Reverse Mortgages Woes Abound: Here's How To Protect Yourself
The Consumer Financial Protection Bureau says reverse mortgage borrowers are frustrated with their loan terms, service runarounds and foreclosure problems.
A reverse mortgage is a special type of home loan that allows older homeowners to access the equity they have built up in their homes and defer payment of the loan until they pass away, sell or move out.
The loan proceeds are generally provided to the borrowers as lump-sum payments, monthly payments or as lines of credit.
The Bureau studied 1,200 reverse mortgage complaints it got over the past three years and found:
Distress about the inability to add new borrowers to an existing loan.
Reverse mortgages prohibit spouses, heirs and dependents from taking over the loan. This is because loan amounts are, in part, calculated using a borrower’s age and the loan repayment is triggered when the last borrower moves out or dies.
Frustration with runarounds when trying to pay off the debt.
When the borrower dies, heirs can sell the home, repay the loan balance or pay 95 percent of the property’s assessed value.
Consumers complained that the loan servicer didn’t provide a clear process to allow them to settle the debt, used inaccurate appraisals and didn’t respond to written requests for payoff information.
If you need a quick property value estimate, call me and I’ll pull comparable sales for you to help you judge the validity of the reverse mortgage lender’s estimate.
Struggles with foreclosure due to issues with property taxes and homeowners’ insurance.
Reverse mortgages require no monthly mortgage payments but borrowers are still responsible for property taxes and homeowners insurance. Nearly 10 percent of reverse mortgage borrowers are at risk of foreclosure because they can’t pay these expenses.
Consumers who complained to the Bureau described unsuccessful attempts to halt foreclosure proceedings by paying overdue taxes. Others insisted that their loan servicers had determined incorrectly that their taxes were overdue. Sometimes these inaccuracies were due to a failure by loan servicers to keep accurate records.
If your or your loved ones are struggling to pay property taxes and insurance, contact me. I can help you sort through the options.
Protect Your Loved Ones From Financial Hardship
The Bureau suggests doing three things to help make sure your surviving heirs aren’t harmed by a reverse mortgage that you take out:
1. Verify who is on the loan.
If two borrowers take out the reverse mortgage, check with the reverse mortgage company to make sure its loan records show two borrowers on the loan.
2. Plan ahead for the non-borrowing spouse.
If you got a HECM reverse mortgage in the name of only one spouse before Aug. 4, 2014, contact your loan servicer now to find out if the non-borrowing spouse may qualify for a repayment deferral in the future. If not, decide how you’re going to manage if the borrowing spouse passes away first.
If you have enough remaining equity, the surviving spouse could take out a new reverse mortgage, but they will incur new loan fees. Some surviving spouses may also be able to pay off the reverse mortgage, or take out a traditional mortgage, perhaps with another family member.
Many will need to plan for where they will live after the home is sold to repay the loan, the Bureau warns.
If you got your reverse mortgage after Aug. 4, 2014, chances are your non-borrowing spouse, subject to meeting certain conditions, will be able to remain in the home. Check with your lender to be sure.
3. Plan ahead for other family members living in the home.
Make sure your children or other family members living in the home know what will happen when the reverse mortgage is due. If those members want to keep the home, you can contact your reverse mortgage company and ask them to send information explaining the options family members will have.