The nation’s seniors are getting sucked into the pitfalls of reverse mortgages, causing many to go broke and lose their homes. According to a New York Times article by Jessica Silver-Greenberg, 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,” are being excessively recommended to seniors by smaller mortgage brokers; and unbeknownst to seniors at the time they sign up for them, reverse mortgages come with a variety of fees associated with payments, which is causing many seniors to default on their loans.
In efforts to protect American seniors who are facing this problem and other forms of loan abuse, federal officials created the Consumer Financial Protection Bureau, which is currently establishing new rules calling for better disclosure for consumers and stricter supervision of lenders.
According to Silver-Greenberg’s story, the current default rate on loans is 9.4 percent, an increase of 2 percent from last decade. But if enacted properly, reverse mortgages can help seniors stay in their homes and gain access to money needed for retirement. Silver-Greenberg further explains: “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.”
Big banks role in reverse mortgage lending has steadily decreased in the past few years. Bank of America, Wells Fargo and MetLife have all forgone reverse mortgage lending, which has paved the way for smaller brokers to take the reigns.
“Some of [the smaller mortgage brokers and lenders] steer seniors into expensive, risky loans and deceptive sales pitches and high-pressure tactics,” states Silver-Greenberg.
For more on this story, including interviews with effected seniors, please visit The New York Times.