One week after the article I wrote on reverse mortgages for the Los Angeles Times was published, the New York Times also takes a look -- although the tone of that story is more focused on the perils of unscrupulous companies which sometimes try to sell unsophisticated seniors on annuities and other financial instruments they don't understand -- with potentially dire consequences. This is why it is so important to get expert, objective advice -- other than from the company offering the reverse mortgage. And just go for the reverse mortgage alone -- other financial instruments such as annuities can always be considered after the sale is complete:
As the United States has become an older nation, reverse mortgages have grown into a $20-billion-a-year industry, with elderly homeowners taking out more than 132,000 such loans in 2007, an increase of more than 270 percent from two years earlier. In surveys, many borrowers say reverse mortgages have improved their lives and provided money they needed for retirement.
But hundreds of people who have sought reverse mortgages — in lawsuits, surveys and conversations with elder-care advocates — have complained about high-pressure or unethical sales tactics they say steered them toward loans with very high fees. Some say they were tricked into putting proceeds of their loans into unprofitable investments, while sales agents pocketed rich commissions...
“We make potential borrowers talk to a counselor to make sure they understand what they are doing,” said Renée Shadel, an investigator with the Washington state attorney general’s office. “These can be great loans for some people, but only if they understand them.”
But critics say these counseling sessions are often brief and unhelpful. Some elderly borrowers, for instance, said their sessions lasted only 10 minutes, rather than the 60 to 90 minutes most counselors say they need to explain the loans.
Critics say some sessions are so brief because reverse mortgage companies are paying for the advice. One of the largest reverse mortgage counseling companies, Money Management International, often asks lenders to pay for providing advice to the lender’s clients, according to a company spokeswoman.
Money Management International, which is a nonprofit company, received $900,000 from reverse lenders last year. By regulation, counselors may not charge clients, though they are allowed to seek support from lenders...
A survey released last year by AARP, formerly known as the American Association of Retired Persons, of more than 1,500 reverse mortgage borrowers found that almost one in 10 were urged to buy other financial products, like annuities.
Lawsuits against reverse mortgage companies, including the nation’s largest, Financial Freedom Senior Funding, contend that those firms helped pressure older Americans into bad investments.
In court filings, companies have denied those claims.
“Financial Freedom is not involved in selling annuities, does not recommend annuities, and won’t even allow borrowers to use reverse mortgage proceeds to buy an annuity at closing,” said Joel Schiffman, the company’s general counsel. “We only pursue a reverse mortgage when it is in a senior’s best interest.”
Some regulators and lawmakers, however, have said that more safeguards are needed, including giving borrowers more information about alternatives to reverse mortgages, disclosing fees more clearly and providing more government money to counselors, so that they do not seek payments from lenders.
New laws governing reverse mortgages are under consideration in Congress, though lobbyists for some lenders are mounting strong opposition, Congressional staff members say.
I hate to see reverse mortgages get such a bad rap due to some unscrupulous lenders; for many seniors it really is a life-saver and provides a type of financial freedom that prevents them from having to lean on family members.
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