Thursday, October 8, 2009

The Next Fiasco: Reverse Mortgages for Seniors

This is something I have been wondering for some time: with the drop in real estate prices, what happens to all the seniors what took ou reverse mortgages? These reverse mortages are increasingly being advertised in the media. They have always been known for being as double-edge sword. They provide needed income for retired people and seniors, but then the time comes, there is nothing left. Worse, repayments on due on the loans taken, all interest - and fees - is added to the lien on the property.

The funds received by the homeowner do not have to be repaid provided the owner lives in the home. The homeowner lives in his or her own home, retains title to the property, and makes no monthly mortgage payments.

Annual reverse mortgages number now at 110,000 units, valued at $17B. They are at record pace in 2009.

The National Consumer Law Center has an article titled: "Seniors and their home equities threetened as subprime lenders, abuses appear in reverse mortgage markets".

It says that seniors could become the next group of consumers harmed by irresponsible marketing and selling practices.

The report says that some brokers are given financial incentives to sell the loans and may be making misleading claims to potential customers including alegations that lenders falsely represented reverse mortgages as “lifetime income” and also sold these mortgage loans combined with other financial products such as annuities.

Reverse mortgages are complicated financial instruments and most senior citizens have difficulty understanding how these vehicles work and are usually dependent on the explanations of brokers - who are aggressively trying to sell them.

So what will happen if the housing prices have declined? This has actually not been addressed. This spells disaster. Read Report

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