Reverse Mortgage Information

Recent stories in Consumer Reports, Parade Magazine and a study from the National Consumer Law Center, Boston trash the reverse mortgage industry and falsely claim that these loans are the next subprime fiasco. Those offering reverse mortgages are tagged as predators poised to target senior homeowners. These particular articles are inflammatory, poorly researched and the so-called study acknowledges contributions from individuals known to have serious conflicts of interest. All of the cases cited are old news. Federal regulations have been in force for some time aimed at preventing the same mistakes from reoccurring.

Following is a rebuttal to all that bad press about the reverse mortgage industry. It’s time to fight back! Here is some documented good news:

1 – Since 1989, more than 500,000 Home Equity Conversion Mortgages (the most popular reverse mortgage and accounting for 90% of industry volume) administered by the U.S. Department of Housing and Urban Development (HUD) have been completed. There are 499,994 “good” reverse mortgage loan stories out there but the media are solely focused on the same, tired old 6 cases. Those cases are the exception, not the rule.

2 – AARP and industry sponsored surveys have reported consistent satisfaction rates among reverse mortgage senior borrowers ranging from 93% to 97% over the last few years. No other loan product is so well received. The news stories never mention this critical fact.

3 – Comments made by the Comptroller of the Currency John C. Dugan in June (that started the recent avalanche of bad press) are out of context and Dugan is misquoted in all of the above cited publications. The publications conveniently fail to include his positive comment that “reverse mortgages can provide real benefits”.

4- Congressman Barney Frank (D-MA and Chairman of the Financial Services Committee) is a strong supporter and proponent of the government insured Home Equity Conversion Mortgage (HECM) program administered by HUD and offers rebuttal to those who claim that reverse mortgages could become the next subprime fiasco. His summary, given in specific reference to the Dugan quote, is that this (the next subprime mess) is a completely ridiculous assertion. There is no possible comparison to reverse mortgages, according to Representative Frank.

5 – For several years, HUD has worked to tighten regulation of the HECM program in order to prevent repeat of abuses featured in the above referenced publications. For example, while the bad publicity warns of unscrupulous reverse mortgage lenders cross-selling annuities or other insurance products to seniors, this activity has long since been prohibited and substantial federal penalties have been applied in cases where the practice continued.

6 – At the request of the National Reverse Mortgage Lenders Association (the reverse mortgage industry trade group) both HUD and state banking regulators nationwide have been repeatedly asked to report any and all known cases of HECM abuse. According to NRMLA, no cases have been reported to date. But those same few cases from prior years seem to be publicized repeatedly by the press. Bad news, it seems, sells papers and generates grant money.

7 – The SAFE Mortgage Licensing Act of 2008 is another federal government effort to insure that all mortgage loan originators are registered with the Nationwide Mortgage Licensing System (NMLS). Also, mortgage originators who do not represent a depository institution such as a bank, credit union, or savings bank (about 85% of loan originators do not), must complete 20 hours of pre-licensing education and pass a tough national license exam. Individual states (MA and NH included) also require a state specific exam administered separately from the national exam. Fingerprinting, credit check and criminal background check are also required. The NMLS registry will be opened up to consumers in 2010 so that complaints may be recorded, tracked and individual qualifications may be verified. This will be a major asset to borrowers, enabling them to know more about the loan officer they select.

8 – HECM borrowers must complete a counseling session with an independent FHA certified counselor before a reverse mortgage application may be registered with FHA. Non-borrowing spouses (not on deed) are required to attend and adult children are encouraged. Participants are now required to pass a test administered verbally by the counselor to insure that each has a clear understanding of the loan product. Non-borrowing spouses and even adult children living in the home are required to acknowledge in writing that the reverse mortgage carries consequences that could impact them.

There is nothing inherently wrong with a reverse mortgage. As is the case in any industry, it is the people you deal with that make the difference. Second, there are an increasing number of 62+ year old homeowners using reverse mortgages who are certainly not destitute. Some, in fact, might be considered affluent. For many seniors who wish to remain in their home, the reverse mortgage is a useful financial tool if fully understood and used properly.

Reverse Mortgage Advice

Work closely with a professional who has specific reverse mortgage training, long experience in the reverse mortgage industry, personal integrity and a strong reputation in that field. Ask your accountant, your real estate attorney, financial planner, elder law specialist or other financial professional to bring in a reverse mortgage specialist for a face-to-face meeting to educate you, your spouse and family as well as your advisor. Only then can you intelligently and independently decide if a reverse mortgage meets your specific needs. Don’t risk your home based on bad advice or misinformation perpetuated by the media.

