Major Media Misinforms, Scares Seniors on Reverse Mortgages
How could anyone do what Iâ€™m about to show you is being done to seniors in this country? Â Itâ€™s shocking, deplorable and most of all dishonest journalism causing unconscionable harm to millions of senior citizens in this countryâ€¦ and it must be stopped.Â I have never seen anything like it.
From ABC News the headline reads: â€śSenior Homeowners Warned of Risks of Reverse Mortgages.â€ťÂ
Forbes claims to uncover: â€śThe Hidden Truths About Reverse Mortgages.â€ťÂ Â
The Huffington Post chimes in with a double threat: â€śReverse Mortgage Foreclosures On the Rise, Seniors Targeted for Scams.â€ťÂ
Even local news is on the case, in Kansas City itâ€™s, â€śKCTV-5 Investigates: Issues with reverse mortgages.â€ť
And thatâ€™s not even the tip of the iceberg when it comes to articles claiming to warn seniors about reverse mortgages.
On MSN Money itâ€™s: â€śMore seniors turn to risky reverse mortgages.â€ťÂ And on AOL Real Estate youâ€™ll find the even scarier, â€śReverse Mortgages Pose Big Risks for Seniors, Warn Attorneys and U.S. Officials.â€ť
The New York Times has proclaimed: â€śPitfalls of Reverse Mortgages Pass to Borrowerâ€™s Heirs.â€ťÂ And backing up the Timesâ€™ assertions was the prominent financial blog, Naked Capitalism, with the even more damning headline: â€śHow Banks Fleece Heirs on Reverse Mortgages.â€ť Â And, I suppose, not to be left out, the Washington Post added: â€śReverse mortgages can become nightmares for seniors and their relatives.â€ť
The problem is that every single one of those articles is so flagrantly biased and packed with untrue and misleading statements, that everyone involved should be ashamed.Â
Iâ€™m not saying that my expectations of the media today arenâ€™t already profoundly stunted, but I do expect publications like the Washington Post, New York Times, Forbes or ABC News to be at least penultimate in any race to the bottom.
The estate-devouring, nightmare home loan you hope to never encounterâ€¦ thatâ€™s the first line in the Washington Post piece.Â Are you kidding me?Â What is going on around here?Â Is the goal to cause serious harm to older people?Â Whatâ€™s next?Â Should we start pushing them down stairs whenever the opportunity arises?
From the people who brought you Social Security and Medicare…Â
Â Whatâ€™s nothing short of astounding about this blend of sensationalism and stupidity is that its all been written about a Home Equity Conversion Mortgage or HECM for short.Â A mortgage program made possible by Congressâ€¦ for senior citizensâ€¦ regulated by the U.S. Department of Housing & Urban Developmentâ€¦ and insured by the FHA.
Think about it for a momentâ€¦ if any of those headlines above were even close to appropriate, every single congressional representative would be afraid to leave his or her house and there would be older people with picket signs protesting in front of the White House.Â The entire idea that the federal government would create something dangerous enough for seniors to warrant those headlines is simply preposterous.
According to the Reverse Mortgage Lending Association, roughly 70,000 people took out reverse mortgages last year, which is a tiny fraction of the millions of seniors that would benefit from this widely misunderstood product.Â But all you have to do is spend a couple of minutes online, and youâ€™ll wonder how anyone ever says yes to a reverse mortgage.
The only thing I can think of is that last year the industry somehow managed to find 70,000 seniors that havenâ€™t discovered the Internetâ€¦ and I suppose, who also donâ€™t have kids, friends or phones.Â Truth isâ€¦ I donâ€™t really know how it happened.
So, whatâ€™s going on here, major media people?Â Why are do you seem intent on scaring the crap out of my mom?Â Sheâ€™s 82, and if you donâ€™t leave her alone, you and I are going to have a problem.
Letâ€™s start with ABC News coverage: â€śSenior Homeowners Warned of Risks of Reverse Mortgages.â€ť Â Hereâ€™s what the article says about a couple from Wisconsin, Linda and Jim McMahan.
