Reverse Mortgages Are Very Risky For Borrowers - New Consumers Union Report

Considering the growth of the reverse mortgage market, worries are building that too many elderly home owners are being tricked into these real estate transactions. A report published by Consumers Union recently is recommending tighter controls for this part of the mortgage and loan industry.

“Reverse mortgages are a very risky deal for borrowers who don’t understand the complicated terms of the loan and how quickly fees and interest charges can add up,” said Norma Garcia, senior staff attorney for Consumers Union, the nonprofit publisher of Consumer Reports. “Reverse mortgages should only be a last resort for seniors who want to stay in their homes and have no other alternatives to supplement their income.”

Other advocates associated with the report are the California Advocates for Nursing Home Reform and the Council on Aging Silicon Valley. They included tips and advice for consumers considering the reverse mortgage as an option for revenue generation. It comes on the heels of the recently formed Consumer Financial Protection Bureau whose purpose is protect home owners from sinister industry tactics. Furthermore, the Federal Reserve Board is also weighing its options regarding new rules on reverse mortgages.

Reverse mortgages allow home owners, 62 and over, to receive income by accessing the equity in their homes. The loan would become due in several instances - in the event of the home owners’ death, if the home owner does not live in the house for a consecutive 12 months, or if the home owner does not keep up on insurance, taxes, or the upkeep of the property. Borrowers should be aware they are liable for all closing costs, they must pay something called a loan origination fee, plus the compound interest on the loan principal.

“Lenders are aggressively marketing reverse mortgages while assuming almost no responsibility for whether the loans are suitable for borrowers,” said Prescott Cole, senior attorney for California Advocates for Nursing Home Reform. “Now that reverse mortgages are becoming more widespread, it’s time for some common sense oversight to protect consumers and taxpayers.”