sophisticated professionals negotiate with unknowledgeable clients, the playing field is far from level. Just as representatives of the life insurance industry regularly foist whole life and endowment policies onto an unsuspecting public, marketers of reverse mortgages aggressively promote this product to naïve and vulnerable seniors. The National Reverse Mortgage Lenders Association (NRMLA), an organization formed in 1997 by the industry, enthusiastically touts the benefits while ignoring any detriments.

A visit to their website, http://www.reversemortgage.org/, reveals a bevy of enticing declarations such as: "The funds from a reverse mortgage can be used for anything; there are no income or medical requirements to qualify; no monthly payments are due on a reverse mortgage" and other reassuring palliatives. Although a section of their site prominently itemizes many of the costs to be incurred, nowhere will you find a hint of the many complex and possibly disadvantageous clauses that may be buried in a contract. p> As one example, some reverse mortgages incorporate a provision by which the lender is entitled to a share of the property's equity appreciation. Under such circumstances, there is no way to predict what costs a borrower may actually incur. Just such an unhappy misfortune befell 83-year-old Berta Grey of San Mateo, California, whose reverse mortgage with Transamerica Corporation soared as a result of a "shared appreciation fee."

Some of the things the industry is trying to do to make it look like they are alleviating the issues:

As a way to imply that borrowers are fully informed as to the complexities of these agreements, the industry has instituted the concept of mandatory counseling. The NRMLA website proudly declares: "Before applying for a reverse mortgage, you must first meet with a counselor. The counselor's job is to educate you about reverse mortgages and offer alternative options depending on your situation." Despite this assertion, the fact is that the majority of approved counselors are not neutral parties, but rather are affiliated with lenders, much the same as credit counselors are a part of the credit card industry and function primarily as debt collectors. In actuality, the average reverse mortgage borrower is thoroughly unaware of the agreed upon terms. This is not by accident; it is designed that way.

esources: Brought to you by Reverse Annuity Mortgage Blog and Reverse Annuity Mortgage Guide.

1 Comments:

At 8:27 PM, Anonymous Anonymous said...

As usual there are many people uneducated with the latest rules and regulations concerning a reverse mortgage. The equity share program is no longer available and in fact a class action law suite solved many of those clients that has this type of reverse mortage.

Also the HUD counseling is an independent organization and it is against the law to be affiliated with a lender. If they do recommend a lender, they can loose thier certificate and can no longer do counseling for HUD/AARP.

Dave

 

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