â€śAs is true for so many Americans, the McMahans’ home in St. Croix, Wis., was the couple’s dream and nest egg. That is, until their home was drained of its 19-year equity by a reverse mortgage and sold out from under Linda to pay it back as soon as her husband died.â€ť
Their home was â€śdrained of its 19-year equityâ€ť by a reverse mortgage?Â Drained?Â It went down a drain?Â No it did not..Â It went straight into the pockets of Jim and Linda McMahan.Â No one drained anything.Â A retired couple decided to use some of their homeâ€™s equity to improve their lives during retirementâ€¦ thatâ€™s all that happened.
And then it was â€śsold out from under Linda?â€ť Â Also, not true.Â How could that happen with a loan designed by the federal government for older Americans?
The story continuesâ€¦
â€śWhen the McMahans applied for the reverse mortgage in 2005, Linda was under 62, so her name was not included on the reverse mortgage. When her husband died, Linda had no claim to her home of nearly two decades. She lost it.â€ť
Okay, I see what happened here.Â The couple didnâ€™t qualify for the HECM reverse mortgage program, so they came up with a way to get around the rules: pretend that Linda wasnâ€™t part of the equation.Â They removed her name from the title, and had the reverse mortgage originated in Jimâ€™s name alone.
She didnâ€™t â€śloseâ€ť her homeâ€¦ she agreed to have it taken from her so she and her husband could get a much larger check from the reverse mortgage.Â The answer is â€śmoney,â€ť what was your question?
Jim was older so not surprisingly he died first, and after he died since Linda wasnâ€™t an owner of the house, she was faced with having to either refinance to pay off the reverse mortgage, or sell the house.Â She wasnâ€™t on the title to the property, nor was she on the reverse mortgage.Â She might as well have been a houseguest visiting for a weekend.
Now, the first thing everyone needs to understand is that the HECM reverse mortgage is expressly designed to prevent what happened to the McMahans, because had Linda been older, she could have been on the title and the reverse mortgage, and after Jim died, she would have been able to remain in the home until she died, and without ever having to make a single mortgage payment.
HECM reverse mortgage donâ€™t become due until after the SECOND spouse dies, not the first.Â Didnâ€™t this couple know how the reverse mortgage worked in the event that Jim were to die first, with Linda not on the title or the loan?
Well, hereâ€™s what the article says about thatâ€¦
â€śThe McMahans did receive the required counseling before receiving the mortgage and were aware she would no longer be listed, but were unclear about the process needed to add her name — which would have required another refinancing when she turned 62 as outlined in their mortgage documents.â€ť
Okay, so they DID KNOW what would happen as a result of setting up the reverse mortgage without Linda on it.Â The couple went through the independent counseling session, as HUD requires of every senior before applying for a reverse mortgage.
Linda says they were â€śunclear about the processâ€ť for adding her name at some point in the future, but thatâ€™s because there is no process to add someoneâ€™s name later.Â To add a borrower to a reverse mortgage would mean refinancing to a new loan, â€śas outlined in their mortgage documents,â€ť as it says in the story.
But, just the fact she says that they were unclear about the process for adding her name onto the mortgage and title in the future shows me that they knew the outcome of not adding her name to the mortgage later.Â Otherwise, why would anyone be unclear about a process for doing something of no consequence?
You see, the amount you can borrow using a reverse mortgage, expressed as a percentage of the available equity, is based on two factors:
- The amount of equity in the property.
- The age of the youngest borrower, and the older you are the more you can borrow, because the older you are, the shorter amount of time before the loan will be repaid.
So, because the amount you can borrow is based on the age of the borrower, when that borrower dies, the loan has to be repaid because the amount of the loan was based on it being repaid at that point.Â If it had been based on the younger spouse, the amount loaned would have been less.