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Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant

The drone continues. Parade Magazine this week is the latest to publish a grossly misinformed piece about reverse mortgages.  Before that we suffered a ton of stories in the national and regional press referencing “reverse mortgages – the next big subprime mess”.

Several weeks ago Consumer Reports hit the stands with an inflamatory and irresponsible piece about reverse mortgages.  Many of these stories were generated from comments made by the Comptroller of the Currency, self-serving hearings held by Sen Claire McCaskill (D- MO) and have been fueled more recently by a National Consumer Law Center study published in October. (I’m suspicious of “studies” when I note that some report contributors listed under “Acknowledgements” have made a public career out of bad-mouthing reverse mortgages.)

Yet AARP reports that 93% of seniors who completed a reverse mortgage are reasonably happy. This proves that only bad news sells newspapers and magazines.  Good news is a waste of time for these organizations.  Where are the stories about the hundreds and hundreds of thousands of seniors who have been helped by reverse mortgages?

We encourage you to read these articles and studies. But be forewarned. This doom and gloom is old news.  Sure, there have been seniors who have been victims of dishonest lenders and brokers.  But there have also been borrowers who have learned to game the system… claiming they didn’t know this or that.  These cases are the exception, not the rule!  New regulations from HUD are already in place and make the scenarios of several years ago described in these articles and reports very unlikely if not impossible today.

Decide for yourself!  Read the “bad news”.  If you’re a reasonably intelligent person who has made it to senior status and has retained ownership of a home, raised a family, and tried to prepare financially for retirement… you know how to pick the right professional(s) to help you determine if a reverse mortgage is good or bad for you.  Don’t let yourself be bullied by pushy “salesmen”. And certainly don’t let yourself be bullied by fear-mongering reporters or pseudo-experts with an agenda from the “think tanks”.  And a final piece of advice for Consumer Reports – stick to toasters and washing machines!

Consumer Reports article here

Parade Magazine article here

National Consumer Law Center study here

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Author – Robert H. Irving, CSA®
Senior Reverse Mortgage Consultant

Consumer Reports Scam

The September 2009 issue of Consumer Reports jumps on the bandwagon with more irresponsible reporting on reverse mortgages.  This is sickening.  I have now lost all respect for this publication which long ago had a reputation for decency and fairness.  Now, some staffer picked up the sensationalism generated by Senator Claire McCaskill D-MO and her committee “looking into reverse mortgage scams on seniors.”   We are told, once again, that more regulation is needed.  More laws, more papers, more disclosures = more confusion!

A story is told in the article about a senior who did a reverse mortgage to pay medical expenses for his ailing wife – a very worthy use of the funds.  Now, he finds he suddenly owes $200,000 on a home valued at about $130,000.  Worse, he is about to be evicted from the home because he can’t pay off the $200,000.   The implication, of course, is that he has been swindled and his home is about to be taken away from him.   Ahh, another senior scammed by a lowly lender!

Unfortuately, the Consumer Reports article is short on detail.  This must be the new style of reporting.  How much did the couple originally borrow?  How long ago did they borrow it ?  Why is the homeowner being evicted from his home ?  Was this a HECM reverse mortgage – insured by FHA?  Or is it some other type of private loan?

Perpetuating the Myth

Next, a TV station somewhere picks up the story and declares that Consumer Reports has deemed that reverse mortgages are a bad idea for seniors. Seniors everywhere are being preyed upon by unscrupulous lenders.  Reverse mortgages should never be used – unless you are completely destitute.  Soon we will see a host of regional and local newspapers reporting on this same story.

Shame On Them All !

Consumer Reports, the TV station and Senator McCaskill ought to be ashamed!   These stories scare away seniors who can benefit from an excellent program. They are completely irresponsible, at best.  At worst, they are despicable and serve only to sensationalize a subject that precious few reporters actually understand.  If $800 million is budgeted for FHA insurance to provide for POSSIBLE future losses (as is reported by McCaskill and repeated by Consumer Reports) … this information should be balanced by the explanation that reverse mortgage popularity has virtually exploded in the last few years.  Of course there might be some losses.   (It is, after all, an INSURANCE program by definition.  Without FHA insurance no bank would ever lend the money under the HECM program.)   But in takes a huge stretch of the imagination to tag this as “the next sub-prime meltdown”.   No self-respecting, reasonably intelligent, fair minded individual could believe that.

Author – Robert H. Irving, CSA
Senior Reverse Mortgage Consultant

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