Monday, August 16, 2010

Fed Warns on Reverse Mortgages: Seniors Beware

This is something we wrote about several monsth ago. With a declining population, as well as a very weak economy, reverse mortgages are becoming quite popular.

Reverse mortgages allows home owners to get a monthly income stream by surrendering a portion of the equity in their homes. However, inteerst rates and fees charged by banks, as well as term conditions could well may the home owber lose the entire value of their homes.

The Fed warned today (where have they been?). However, the guidance sets no limits on fees that can be charged for reverse mortgages.

Reuters: "Reverse mortgages present substantial risks both to institutions and to consumers, and, as with any type of loan that is secured by a consumer's home, it is crucial that consumers understand the terms of the product and the nature of their obligations," the regulators said in a statement.

"Lenders must institute controls to protect consumers and to minimize the compliance and reputation risks for the institutions themselves," they said.

Supervisors said they want to ensure that lenders determine whether or not borrowers are able to continue paying insurance and taxes on the property, and avoid conflicts of interest by lenders trying to bundle the loans with other products.

"Consumers are not always adequately informed that reverse mortgages are loans that must be repaid (and not merely ways to access home equity)," the agencies said.

"In fact, some marketing material has prominently stated that the consumer is not incurring a mortgage, even though the fine print states otherwise."

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