There are legitimate reasons for taking a younger spouse off the mortgage, like when the younger spouse knows that he or she doesnâ€™t want to keep the home after the older spouse dies.Â As long as the spouse thatâ€™s being taken off the title and isnâ€™t put on the reverse mortgage knows the ramifications of that decisionâ€¦ then itâ€™s fine.
What should NEVER happen is what this article suggests is happening on a larger scaleâ€¦ younger spouses agreeing not to be put on the reverse mortgage and to be taken off titleâ€¦ and then expecting to keep the home without paying after the older spouse dies.
Some say they didnâ€™t understand what would happen as a result of not being on the reverse mortgage or title, and although I canâ€™t say whether thatâ€™s true or not, I can say the following:
- Borrowers are required to go through counseling with an independent HUD certified counselor before getting a reverse mortgage, and itâ€™s impossible for me to believe that those counselors arenâ€™t making sure that borrowers understand the rules and risks, especially when there is a spouse not on the reverse mortgage.
- It is also impossible for me to believe that there are spouses that are agreeing to be taken off title and not being included on the new reverse mortgagesâ€¦ without at least asking why, and more than likely asking another hundred questions after that.I canâ€™t even imagine what would happen if I asked my wife to be taken off the title to our home and then not to be included on a new mortgage of any kind, but I can tell you that thereâ€™d be no chance of her saying, â€śOkie dokie, where do I sign,â€ť and leaving it at that.
- The HECM reverse mortgage ONLY becomes due after the death of the second spouse in order to make sure that both spouses can remain in the home for their entire lives.Â If a spouse is losing a home, itâ€™s NOT the result of a using a HECM reverse mortgage as it was designed to be used.
Next the story says about Lindaâ€™s plightâ€¦
â€śIt’s only one of the dangers inherent in the reverse mortgage that government officials are warning consumers about today.â€ť
Really, itâ€™s only one of the inherent dangers?Â What are the other â€śdangersâ€ť about which government officials are warning consumers?Â Actually, thereâ€™s only one sentence in the remainder of the article that could be considered a â€śwarningâ€ť from the government.
â€śToday, the government is warning: Reverse mortgages are not free money.â€ť
Well, thatâ€™s just terrific.Â My government is warning consumers that a mortgage is not, â€śfree money?â€ťÂ Seriously?Â Is that sort of warning really necessary?Â Iâ€™m only asking because Iâ€™ve never talked to anyone who thought a reverse mortgage was â€śfree money.â€ť
And I would think that if seniors en masse thought reverse mortgages were â€śfree money,â€ť there would have been a lot more than 70,000 of them originated in this country last year.
But, the article claims that there are critics that sayâ€¦
Critics say the TV commercials, with celebrities like Fred Thompson and Henry Winkler, prey on vulnerable seniors by claiming homeowners can “turn their equity into tax-free cash.”
Oh, well first of all, thatâ€™s not â€śfree money,â€ť thatâ€™s money on which you donâ€™t have to pay taxes, which is exactly what reverse mortgages provide.Â Whatâ€™s the problem there?
ABC News also quotes Prescott Cole, Â staff attorney for California Advocates for Nursing Home Reform who saysâ€¦
â€śâ€¦ seniors are a target because many have money saved, are often isolated and at times have “cognitive impairments” reducing their ability to make rational decisions.â€ť
Well, by all means letâ€™s protect people with â€ścognitive impairmentsâ€ť who are lacking in the ability to make â€śrational decisions.â€ť Did anyone suggest we should be targeting those folks?Â And regardless, isnâ€™t that why thereâ€™s mandatory counseling before anyone can apply for a reverse mortgage?
Then Cole addsâ€¦
“They’re not being told about the downsides,” Cole said. “When we hear about reverse mortgages, we’re hearing the good things … that these are loans that don’t have to be paid back either until the senior dies or permanently moves out of the home … they’re told, nothing to worry about.”
Nothing to worry about?Â Thatâ€™s what seniors are being told about reverse mortgages?Â And I suppose these seniors then reply: Okay, thanksâ€¦ then we wonâ€™t worry?Â Are they mentally disabled seniors?
