Reverse mortgages have gone mainstream – no longer sold as something for seniors who are house rich and cash poor and need money to make ends meet. Today, they’re marketed as a way for homeowners 62 or older to crack open a giant piggy bank. The pitch is working. The market for reverse mortgages has more than doubled from 2005 to 2008. Last year, more than 100,000 seniors took out these loans. Some consumer advocates think that’s a dangerous trend. Some unscrupulous brokers aggressively market reverse mortgages as a way for seniors to get money to invest with them in annuities or other financial products.
“They try to convince you that you have all this money tied up in your house, here’s a way to take it and make a bigger nest egg for yourself,” says John Gannon, senior vice president for investor education with the Financial Industry Regulatory Authority. “And what we’ve tried to do is alert people that they’re putting their home equity at risk in investments; that while they have a promise of paying off, they may not.” “While reverse mortgages can be a valuable last resort for some seniors under specific conditions, they are being advertised in a way that can lead to real trouble – urging seniors to use the equity in their home like an ATM or credit card,” explains Andrea Rock, a senior editor with Consumer Reports. “That’s a recipe for disaster.” The truth is reverse mortgages are costly and complicated. Clearly, they’re a godsend to some seniors who have no other way to pay their bills. But they can be a nightmare for people who don’t understand how they work.
“We are asking the industry to admit there are downsides to these loans and these downsides can lead to a lot of horrible situations for a lot of very good and decent people,” says Prescott Cole, a senior staff attorney with California Advocates for Nursing Home Reform.
Source: MSNBC (July 21, 2010)