Reverse mortgages safer but still have pitfalls
DETROIT – April 26, 2016 – Across the nation, a sticky subgroup of foreclosure cases involve reverse mortgages.
These are loans usually taken out by seniors – like the one taken out by the mother of Lela Whitfield, a Detroit woman who spent two years battling banks, Fannie Mae and attorneys to keep her late mother's house – which are heavily promoted in advertising and aimed at persuading older Americans to borrow using the equity in their homes. The attraction? Generally, there is nothing to be repaid until the borrower dies, moves out or sells the home.
Consumer groups have long railed against reverse mortgages, saying they were often misrepresented by eager salespeople, setting heirs of the borrowers up for shocking balances due on houses that children assumed they'd inherit debt-free.
Now, such groups as AARP and Consumers Unions – publisher of Consumer Reports magazine – are saying that safeguards added in recent years to reverse mortgages have earned them qualified approvals.
The May issue of Consumer Reports says 76 million baby boomers are "moving into the eligible age range for reverse mortgages." Many who failed to save enough for retirement may be tempted by the ready cash that springs from this type of loan. The magazine goes on to say that, despite the troubled history of reverse mortgages, they are now subject to tougher rules, including tighter borrowing limits and stricter financial requirements.
The National Reverse Mortgage Lenders Association has maintained that reverse mortgages are legitimate tools that can help those 62 and older ease the financial burden that often exists for some after they retire.
Still, the magazine says there remain plenty of ways a reverse mortgage can go wrong that can leave heirs or even a surviving spouse in financial straits and at risk of eviction. It also says that "at Consumer Reports we believe more reforms are needed."
In Detroit, "the biggest problem we're seeing with mortgages is the reverse mortgage problem," said Ted Phillips, executive director of the nonprofit United Community Housing Network, which battles on behalf of homeowners facing foreclosure.
After a borrower receives what feels like a windfall of free money from a reverse-mortgage lender, "they still have to keep the taxes current, still have to maintain the house, and still have to pay the insurance, which often is off the charts in Detroit," said Phillips, who along with the Housing Network's staff of lawyers and advisors helped to keep nearly 2,000 homes occupied by Detroiters from being lost to foreclosure in 2015, he said.
For more information: National Reverse Mortgage Lenders Association.
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