What evidence does Cole have that anything like that is being said or happening? Â The McMahans went through counseling so they werenâ€™t just told thereâ€™s â€śnothing to worry about.â€ťÂ So, whatâ€™s he babbling about?
And then at the very end, the ABC News story statesâ€¦
â€śSeventy percent of the time, seniors exchange the equity in their homes for the reverse mortgage payout as a lump sum and the money is too often spent by the time it’s needed for late-in-life hardships.â€ť
First of all, slow that sentence down for me.
I get the first part: 70 percent take a lump sum.Â Got it.
Now the next part again please: â€śâ€¦ money too often spent by the time it’s needed for late-in-life hardships.â€ťÂ Itâ€™s too often spent?Â How often is too often? Â And when you say gone by â€ślate-in-life?â€ťÂ Iâ€™ve been dying to know this one for a long time.Â When is â€ślateâ€ť in life?Â And more importantly, is it later than I think?
Regardless, in an effort to stop seniors from becoming spendthrifts later in life, we should start teaching them the importance of saving for a rainy day, or that a penny saved is a penny earned, or not to put all their eggs in one basket, or any of the other maxims that my grandmother used whenever possible until she passed away at 94.
The fact is that all of the seniors Iâ€™ve known were painfully aware of the possibility that they could outlive their money, and they all guarded against that happening with great vigilance.
So, thatâ€™s ABC News â€śwarningâ€ť seniors about the risks of reverse mortgagesâ€¦ the story of one couple living in Wisconsin, and why donâ€™t I think it was easy for ABC to find a second couple to profile?Â Because I think itâ€™s safe to say that if you find someone in Wisconsin, you werenâ€™t looking there first.Â No producer is going to say, â€śCheck in Wisconsin first.â€ť
The thing is that the venerable news organization never bothers to point out that if you use a reverse mortgage as intended, this sort of thing could never and would never happen.
In point of fact, there are no legitimate â€śrisksâ€ť presented in ABCâ€™s story.Â Leaving a younger spouse off of a reverse mortgage isnâ€™t a â€śrisk.â€ťÂ Itâ€™s a conscious act done in order to receive a bigger check.
Nor does ABC bother to mention that there are legitimate reasons to do what the McMahons did.Â For example, letâ€™s say Jim was quite a bit older so the couple decided they wanted the additional money from a reverse mortgage that Jimâ€™s age would provide, and letâ€™s say Linda understood what would happen if he died firstâ€¦ but she knew that she didnâ€™t want to live in the house after Jimâ€™s deathâ€¦ she wanted to go live with her sister.
Well, that would be fine, right?Â And the couple would have had to sign off on all sorts of disclosures to ensure that they knew exactly what they were doing.
FROM BAD TO WORSE: Forbes Findings Faulty on Reverse Mortgages
Now, if ABC News were the only major news outlet to run a story like the one I dissected above, Iâ€™d have just ignored it.Â Iâ€™m more than aware that the mainstream media is more than capable of getting things wrong, and that they often do.
The problem is that ABC News is not the only member of the media running this caliber of story about reverse mortgages.Â In fact, as youâ€™re about to see, when it comes to reverse mortgages misinformation and negative hype are flat out endemic.
Forbes Magazineâ€™s headline â€śThe Hidden Truths About Reverse Mortgages,â€ť was cleverly engineered to suck in the seniors, with the â€śhidden truthsâ€ť appeal, and then misinform them on a scale never before seen.Â The â€śtruthsâ€ť may be hidden, but the lies come shining through, no problem.
The article was based on its author, Carolyn Rosenblatt, having attended the San Francisco 7th Annual Conference on Elder Abuse, so I was anxious to dig in.Â She had seen a panel discussion on reverse mortgages, and she described the experience as followsâ€¦
â€śâ€¦ drawing back the curtain that cloaks the truth:Â reverse mortgages are not for just anyone and they can create some new problems the broker isnâ€™t telling you about.Â My husband, psychologist,Â Dr. Mikol Davis and I attended the conference and we learned about some serious problems.â€ť
Okay, Iâ€™m scared to death already.
