By Teresa McUsic
Texas climbed to the second largest market in the country for reverse mortgages last year, just as the financial tool for senior citizens comes under greater scrutiny by consumer advocates nationally.
In December, Consumers Union and two California-based senior advocacy groups came out with a report detailing aggressive marketing tactics, misleading advertising, cross promotion of other products like annuities and long-term care insurance, weak HUD counseling and lack of suitability for the loans to some seniors.
“Reverse mortgages are a very risky deal for borrowers who don’t understand the complicated terms of the loan and how quickly fees and interest charges can add up,” said Norma Garcia, senior staff attorney for Consumers Union, publisher of Consumer Reports. “Reverse mortgages should only be a last resort for seniors who want to stay in their homes and have no other alternatives to supplement their income.”
Now in Texas for a decade, reverse mortgages are loan against the equity built up in the home of a senior citizen 62 or older. The loan is considered reversed because instead of making monthly payments to the lender like a typical home mortgage, the lender advances sums to the senior against the future sale of their home.
To date, Texans have taken out 37,257 reverse mortgages with a value of $5.3 billion. Nationally, more than 450,000 reverse mortgages with a value of $117 billion have been taken out by seniors in the past five years.
“Nationally these loans have exploded in the past few years,” Garcia said. “Many seniors have paid a mortgage or several mortgages in their lifetime, but this is a very different product. We caution people to take extra steps, meet with counselors and other professionals to determine if this is best product for you.”
The complaints outlined in the Consumers Union report have yet to materialize in formal complaints by senior homeowners to the Texas Department of Savings and Mortgage Lending, which oversees regulation of reverse mortgages in the state, according to TDSML spokesman Chris Schneider.
The department also has not seen evidence of poor sales tactics in on-sight visits or record reviews of mortgage brokers in the state, Schneider said.
“If the public has a concern, they can check with us to make sure the broker is licensed and legitimate,” Schneider said. Consumers can plug their broker’s name into the TDSML website at www.sml.state.tx.us then click on a box to the national mortgage licensing system. Consumers also can file a complaint with the department that will be investigated, he added.
The reverse mortgage marketplace is seeing trouble in other parts of the country that could show up here soon.
The Consumers Union report includes findings of a study by AARP on cross-selling reverse mortgages with deferred annuities and long-term care insurance, which AARP does not endorse. The report also included warnings and reports by the Government Accountability Office (GAO), FBI, HUD’s inspector general and state attorneys general of some companies selling reverse mortgages by preying on the elderly.
To see the study for yourself, go to www.consumersunion.org and type “Examining Faulty Foundations in Todays Reverse Mortgages” in the search box.
What to consider about a reverse mortgage:
1. There are continued expenses for the life of a reverse mortgage including property taxes, home insurance and adequate maintenance of the house. If the loan goes into default, the senior could be foreclosed upon.
2. Attend face-to-face counseling sessions (instead of over the telephone) with a HUD-approved counselor to discuss the loan prior to purchase. Some HUD counselors do not charge for the counseling.
3. Discuss the product with a certified financial planner, elder law attorney or certified public accountant to make sure a reverse mortgage is appropriate for you.
4. Consider alternatives such as spending down assets like CDs that have less costs involved or an inter-family loan or “private” reverse mortgage set up by a CPA.
Source: Consumers Union