I’m Not in Love with the Reverse Mortgage

By JEN SLAYDEN

Happy Days-Pratt and McClain

Sunday, Monday, Happy Days,

Tuesday, Wednesday, Happy Days,

Thursday, Friday, Happy Days,

Saturday, what a day,

Rockin all week with you.

This day is ours

Won’t you be mine. (Oh Happy Days)

This day is ours (Oh Happy Days)

Oh please be mine.

I watched very little TV growing up, but when I did sneak a peek, Happy Days and Magnum P.I. were on my list. Henry Winkler and Tom Selleck were stars! I thought the Fonz was a rebel, and Magnum P.I. was a stud. Fast forward several years and three kids later, and who have I seen on TV touting the benefits of Reverse Mortgage? SIGH. I can’t believe it. BOTH of these actors who I admired. I didn’t think much of it at the time, but recently it came back to mind because of hearing about folks who have had awful experiences with Reverse Mortgages.

I can only think that both the actors were  simply reading their script and collecting royalties. In my opinion, the Reverse Mortgage can be a royal ripoff when you look at the fees involved, the higher interest rate, and the fact that there is no tax advantage.  I wonder if they would have endorsed these companies if they themselves knew the complexities of the various Reverse Mortgage options.

What is a Reverse Mortgage? The basic definition is a financial agreement in which a homeowner relinquishes equity in their home in exchange for regular payments, typically to supplement retirement income. There are different types of reverse mortgages. You must be over sixty-two years old, occupy the property as your primary residence, and have a good percentage of equity in the home or own the home outright. To be eligible you also need good credit and enough income to continue to cover costs of home maintenance and propertytaxes.

All the advertisements I have seen on TV, or even read in magazines, make it sound like the perfect solution for easy money.  A retired person (or couple) could have a little extra spending money in their pocket. This can be in the form of monthly installments, a lump sum, a line of credit, or some combination.  They also continue to own title to their home without a mortgage payment.

What the multiple advertisers don’t disclose about reverse mortgages is the fine print!  Case and point. Clients of mine, who had a HECM (Home Equity Conversion Mortgage), recently moved out of their home to live with family.

Thinking of happy days ahead with the sale of their house, they called their mortgage company to tell them they had moved out and were selling. Within a week, the company started sending letters and threats of foreclosure. Even though their home went under contract within 9 days, while myself and my clients were in constant communication with said company, the letters and threats continued. It was downright harassment.  This caused a great deal of undue stress for my clients, who had gone to great lengths to maintain the property after moving and communicate the process to the mortgage company.

Every time I would talk to someone at the mortgage company they would only give me their first name, and customer service was a different state each time. They continued to say that my client’s were in no danger of losing their home, and they had documented our communication and timeline. Yet when asked about the letters (some which were certified and had to be signed for) they said that was just standard protocol. Ignore them, they advised.

As my clients talked  about their situation, I learned more about the incredibly high monthly fees they were paying. I also heard horror stories about other elderly folks and their families, and started reading articles online from families that did not know what they signed up for when took out a Reverse Mortgage. The problem, again,  is not necessarily the Reverse Mortgage, but it is the potential for Reverse Mortgage companies or dishonest loan agents to take advantage of a  vulnerable population: the trusting elderly folks who used to do business with a handshake and a smile.

What can you do to protect yourself, your parents, or others who may be considering a RM?

  1. First contact a local bank who you know and trust. Ask your lender if there are other options, such as a home equity line of credit (HELOC) that might suit your needs better. Don’t be afraid to shop around!
  2. Contact the National Council on Aging for financial guidance. If possible, see if you can meet in person rather than on the phone. Other great resources are AARPS R.M.Education Project and the Federal Trade Commission.
  3. Consider downsizing if the home you are in isn’t one in which you will be able to continue to age in place.
  4. Discuss with family your long term wishes for housing, retirement, and aging. If you have heirs, make sure they know you will be taking out a RM. When a death occurs, the loan becomes due. It is in their best interest to act quickly to settle as to not continue to accrue fees.
  5. Make sure you get answers to questions such as:
  • What happens if my spouse dies?
  • Is it better to have a fixed rate or adjustable rate? This could depend on the type of RM you are looking at.
  • What are the timelines for selling if you move out, or have an unexpected illness in which you can no longer live in the home.
  • If the loan is sold to another mortgage company, what is the process and what information will you need to know.

Every elderly homeowner deserves to enjoy happy days in their own home as long as possible.

I can only hope that there is a bit of a crackdown from senior advocacy groups to eliminate shady mortgage companies who knowingly prey on an aging population, and that families can work together to find the best financial solutions for what the future holds.

The National Association of Consumer Advocates suggests: If you suspect that someone involved in the reverse mortgage transaction may be violating the law, let the lender or loan servicer know. Then, file a complaint with:

  • FTC(link is external) – 1-877-FTC-HELP (1-877-382-4357)
  • Your State Attorney General’s office or state banking regulatory agency.
Happy Nesting,
Jen

*********

Jennifer Slayden bioJen Slayden wears many hats: Mother, Real Estate Agent with Main Street Realty, teacher for the non profit music program Center for Music, UM alumni, runner, and supporter of all things local. Her RealChange program dedicates a generous amount of her Real Estate commissions to be given back locally to organizations of her client’s choice. You can find her on Facebook, or give her a call at406-370-0300.