Hereâ€™s Carolynâ€™s list: â€śThe risks and dangers of reverse mortgages.â€ťÂ (Emphasis hers.)
First at bat: â€śThe Elder Might Need a Care Home in the Futureâ€ť
I read that sentence and immediately started wracking my brain trying to figure out what it could possibly have to do with a reverse mortgage.Â After all, doesnâ€™t that sentence apply to every singe person on this planet?Â Everyone might need a care home in the future, right?
Itâ€™s remarkable that in one equally short and ambiguous sentence, Carolyn just completely ruled out reverse mortgages for the entire world.Â I donâ€™t think Iâ€™ve seen anything like that done before: a single sentence that eliminated a productâ€™s viability on a global scale.
According to Carolynâ€¦
â€śIf you incur the debt of a reverse mortgage, or your aging parents do, itâ€™s ok as long as they can live in that home.Â What happens when they have to move out of the home intoÂ assisted living or a nursing home?Â The mortgage becomes due. Now, there is the expense of paying it off, besides the high cost of the assisted living orÂ nursing home care.Â It can leave an elder homeless.â€ť
It can leave an elder homeless?Â Iâ€™m telling you Stephen King has nothing on Carolyn.Â She tells the scariest bedtime stories Iâ€™ve ever heard.
Carolynâ€™s wrong though.Â In order for a reverse mortgage to become due, the borrower would have to have lived in assisted living or nursing home for a year, before the reverse mortgage to become due.
Then she inexplicably adds the cost of paying off the reverse mortgage, to the â€śhigh costâ€ť of assisted living or nursing home careâ€¦ in order to determines that the sum total could leave the elderly couple homeless.
But, why would you add the cost of paying off the reverse mortgage to the cost of nursing home care, for example?Â I mean, just think what could happen of you added in the cost ofâ€¦ I donâ€™t knowâ€¦ the space program to the cost of paying off the reverse mortgage.Â I bet that would put a real dent in a housing budget too.
And, I guess Iâ€™m not sure why, if both my wife and I ended up in assisted living or nursing home care for over a year simultaneously, we would even consider paying off the reverse mortgage.Â Might that not be a good time to consider selling?
Next upâ€¦ â€śIt Can Affect Any Dependent in the Homeâ€ť
If the elder who needs care in a facility has non-borrowing family members in that home, the loan is still due.Â Anyone left in the home must move out, go to a care facility or be taken in by someone else. Those displaced if a borrowing elder has to go to a care facility can include a non-borrowing spouse, child or grandchild. They are â€śtenantsâ€ť according the rules of reverse mortgages and they have to leave when the elder does.
Again, tenants do not have to leave when the elder moves into assisted living or a nursing homeâ€¦ thereâ€™s a one-year provision, you have to be out of your home for a year before the loan becomes due.
And next she lists my favorite dumb point: â€śIt Can Go Into Defaultâ€ť
If an elder with a reverse mortgage fails to pay property taxes, to keep up insurance on the home, or fails to maintain the home, he is in default.Â The lender can then foreclose.Â Lenders are in a good position to purchase such properties cheaply and then flip them for a good profit.Â Elders who are low on cash may fail to pay home insurance premiums or property taxes.Â If they are getting forgetful, they might not maintain their properties.
This entire paragraph is nothing but inflammatory nonsense from an uneducated source.
Number oneâ€¦ if you donâ€™t pay your property taxes, any home can go into foreclosure.Â Reverse mortgages have nothing to do with that point.
Number twoâ€¦ every seniorâ€™s home that Iâ€™ve ever seen has been meticulously maintainedâ€¦ like much better than mine.
And Number threeâ€¦ to say lenders are â€śin a good position to purchase such properties cheaply and then flip them for a good profit,â€ť is just WRONGâ€¦ as in, NOT TRUE. Â Lenders have to refund to borrowers any amounts above what they are due on the loan.Â Thereâ€™s no flipping and profiting.
