 The Downside To Reverse Mortgages By By ADON TAFT Life to the Fullest Published: May 1, 2008 Reverse mortgages have their defenders and promoters with views contrasting with those of Arkadi Kuhlmann, CEO of ING Direct USA, who warned in a recent column here of the risks of such loans.
Despite Kuhlmann’s acknowledgement that Home Equity Conversion Mortgages (HECMs), the technical name for reverse mortgages, make the most sense “over the long run” for seniors on fixed incomes, advocates of reverse mortgages from as far flung places as California and Pennsylvania have responded to his warning that there is a downside to such mortgages.
Kuhlmann’s contention is that reverse mortgages often have “considerably higher “closing costs than other types of loans, require relatively large insurance premiums that may be avoided altogether with some other kinds of loans and are unusually expensive if the dream of “aging in place” ends quickly because illness or some other circumstance forces the unfortunate person or couple to move.
Bryon Pyle, of the Crossmark Financial firm in Newport Beach, Calif., notes that “while the FHA insurance does add a significant amount to the cost (of a reverse mortgage), it is this insurance that results in the very low interest for the life of the mortgage. The longer that a client keeps this mortgage, the lower the total cost of borrowing over that period.
He points out that the senior with a reverse mortgage “no longer had to pay a house payment, they received more money each month in order to afford food and prescriptions or to have assistance around the house so that they can continue to live in their home.”
Should the housing market slump between the time the reverse mortgage is taken out and the house is sold, Rick McInturff, who is with Liberty Reverse Mortgage in Berwyn, Penn., emphasizes that “the HECM is a non-recourse loan, which means that the owner of the home or their heirs will never owe more than the home is worth, regardless of how much interest has accrued on the reverse mortgage.”
Meanwhile, the current issue of the AARP Bulletin expresses concern over the impact of refinanced mortgages that threaten thousands of older Americans with foreclosure. Carole Fleck, the author of that feature, quotes Len Raymond, founder of the nonprofit Homeowners Options for Massachusetts Elders in Boston, as saying the “homeowners 75 and older are the fastest growing group of people who refinance.”
From his counseling of those 50 and older who face foreclosure, Raymond said, “I’m shocked by the number of elders who succumbed to predatory refinancing interest-only loans and adjustable rate mortgages. More than half of my clients are facing displacement.”
Half of the 14 million mortgage applications in 2006 were from those homeowners seeking to refinance. Fleck writes that, “eager to turn the equity accrued over decades into cash and enticed by attractive teaser interest rates, many older people refinanced into risky or less-than-favorable mortgages, say legal and consumer advocates who counsel older homeowners. Most used the money to remodel, pay down medical debt or supplement a fixed income.”
Yet 10 percent or nearly 9 million single-family homeowners can’t get refinancing because they have zero or negative equity in their homes.
Some 6 percent or nearly 3 million mortgages now are delinquent and Florida is among the 10 states with the highest number of casualties. And Fleck quotes a report from the nonprofit Center for Responsible Lending (CRL) saying that foreclosures have a ripple effect on the housing market. They drive down the price of neighboring homes by about $5,000 and the CRL estimates that more than 40 million homes around the country will lose value because of nearby foreclosures.
Consequently, the situation is disrupting the plans of those who have been counting on the worth of their homes for retirement.
Adon Taft is a resident of Brooksville. If you have questions about any issues connected with aging, except medical conditions, please write to Life to the Fullest, Hernando Today, 15299 Cortez Blvd., Brooksville, Fla. 34613, or send e-mail to adontaft@yahoo.com. Please include your name and address. |
