Reverse Mortgage Foreclosures On The Rise, Seniors
Targeted For Scams

By Ben Hallman 
Huffington Post 
June 27, 2012

http://www.huffingtonpost.com/2012/06/27/reverse-mortgage-foreclosures_n_1631626.html

Reverse mortgages, a lifeline for seniors struggling to
pay bills in allowing them to turn home equity into
cash, are entering into foreclosure at an "alarming"
rate, Consumer Financial Protection Bureau
Director Richard Cordray said Wednesday.

One out of every 10 seniors with a reverse mortgage
is in default or foreclosure, Cordray said in a
conference call with reporters on Wednesday timed
to coincide with the release of a reverse mortgages
report prepared for Congress.

The agency also found that seniors often don't really
understand the terms of the loan, a problem
exacerbated by deceptive mailings and other
advertisements, Cordray said.

"We will work with our partners at the federal, state
and local level to root out these kinds of scams,"
Cordray said. He described one flier that portrayed a
reverse mortgage as a "government benefit," which is
wrong, and that contained "blatantly false
information about loan repayment options." He did
not go into further detail about who sends out these
notices but said that the agency has authority to
ensure that the reverse mortgage market works well
for consumers.

Reverse mortgages let homeowners older than 62
borrow against the equity of their home without
their having, in turn, to make any loan payments,
provided that they stay in the house. This type of
mortgage is traditionally structured so that the loan
balance will gradually increase over time. Lenders,
such as MetLife bank, which is currently the biggest
issuer of these loans, then own a greater and greater
stake in the property. Borrowers can stay in their
home even if the loan balance exceeds the home's
value, but they are still responsible for taxes and
insurance payments throughout the process. When
a borrower dies, the heir of the estate sells off the
home and repays the federally insured loan and
keeps what is left over.

The loans, however, have been controversial.
Historically, reverse mortgages have had high costs
and fees relative to traditional loans and consumer
advocates have said the benefits may not outweigh
the cost. As the CFPB notes in its report, senior
citizens are often confused about the terms of the
loans, even though a borrower wishing to obtain one
of these loans, which are typically federally insured,
must first see a qualified housing counselor.

The original purpose envisioned for reverse
mortgages was to provide a steady income stream for
retirement. But in 2011, 73 percent of such
borrowers took a lump sum payment instead. This
may be a poor financial decision, according to the
CFPB. That's because seniors often don't consider
how the interest on this debt will cause their home
equity to evaporate more quickly. In other cases,
borrowers may be saving or investing the lump-sum
proceeds and might be earning less than they are
paying in interest, the CFPB said.

More 60-somethings are also taking out reverse
mortgages, the CFPB found. This can prove a
problem should one of these seniors, who took a
lump sum, decide to move elsewhere but learn that
he or she is essentially stuck.

The two largest reverse mortgage originators, Wells
Fargo and Bank of America, exited the market in
2011. Wells Fargo cited concerns about the
reputational risks of foreclosing on seniors as a
result of tax and insurance defaults.

New reverse mortgage issues hit a peak in 2008 and
2009, rising to more than 100,000 a year, but have
since fallen rapidly to about 70,000 a year. About
582,000 reverse mortgages were outstanding as of
November 2011.

But with 32 million baby boomers poised to enter
retirement, the market for these mortgages could
rapidly grow, Cordray said.
______________

Ben Hallman is senior financial writer at The Huffington
Post, based in New York. Previously, he was a
business and finance reporter at the investigative nonprofit
The Center for Public Integrity. He has also written for
The American Lawyer and the St. Louis Post-Dispatch.
Ben has a master's degree from the University of Missouri.
 He can be reached at [log in to unmask]

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