Reverse mortgages pose a growing threat for senior citizens, Consumers Union says
With demand for reverse mortgages increasing as a way for homeowners to pull money out of their homes in a struggling economy, senior citizens are particularly at risk of being misled and should be protected by greater government oversight of the practice, according to a report released Tuesday by Consumers Union and two California advocacy groups.
“Reverse mortgages are a very risky deal for borrowers who don’t understand the complicated terms of the loan and how quickly fees and interest charges can add up,” said Norma Garcia, senior staff attorney for Consumers Union. “Reverse mortgages should only be a last resort for seniors who want to stay in their homes and have no other alternatives to supplement their income.”
The report from Consumers Union, the nonprofit publisher of Consumer Reports magazine, along with California Advocates for Nursing Home Reform and the Council on Aging Silicon Valley, warned that seniors taking out reverse mortgages risk losing their homes. The groups called for strong oversight from the new federal Consumer Financial Protection Bureau, which is being launched by Obama administration appointee Elizabeth Warren after passage of Wall Street reform legislation this year.
Reverse mortgages allow seniors to tap their home equity for cash or a line of credit, with the loan not coming due until the borrower dies. But the loan can still come with hefty charges, including loan origination fees, closing costs, and compounding interests on the loan principal, Consumers Union said.
The report lists several concerns, including misleading marketing claims by lenders; attempts to sell borrowers other products at the same time, such as long-term care insurance or annuities; and an increasing number of borrowers defaulting on reverse mortgages, triggering foreclosures.
Consumers Union is offering tips about reverse mortgages, such as applying for some government benefits available to seniors; getting advice from a local Housing and Urban Development counselor; or seeking a so-called private reverse mortgage -- a loan from a family member using the senior's home equity as collateral.
-- Jim Puzzanghera