A Risky Lifeline for the Elderly Is Costing Some Their Homes
By JESSICA SILVER-GREENBERG | New York Times – Mon, Oct 15, 2012 4:41 PM EDT
New York Times/Jenn Ackerman – Linda McMahon, now a 65-year-old widow, was ineligible to be on the reverse mortgage her husband took out in 2005, and lost her St. Croix Falls, Wis., home.
The very loans that are supposed to help seniors stay in their homes are in many cases pushing them out.
Reverse mortgages, which allow homeowners 62 and older to borrow money against the value of their homes and not pay it back until they move out or die, have long been fraught with problems. But federal and state regulators are documenting new instances of abuse as smaller mortgage brokers, including former subprime lenders, flood the market after the recent exit of big banks and as defaults on the loans hit record rates.
Some lenders are aggressively pitching loans to seniors who cannot afford the fees associated with them, not to mention the property taxes and maintenance. Others are wooing seniors with promises that the loans are free money that can be used to finance long-coveted cruises, without clearly explaining the risks. Some widows are facing eviction after they say they were pressured to keep their name off the deed without being told that they could be left facing foreclosure after their husbands died. Now, as the vast baby boomer generation heads for retirement and more seniors grapple with dwindling savings, the newly minted Consumer Financial Protection Bureau is working on new rules that could mean better disclosure for consumers and stricter supervision of lenders. More than 775,000 of such loans are outstanding, according to the federal government. Concerns about the multibillion-dollar reverse mortgage market echo those raised in the lead-up to the financial crisis when consumers were marketed loans — often carrying hidden risks — that they could not afford. “There are many of the same red flags, including explosive growth and the fact that these loans are often peddled aggressively without regard to suitability,” said Lori Swanson, the Minnesota attorney general, who is working on reforming the reverse mortgage market. Joan Serioux-Forde, 72, thought that she couldn’t feel more devastated after her husband, Christopher, died last year. Then, roughly a month after the funeral, she received a letter from Generation Mortgage, a reverse mortgage lender, informing her that unless she paid $293,000, she would lose her home in San Bernardino, Calif. Ms. Forde said she was never informed that if she wasn’t on the reverse mortgage deed, she would have virtually no right to stay in her home unless she bought it outright. “It’s a nightmare,” she said. Generation Mortgage declined to comment. Although the numbers of reverse mortgages have declined in recent years, the rate of default is at a record high — roughly 9.4 percent of loans, according to the consumer protection bureau, up from around 2 percent a decade earlier. And borrowers are putting their nest eggs at risk by increasingly taking out the loans at younger ages and in lump sums, federal data and a recent bureau report show. Peter H. Bell, president and chief executive of the National Reverse Mortgage Lenders Association, a trade group, said that he met with officials from the Department of Housing and Urban Development to begin hashing out a way for lenders to adopt a uniform standard to determine whether seniors can afford to take on the loans. Used correctly, reverse mortgages can be a valuable tool for seniors to stay in their homes and gain access to money needed for retirement. Seniors who have built up equity in their homes can borrow against a percentage of that and take out a lump sum or a line of credit. The loan doesn’t have to be repaid until the homeowner moves out or dies, but borrowers still have to pay property taxes, maintenance and insurance. Reverse mortgage lenders and brokers note that the loans are highly regulated and require potential borrowers to speak to a certified housing counselor about the potential pitfalls before taking out the loans. Mr. Bell adds that his trade group strictly monitors the advertising of its roughly 400 members to ensure that it is accurate. Since the financial crisis, the reverse mortgage market has been in flux, dampened by a drop in property values, complaints about the loans and the recent departure of big lenders. Originations backed by the federal government peaked at about 115,000 in 2007 and totaled about 51,000 loans last year. MetLife was the latest major player to exit the market, in April. That followed the departure last year of the two biggest reverse mortgage lenders, Bank of America and Wells Fargo, which cited falling housing prices and difficulty assessing borrowers’ ability to repay the loans. Into the void left by the big banks have moved smaller mortgage brokers and lenders. Some of them steer seniors into expensive, risky loans with deceptive sales pitches and high-pressure tactics, according to regulators, housing counselors and elder-care advocates. Mark S. Diamond, a former subprime mortgage broker in Chicago, who has been sued for fraud by the Federal Trade Commission and the Illinois attorney general, faces a federal lawsuit filed in June by seniors who claim that he sold them reverse mortgages and either pocketed their loan amounts or promised to put the proceeds toward home repairs that never materialized. A lawyer for Mr. Diamond did not return calls for comment. Some solicitations reviewed by the Consumer Financial Protection Bureau present reverse mortgages as “free money” or mistakenly tell seniors that they could never lose their home. One Maryland reverse mortgage lender tells seniors that they can put the proceeds toward a vacation: “Just because you’re retired doesn’t mean you don’t need a vacation every now and then.” Last year, the Massachusetts Commissioner of Banks issued cease-and-desist orders to a handful of reverse mortgage firms for operating without a license. In its advertising, one of those mortgage brokers falsely promised seniors “you won’t lose your home.” Officials at the bureau, which issued a report