Overall, however, Iâ€™m so tired of writers describing seniors as helpless, drooling infants, who lack the capability to function without causing themselves harm.Â Pay your property taxes and insuranceâ€¦ and if you canâ€™t handle that, or canâ€™t remember to do itâ€¦ it may just be time to move somewhere where theyâ€™ve removed all the sharp objects.Â .
Daughter:Â Mom, oh my God, the roof has fallen into the laundry room.
Elderly Mom: Oh my goodnessâ€¦ Iâ€™m so forgetful.Â Iâ€™ve been meaning to fix that roof since last week.Â With all the rain weâ€™ve been having, itâ€™s no wonder I canâ€™t get the clothes to dry.
Next pleaseâ€¦ When the Elder Dies, the Heirs Must Pay Off the Loan
â€śThe entire principal, plus accrued interest and service fees must be paid in full to the lender before the heirs can rightfully take possession of the home. This debt may exceed the actual market value of the home. If they canâ€™t pay the debt, the lender has the right to foreclose and sell the property.Â Low wealth heirs are not likely to be able to pay the debt and those homes fall into foreclosure. Goodbye inheritance.â€ť
Okay, so this is goofy. Thereâ€™s SO MUCH WRONG WITH THIS SENTENCE, I canâ€™t even begin to tell youâ€¦upon the death of the second to die, the heirs inherit the property.Â They have six to nine months to either refinance to pay off the existing lien, or they can sell the property and keep any equity above what is owned on the reverse mortgage.
This has NOTHING to do with low-income heirs and losing an inheritance.Â The heirs CAN sell the property, Carolyn.Â Are you not aware of that?Â Why donâ€™t you ever bring it up?
Move on, before I get a headache that will never stopâ€¦ â€śThe Amount the Lender Will Loan is Limitedâ€ť
So, now Carolyn thinks seniors should be able to borrower more?Â What happened to avoiding taking on debt?Â What happened to her concern about an heir losing an inheritances?
â€śThere are seemingly irrational formulas used to calculate how much a borrower can get on a reverse mortgage.â€ť
Oh, shut up.Â Thereâ€™s no â€śseemingly irrationalâ€ť formula for programs governed by HUD.
If an elder lives into oneâ€™s 90â€˛s, becoming more common these days, there is a risk that the amount loaned will not be enough to sustain the elder who needs long term care at home.Â
What does that even mean?Â I canâ€™t get enough to pay for long-term care at home, that I donâ€™t even need yet, out of my reverse mortgage â€¦ so, might as well get out the cat food on a cracker and mix up some Tang?
â€śThe elder can run out of money to make the loan payments, go into default and end up homeless and impoverished. This is a real risk, particularly for anyone who thinks itâ€™s a dandy idea to take out a reverse mortgage to pay for home care providers.Â If the elder borrows, say, $200,000, and ends up needing care 24/7, that reverse mortgage cash she got will be exhausted in about two years or less.Â Then what?Â Default, foreclosure and Medicaid paid nursing home.â€ť
What a colossal crock of crap that entire paragraph is.
First: â€śThe elder can run out of money to make the loan payments, go into default and end up homeless and impoverished.â€ť Â Is she talking about a regular mortgage?Â Werenâ€™t we talking about a reverse mortgage?Â What loan payments, Carolyn?Â There are no loan payments required with a reverse mortgage.
Second: How do you know when our hypothetical senior will run out of $200,000?Â And what difference does it make as related to a reverse mortgage?Â Iâ€™m not going to try to figure it out, it would require that I lower my IQ by 90 points, and Iâ€™m afraid itâ€™ll get stuck down there.
