Reverse Mortgage Backfires On Another Elderly Homeowner; Now-Widowed Hubby Finds Himself Needing To Cough Up $300K Or Face The Boot From Home Of 40 Years After Being Talked Into Taking Name Off Deed When Refinancing Residence
USA Today reports:
- As America's population ages, the hard sell is on for reverse mortgages. Promising happier days ahead, the former "Fonz," actor Henry Winkler, is giving the hard sell in relentless television ads. But the housing crash and the fiscal state of today's seniors are causing many of these loans to backfire.
Reverse mortgages were originally designed for seniors who wanted to take out their home equity to spend during retirement. Unlike a regular mortgage, they require no monthly payments, and the borrower can take out a lump sum or receive regular payments.
- "It sounded good," said Robert Bennett, a homeowner in Annapolis, Md. He and his wife, Ophelia, took out a reverse mortgage at the end of 2008 for about $300,000. They did it to pay off their regular mortgage and stop making monthly payments. At the time, the lender told them only Ophelia's name would go on the loan, as she was 10 years older. The older the borrower, the less risk the lender takes on.
"In the case of some couples, they make a decision up front to remove one member of the couple from the title in order to get more money or in order to qualify for the mortgage," said [the National Reverse Mortgage Association's Peter] Bell.
Bennett said his lender told him he could be added to the mortgage later, but when Ophelia died, just a month after the loan was made, he found out that was not the case.
"It was set up bad," Bennett said, "I wasn't thinking that — that I would be crossed out completely if she died."
Bennett is now fighting foreclosure, trying to save the home he has lived in for nearly 40 years. To stay, he would have to pay back the $300,000, but the house is now worth about half that, so he could never get a loan to cover it. Like millions of others, Bennett has no equity in his home.
Experts argue reverse mortgages often are being used today for all the wrong reasons. Seniors now have less home equity, less savings and more debt.
"This was originally contemplated as something you could draw money from over a long period of time, as a way of supplementing your income or providing income when you had not others. Now a lot of people are looking to reverse mortgages as a quick fix," said David Certner of AARP.
About 9.5% of the 775,000 reverse mortgages outstanding are delinquent, far higher than the rate on regular mortgage loans. While lenders are pushing them aggressively, fewer are being made today, due to the drop in home values. Advocates say they can be a valuable tool, if used correctly, and that there are ample safeguards.
- The Consumer Financial Protection Bureau is now looking at new rules to protect consumers, which could include stricter supervision of lenders and more transparency for borrowers.