on the industry in June, said they heard from a number of seniors who claimed that lenders encouraged them to make their older spouses the sole borrower on the loan. The brokers earn more money when they make larger loans with the older spouse as the only borrower. Some surviving spouses complained that brokers told them they could be added later, but they were not. The bureau says those seniors are at greater risk of losing their homes. The complaints, according to elder-care advocates and federal officials, have been rising during the past year, although there are no exact numbers. Linda McMahon, a 65-year-old widow, watched helplessly as the locks were changed on her home in St. Croix Falls, Wis., last month. She said that in 2005, when her husband was 82 and she was 58, a mortgage broker from Wells Fargo promised her that she could add her name to the mortgage once she turned 62. That never happened because that year, in 2009, she didn’t have time to deal with it as her husband’s health quickly deteriorated and he died from a heart condition, she said. Soon, she was unable to pay any of the property taxes and insurance. “I am devastated,” said Ms. McMahon, who is retired, living on Social Security income and now renting an apartment. A spokeswoman for the bank declined to comment. Reverse mortgages also have troublesome incentive structures that might encourage brokers to steer seniors toward lump-sum loans, which carry a fixed interest rate, rather than a line of credit with a variable interest rate, the bureau found. In a lump sum arrangement, the interest charges are added each month, and over time the total debt owed can far surpass the original loan. Brokers earn higher fees on these loans and even more money when they sell the loans into the secondary market, where they can get rates nearly double those for variable loans, according to rate sheets obtained by the consumer bureau. Some 70 percent of reverse mortgages are taken in lump sums, up from 3 percent in 2008, according to the bureau. When seniors use the money to pay off other debts, especially right before retirement or early into it, that can leave them with scarce resources to pay their property taxes and insurance.
Ms. Forde, who lives in fear of losing her San Bernardino home, said she could not afford to save her house by paying the full $293,000 debt. Now, she said, she spends much of her day standing guard by the window. Her home is already in foreclosure proceedings. With a wavering voice, she said: “I have nowhere to go.”
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PMC • 1 day 10 hours ago
These people who take advantage of the elderly are the #$%$ of the earth.
Mena 3 hours ago
hahaha! The Libbys got mad!!! GOOD!
Elizabeth G • 1 day 11 hours ago
Anybody ever wonder why Canada did not fare as badly as the US during the recent recession. It’s because they have very tight restrictions on banks and mortgage lenders. If a bank gives you a loan on your property they live with that loan until it is paid off, they cannot sell it to another bank or hedge fund. Until we get control of the banking industry this kind of abuse will continue,
First L 13 hours ago
Let’s not forget who it was that lowered restrictions on lending practices in this country, allowing banks to get out of control – Democrats!
REALITY • 1 day 11 hours ago
Reverse mortgages are a scam. Don’t do it. It really bugs me when I see these hollywood types advertising for reverse mortgages to scam seniors out of their homes. Shameful…
JH 10 hours ago
The fools seem to think a home equity loan is a “scam”. The examples are ridiculous. “Forgot” to put her name on the loan, never put on the loan for who knows why, people not even paying their property taxes and thus having to pay the loan back, as they were told they would have to. For god’s sake, it is just people tapping their equity in their house.
Jim • 1 day 11 hours ago
Some of the “kids” on this board have no idea how easy it is to screw elderly on a transaction. Obviously, they either don’t have elderly parents, or they do and they don’t help them. I know it’s easy to be a little snot nosed kid with not a care in the world. I was one too, then my mom got Alzheimers and my dad got Parkinsons. Some of you still have a lot to learn!
A Yahoo! User 13 hours ago
That was a sad commentary by you on the “love” of God…”God loves you anyway”…..you think THAT is going to make the people you railed on feel loved and believe in God now?? Hardly.
@Fearless, atheists are not the boogy man nor are they haters of Christians nor are they haters of God….necessarily…some may be but most are just hurt people trying to make sense of a sensless world..
Some are HURT by life, family, “christians” in the church, and feel that God left them along time ago. Others are honestly questioning how there can be a God who lets the atrocities happen that have happened and still continue to happen to humanity. Those of us, Fearless, who call ourselves Christians often ALSO question why God does not STOP evil or why he allows such suffering in the human race
What atheists really need is what some of us also need and that is a revelation of God’s goodness, and a revelation of evil, why it exists and some basic knowledge of who God is and what He is doing…it’s all there in the Bible but an atheist will never pick one up (more than likely) because of the hypocricy he see’s in the “Christian” church and the judgementalism he has been subject to. I could go on…books could be written on this topic….but for now fearless, ask God along with me for his grace and mercy to be showered on us and on those who have turned away from God. They are still loved by God, you are right. But they need to believe that, and never will if we continue to put them down…and if they never actually experience Christians loving them…
Robert • 1 day 12 hours ago
reverse mortgages are going to become the next bubble and its a good thing the major lenders have left that market leaving the scammers and loansharks to take it over. This is the biggest scam ever and older people are becoming the victims
Richard K 18 hours ago
uh..I believe that Lauren was making a joke!
