Why the Media Misinforming Seniors on Reverse Mortgages is Wrong and Even Dangerous
In several past articles, I’ve written about the media’s coverage of reverse mortgages, pointing out how horribly inaccurate and misleading that coverage has consistently been over the past couple of years.
And I’m not talking about coverage by fringe publications that few have ever heard of, I’m talking about such ostensibly venerable media outlets as the New York Times, Washington Post, CNBC, ABC News, Forbes Magazine, U.S. News & World Report, CNN, Huffington Post and even The Motley Fool, to name but a few.
To read what these and others have written about reverse mortgages, you would think they should be illegal… like some sort of dangerous poison only to be handled with extreme care and only by experts during an emergency. The problem is that none of that is anywhere close to being literally or metaphorically accurate, or to make it even more simple… it’s simply not true.
The HECM reverse mortgage is a program created by Congress, regulated by the U.S. Department of Housing & Urban Development (HUD), and insured by the Federal Housing Administration, better known as the FHA. If you’re the legal research type, the legal authority for the program is found in Section 255 of the National Housing Act (12 U.S.C. 1715z-20). Regulations are at 24 CFR parts 200 and 206).
The stated purpose of the code section is:
(1) to meet the special needs of elderly homeowners by reducing the effect of the economic hardship caused by the increasing costs of meeting health, housing, and subsistence needs at a time of reduced income, through the insurance of home equity conversion mortgages to permit the conversion of a portion of accumulated home equity into liquid assets; and
(2) to encourage and increase the involvement of mortgagees and participants in the mortgage markets in the making and servicing of home equity conversion mortgages for elderly homeowners.
To summarize, the federal government created the program to meet the “special needs” of older Americans. The program is designed to help address challenges caused by “reduced income and increasing costs,” which is another way of describing “retirement.” And, as it says in part two, the government wants to “encourage and increase the involvement” of homeowners in the program.
How in the world did we go from a government program designed to help seniors, to headlines describing, “reverse mortgage nightmares,” or how they’re “backfiring on seniors,” or even how they have “pitfalls” for the heirs of seniors?
Am I to believe that my government has taken to creating programs that are harmful to older Americans? That’s awfully hard to believe… seniors vote, remember? That’s why Social Security is often talked about as being “the third rail,” which means, if politicians even touch it… they’ll die, politically speaking. Politicians are all painfully aware that seniors vote in large numbers, and they don’t like it when things that benefit them, are taken away.
Maybe that’s why the Reverse Mortgage Stability Act of 2013 was passed into law by unanimous, bipartisan vote in the U.S. Senate… I can’t even remember the last time that happened… so obviously some people don’t think reverse mortgages are such a terrible thing, right?
Misinformation helps prevent breast cancer…
There’s a widely published statistic about the chances of a woman getting breast cancer… it says the odds are 1 in 8. That’s absolutely terrifying, right? One out of every eight women gets breast cancer? It sure doesn’t seem like that’s true. I feel like I know a lot of women, and very few have had breast cancer.
The reason is… the statistic is not true. As a woman, your odds of getting breast cancer depend of your age. According to breastcancer.org, If you’re between ages of 30 to 39, the odds of you developing breast cancer are 1 in 227, or 0.44%, which means that 1 in 227 women in this age group can expect to develop breast cancer. That’s not nearly as scary as 1 in 8, right?
It would seem obvious that the older you get, the greater your chances of developing breast cancer. Here are the odds of a woman getting breast cancer by different age groups…
- From age 40 to 49, absolute risk is 1 in 68… or 1.47%.
- From age 50 to 59, absolute risk is 1 in 42… or 2.38%.
- From age 60 to 69, absolute risk is 1 in 28… or 3.56%.
So, why do so many websites, publications and advertisements continue to repeat the 1 in 8 statistic? Don’t they know it’s misleading? The answer is yes, they know. But, the thinking is that if the 1 in 8 statistic scares women into getting mammograms more often, then it’s serving a positive purpose, so no one bothers to point out that the statistic is misleading and largely meaningless.
Why the media’s reporting on reverse mortgages is wrong… to the point of being dangerous.
I recently spoke with a very well known consumer attorney from the National Consumer Law Center in Boston about the media’s coverage of reverse mortgages.
She understood and even agreed with my points about reverse mortgages, but she also brought up the point that there are predatory marketers out there that run deceptive advertisements and then may lie or mislead people about reverse mortgages. Her point was that the negative headlines, although they may not be accurate, could protect some people from such predators.
I agreed… with part of what she was saying, anyway. There are certainly predatory marketers out there, and people that lie and mislead seniors on any number of subjects, and I think they all should be arrested and thrown in jail.
When someone misleads a senior into something, that’s terrible. But, when newspapers like the New York Times, network and cable news or Forbes Magazine misleads seniors, and as a result scares them away form something they should have done, and would have wanted to do… why isn’t that just as bad?
In fact, in some ways, I think it’s even worse, because the New York Times is presumed to be a credible source of information, so it can do a lot more damage than any predatory marketer could ever hope to cause. And once the Times runs an inflammatory and misleading headline, dozens of other publications echo the poorly reported story, thus exponentially increasing the story’s potential to mislead.
Lawyers, CPAs, and financial advisors read the same stories and before you know it, half the country can’t get their facts straight when it comes to a reverse mortgage. All they know is they think there’s something wrong with them, because the media said so.
Imagine this happening to you…
Let’s say you were 90 years old, nearing the end of your life. For the last 20 years, you struggled to get by on your fixed income. There were many things you would have liked to do, but you couldn’t because you were afraid to spend the money. And then someone walks in and tells you that you could have had an additional $100,000 or more in your life, and it wouldn’t have mattered to anyone… anyone but you, of course.
