More Crap Reporting on Reverse Mortgages – Joe Hernandez of Newsworks.com
Today, I happened to notice an article posted on Newsworks.com, written by Joe Hernandez, under the headline: “For some New Jersey homeowners seeking a lifeline, reverse mortgages can backfire.”
Joe seems like another nice YOUNG man who isn’t old enough to understand anything about retirement, or real life, for that matter… and he certainly isn’t trying to do much actual work before he sits down to write his articles.
The text of his article is below and my response to him follows. Certainly, I could have said a lot more, were I trying to communicate the many advantages of the HECM reverse mortgage, but in this case that wasn’t my goal.
In this case, I just wanted to illustrate yet another example of shoddy reporting on the subject of reverse mortgages, so that readers wouldn’t be misled by this sort of soundbite driven, sensationalistic crap. His article is below…
More than 1,200 New Jersey homeowners have defaulted on reverse mortgages offered through the federal government and were foreclosed on since 2005, according to a new report by Stockton University.
“It can be a life raft if [borrowers] don’t have adequate retirement savings,” said David Carr, who wrote the report.
“On the other hand, it is a complex loan for which you pay significant costs, and it can ultimately lead to the loss of your home.”
The Federal Housing Administration offers reverse mortgages to qualified borrowers aged 62 and older, allowing people to take out a loan against their homes without making regular payments.
(Private companies also offer reverse mortgages, according to Carr, but the FHA offers the vast majority of the loans.)
Homeowners are required to keep current on their property taxes, pay their homeowner’s insurance, and maintain their property in order to fulfill their end of the reverse mortgages — rules that many people may not fully understand before taking out out the loan, according to Carr. And defaulting on a reverse mortgage could lead to foreclosure.
In Ocean County, the county with the highest rates of reverse mortgage foreclosures, 233 borrowers lost their homes after taking out the FHA loan since 2005.
Camden and Mercer counties also had high numbers of reverse mortgage foreclosures.
“These kinds of mortgages are very different than others, and there are unique risks involved,” said Brian McGuire, associate state director of AARP New Jersey.
“Certainly if you don’t pay your insurance, your property taxes and such, if you don’t maintain your home properly, then you could default on the mortgage.”
Noting that homeowners can also take home equity loans or lines of credit instead, McGuire suggested possible borrowers consult with a financial planner and do their research before settling on a reverse mortgage.
MY COMMENTS TO JOE IN RESPONSE FOLLOW…
I’d like to talk to you about your recent post about reverse mortgages “backfiring” in New Jersey. I’m wondering several things…
1. Have you contacted any of the 1200 homeowners who have “defaulted” since 2005? The reason I ask is that I’m wondering how many of them defaulted by failing to pay their property taxes, as opposed to heirs choosing to walk away from homes with little or no equity after their owners passing.
2. Do you have any idea how many reverse mortgages there are in place in New Jersey since 2005? I mean, 1200 seems to be a remarkably small number when it’s over 11 years and includes the worst economic downturn in 70 years.
3. The core point of your article seems to be that people have to pay their property taxes and insurance when they have a reverse mortgage, but that would be true even if they had no mortgage whatsoever, right? And even if you had no mortgage, and you failed to pay your property taxes, wouldn’t you also risk losing your home to a tax sale?
4. I see many quotes in the media that talk about how a reverse mortgage is a “complex loan,” but they never seem to explain what is so complex about them. A HECM reverse mortgage is just an FHA mortgage that offers borrowers the option of not making mortgage payments during their lifetimes or until they sell the home. But, with a reverse mortgage you can also choose to make interest only payments, or principal and interest payments, or your own balloon payment, for that matter.
5. I ask these questions because your article more than implies that it’s the reverse mortgage that is somehow “backfiring,” but nothing in your piece explains how any of these reverse mortgages backfired. Not paying your property taxes is not the fault of the reverse mortgage or a flaw in the reverse mortgages. Presumably, had the people who defaulted not gotten the reverse mortgage, they would have defaulted on their property taxes that much sooner.
6. You quote David Carr from Stockton University as saying, “It can be a life raft if [borrowers] don’t have adequate retirement savings.” First of all, I don’t know anyone with “adequate retirement savings,” excpet those who I would classify as being wealthy… as in, people with millions of dollars. The rest of this country, and by that I do mean the VAST majority, are not even close to having adequate savings for retirement today. One recent report I read shows that the average 401(k) balance of a 65 year-old in this country is $100,000. Like I said… we’re not even close.
So, considering that state of affairs, a “life raft” sounds pretty lifesaving to me, but then the article goes on to make it sound like a surefire path to losing your home… and that just seems inaccurate at best and I might even call it, “highly misleading” and sensationalistic garbage.
7. What are the “unique risks involved,” as Brian McGuire was quoted as saying in your article? Somehow we’re talking about a mortgage that’s regulated by HUD and insured by the FHA, that doesn’t require you to make a monthly payment, and turned it into a bad thing? I wish I could have had one since I was 30.
8. There are roughly 700,000 reverse mortgages in place in this country as of last year. How come I don’t see hundreds of thousands of seniors marching in the streets to stop them from being offered? I know why, because people LOVE them… because they can be nothing short of lifesaving in retirement. 1200 homes in default in New Jersey since 2005? I’d venture to guess that there were more homes in default in Newark last month than 1200.
9. Have you ever considered just how much worse a HELOC is for retirees? HELOCs are interest only loans for 10 years, after which time they become fully amortizing, which means the monthly payments can jump up by many hundreds of dollars. So, if someone took out a HELOC at 65, they’d be facing increased payments coming their way when they’re 75… not a good thing, as most people’s income declines as they get older.
To say nothing of the fact that HELOCs require borrowers to start making payments right away and each month without fail… while HECM Lines of Credit do not require that monthly payments be made, they can never be cancelled by the bank, as HELOCs can, and HECM Lines of Credit are guaranteed to increase each year regardless of the home’s value. (Since I realize that you have no idea what I’m talking about, perhaps a little actual reading would help.)
I started researching HECM reverse mortgages almost two years ago, and I found that the hardest part of trying to learn about them is wading through the ambiguous and misleading articles, often written by people under the age of 40, who clearly don’t know enough about the product or the market to be covering the subject matter.
Joe, this isn’t some sort of weight loss program. It’s too important a product to talk about in these sort of soundbites. How would you feel to find out that someone who read your article came away thinking that the HECM was somehow to be avoided and as a result ended up losing their home, or being forced to sell it, when it wasn’t actually necessary that they do either?
I’m not saying that you should be cheerleading for reverse mortgages either, but what I am suggesting is that before you paint something with the sort of brush you used to create this article, you either cover the subject matter in more detail or not cover it at all.
Or, don’t take my advice and just keep doing what you did here… and I’ll keep writing to illustrate that you don’t know what you’re talking about and should be sent to your room when grown-ups are talking.