Gary • 1 day 11 hours ago
I am so blessed that I own my home outright. I have had reverse mortgage companies call me trying to tell me what a great deal they are. I will not borrow any money against my home, the biggest battle in life is to get your home paid for. Now when my wife and I die my daughter will get the house, without a reverse mortgage to wory about. And the word mortgage should scare you to death, mortgage is made of two words, mort, and gage. mort=death and gage=debt. a debt till death, not for me.
1 13 hours ago
Gary- But when you leave it to your daughter Obama will be ready to tax it and steal most of it from her!
J • 1 day 15 hours ago
henry wenkler should be ashamed but like everyone else they will do anything for a buck. this no more than a SCAM SCAM SCAM SCAM SCAM SCAM SCAM SCAM SCAMA ROTTEN SCAM
Captain Crunch 13 hours ago
Put a stop to these loans? wow, you really are one of the stupid sheep Peter C.. These loans are STILL written EVERYDAY in this country. You are just another typical “Obama is the messaih and he’s not spending us into bankruptcy” #$%$
Independent Thinker • 1 day 14 hours ago
Reverse Mortgages: think about it. If you borrow $100K against a home worth $300K, the bank will eventually end up owning the WHOLE THING, unless you miraculously pay back the $100K you borrowed. In the first few months, the interest you owe wouldn’t seem to be a big deal, but eventually, with compounding of interest on the interest you haven’t paid, your principal balance will run away from you at an accelerating pace.. Unless you know how long you are going to live (and no one does), then why would you do this?
RobertG • 1 day 11 hours ago
Brouht to you by the SAME crooks that created and profited from the housing bubble.
Peter C 14 hours ago
That’s a f—–g LIE. Your a real DIRTHBAG Vic. Where do you get your information from? Willard(the rat) The LIONKING.
One Nation Underwater • 1 day 17 hours ago
These mortgage brokers are like drug dealers. Looking for an easy buck they prey on the elderly and the weak.
ANN A 13 hours ago
we should all work toward the day when “elderly” is no longer synonymous with “weak.” smarten up, friends. remember what PT Barnum said.
W.D. • 1 day 15 hours ago
This is truly sad.
The worst part is, it probably isn’t over yet.
HSS • 1 day 12 hours ago
Wonder how much the timing was responsible – took out reverse mtg in 2005 but hubby died in 2009 during the worst of the housing bubble/price decline. House worth less in 09 but interest on the reverse mtg made this house under water.
Wolfen • 1 day 11 hours ago
People who call themselves “bankers” now must be very proud of the reputation their profession has. NOT!!! Scam artists, liars, theives. That’s what they are!!!
Old Geezer • 1 day 9 hours ago
When the ads on TV promise you the sky…. you know they are lying.
Asdf • 1 day 15 hours ago
Another problem with even honestly done reverse mortgages is the risk of future higher inflation. You do not participate in the increased value of your house and your monthly payments buy less and less each year.
Ravengotu C • 1 day 11 hours ago
It is called ripping off America and taking advantage of people. Yet celebs (real loser for sure) make adverts( getting paid). We have so many problems in this country and no one does anything. As long as you create a job, have some sort of tax id you are great…
Mark • 1 day 16 hours ago
We can thank Robert Wagner and Fred Thompsons for hawking this scam. Don’t believe them either. Get a lawyer before signing up for anything like this. You do this on your own and you get what you deserve.
Dasbof • 1 day 22 hours ago
Save early, save often.
J • 1 day 16 hours ago
These bankers and mortgage brokers should be hung from the nearest lamp post. Vigilante justice style.
A Yahoo! User • 1 day 1 hour ago
I am currently trying to talk my father in law out of doing this. They don’t need the income. It is a bad deal for them because the fees are prohibitive.
The odds of a plaintiff’s lawyer winning in civil court are two to one against. Think about that for a second. Your odds of surviving a game of Russian roulette are better than winning a case at trial. 12 times better. So why does anyone do it? They don’t. They settle. Out of the 780,000, only 12,000 or 11/2 percent ever reach a verdict. The whole idea of lawsuits is to settle, to compel the other side to settle. And you do that by spending more money than you should, which forces them to spend more money than they should, and whoever comes to their senses first loses. Trials are a corruption of the entire process and only fools who have something to prove end up ensnared in them. Now when I say prove, I don’t mean about the case, I mean about themselves.