You would have still left your home to your kids, but instead of there being $600,000 in equity, there would only have been $450,000 for them to share, plus the $200,000 in cash you’re also leaving behind. But, just think of all the things you could have done with that extra $100,000 that you didn’t need to pay back because it would just come off the top when your house sold after your death?
You could have taken the grandkids on ten, $10,000 vacations. You could have visited your family members that lived across the country every year. Maybe you always dreamed of taking an Alaskan cruise, and you could have but didn’t, or maybe you could have helped your son or daughter when they really needed it, and you wished you could have at the time.
Or, what if you ended up losing your home to foreclosure, or being forced to sell it when you were 74, because you had to stop working sooner than you thought you would, and found you just couldn’t keep up with the payments? What if that $100,000 would have made the difference?
You might have done any of those things, or any number of other things, but you read in the New York Times that reverse mortgages were “nightmares” or had “pitfalls.” You got the impression that reverse mortgages were somehow dangerous, complex or even a scam.
Do you think I’m being overly dramatic?
I don’t. But even if I am, as long as I prevent even one senior from being misled by the mainstream media’s misinformation, whether hyperbole, inaccuracies or out-right lies about reverse mortgages… then being accused of adding a little drama seems a small price to pay.
And, let me just say this… I’ve read a lot of negative nonsense about reverse mortgages, but none of it seems to be written by an actual senior who might use a reverse mortgage for his or her own purposes. Why is that, do you suppose?
I’m a little tired of it, to be entirely candid… people in their 20s, 30s, 40s or 50s opining on whether mom or dad, grandma or grandpa should or shouldn’t access the equity… THEIR EQUITY… in their home… THEIR HOME… to make their retirement years more comfortable… more financially secure.
And I don’t care what they want to do with the money, Junior, THEY are the only reason YOU are here writing about what THEY should or shouldn’t do. You’re not protecting anyone by writing sensationalistic headlines in an effort to drive readers to read stories that misrepresent a government program designed to help older Americans get the most out of their retirement years.
You’re harming people… potentially hundreds of thousands or even millions of seniors who didn’t realize that you were only trying to get as many Likes, Tweets or Shares as possible in order to please your editor, or get moved from a cubicle to a window office. Untold numbers of seniors who didn’t realize that what you actually knew about a reverse mortgage could be put in a thimble.
I wonder if anyone died yet because they didn’t have the money they could have had, if you’d only have restrained your obviously uneducated fingers when they started typing sentences that made it clear that you didn’t even know what you didn’t know.
What will you say when someone is harmed by you having misled them about a reverse mortgage, because it undoubtedly will happen… you know that, right? In fact, I’d venture to guess that quite a few people in history have died for want of $100,000 or more. What will you say when it happens and is brought to your attention?
Will you say that The New York Times isn’t responsible for that, because they should have checked with someone who knew better? Sorry to hear about your mom’s untimely passing… I can’t believe she screwed up and trusted what she read in the New York Times?
Why can’t we just be accurate?
How about if we stop misleading people all around? As someone once said, you’re entitled to your own opinion, but not your own set of facts. Why can’t we just be accurate about reverse mortgages, and everything else, for that matter… but especially about something as important as a reverse mortgage can be to seniors in their retirement years?
A reverse mortgage is just a mortgage… that happens to come with the most flexible repayment terms imaginable.
You can make interest only payments, you can make principal and interest payments, you could create your own balloon payment… or you could make no payments whatsoever, in which case the amount you own will be paid back when the heirs you leave your house to upon your death, choose to either refinance the loan, or sell it and keep the remaining equity… just as would happen with any mortgage that remained on your home upon your death.
You can use the money you borrow through a reverse mortgage for anything you want, which makes a great deal of sense because, after all, it is YOUR equity. And it’s not complicated or difficult to understand either, no matter what Forbes Magazine or anyone else says about it.
There are literally an infinite number of ways you might use a reverse mortgage. I know someone who used his to buy a Tesla… the electric car that costs about $80,000.
He’s got plenty of money in his retirement portfolio, but he reasoned that by using his reverse mortgage line of credit, his $80,000 would remain invested for the time he kept the car, and he’d have no monthly payments. He said he planned to sell it in about two years, and when he did, he’d repay the line of credit with the proceeds from the sale of the car.
He says the car is expected to have very high resale value, so if he ends up selling it for $65,000 in two years, he’ll simply make up the difference at that time, but he’ll have made money on his $80,000 for two years, so the interest on that money will help make up the difference too.
“Why would I want to take the loss now,” he explained. “Take my money out wherever it’s invested, lose that interest income, and make two years worth of payments? This way, I’ll pay nothing out of pocket and take my loss at the end. Who knows, maybe I’ll sell it in a year for $70,000.”
I had to admit, although I hadn’t considered it before, it made a great deal of sense.
And reverse mortgages keep homes safe from foreclosure, and millions of seniors have lost homes to foreclosure over the last five years. Many were denied loan modifications because they had equity in their homes. I can’t help but wonder how many of those seniors could have saved their homes simply by switching over to reverse mortgages. Or, how many foreclosures to come could still be stopped today?
I’ll be happy to help anyone who has questions about a reverse mortgage understand how they work and how they can be used… seniors, adults concerned about a parent’s financial future, CPAs, financial advisors… and certainly anyone in the media concerned with getting their facts right… If you want to talk about reverse mortgages, I’m more than ready. Email me at Mandelman@mac.com.