Then the article quotes Norma Paz Garcia, Senior Attorney for Consumerâ€™s Union of the United States, who says: â€śShe urges borrowers to consider any other possible alternatives to raising cash such as a forward mortgage equity lines, inter-family loans, local government loans or public benefits.â€ť
Norma Paz Garcia has no idea what sheâ€™s talking about, thatâ€™s all there is to that.Â Which one of those loans does not have to be repaid until after the second spouse dies?Â None of them?Â Then, how can you think that a forward mortgage equity line, which is very difficult to qualify for, and must be repaid, could be a replacement for a reverse mortgage?
And Norma thinks borrowing from family is a good idea?Â I canâ€™t help but wonder whether Norma has a family of her own, or whether sheâ€™s just theorizing that borrowing from family members is something that ever ends well?
And which â€ślocal government loans or public benefits,â€ť is she suggesting, and why canâ€™t she say something specific?Â Bringing up non-specific ideas that may or may not even exist isnâ€™t helpful, is it?
And, thank the Lord, Carolyn is wrapping upâ€¦
â€śSo whatâ€™s the bottom line?Â Â Consider a reverse mortgage an option of last resort.â€ť
Thatâ€™s probably the worst advice of all.Â Hereâ€™s some much better advice: Donâ€™t wait until thereâ€™s any sort of â€ślast resortâ€ť in your life for anything.Â Thatâ€™s how people get ripped offâ€¦ they waitâ€¦ are under stressâ€¦ and canâ€™t function normally.
And the last thing she says is:
â€śRecognize that your aging loved one might not be in perfect health to the end of her days and that care atÂ home might cost more than a reverse mortgage could cover, especially over a period of years.Â There just might be less costly, smarter ways to deal with the need for money when funds run low.â€ť
Again with the â€ścare at home might cost more than a reverse mortgageâ€ť nonsenseâ€¦ what is she talking about and why does it matter?
How would anyone know whether care at home in 10-20 years costs more than a reverse mortgage?Â And what would they do with that information?Â Something might cost more in the future so you shouldnâ€™t get a reverse mortgage?
And as far as there being the potential for a less costly way to deal with the need for money?Â Well, by all means, do whatever works best, but I have to wonderâ€¦ less costly than not having to pay it back until youâ€™re dead?
OKAY, WHATâ€™S WRONG WITH RICHARD CORDRAY, OF THE CFPB?Â HOW CAN THIS HAPPEN?Â
â€śReverse Mortgage Foreclosures On the Rise, Seniors Targeted for Scams,â€ť is the sensationalistic scare tactic chosen by The Huffington Post.Â It quotes Richard Cordray, Director of the Consumer Financial Protection Bureau (â€śCFPBâ€ť), and among other crazy things, he says that seniors with reverse mortgages are going into foreclosure â€śat an alarming rate.â€ť
How in the world can a reverse mortgage go into foreclosure?
Cordray claims 10 percent of reverse mortgages are in default or foreclosure, but since there are no mortgage payments to miss when you have a reverse mortgage, the only way this could possibly be true is if heâ€™s talking about people who are unable to pay their property taxes.
If thatâ€™s what weâ€™re talking about, wouldnâ€™t the people be in foreclosure anywayâ€¦ with any type of mortgage? Â Because if you canâ€™t pay your property taxes, thereâ€™s no way you could pay your mortgage payment AND your property taxes, right?Â Of course thatâ€™s right.
So, why does Cordray make it sound like heâ€™s describing a problem with reverse mortgages when heâ€™s actually not?Â Why is he scaring seniors away from a reverse mortgage, when it could transform their lives, or save their homes, or any number of other positive things?
Why is he misinforming seniors when by doing so, they may not get access to hundreds of thousands of dollars thatâ€™s available to them?Â Doesnâ€™t he realize the difference hundreds of thousands of dollars can make in someoneâ€™s life in later years?
I donâ€™t understand how Cordray can do what he did here, under the guise of â€śprotecting seniors?â€ťÂ
However, I thought Cordrayâ€™s best line in the HuffPo hit piece, hands down, was when when he said that the agency found that:
â€śâ€¦ seniors often don’t really understand the terms of the loan, a problem exacerbated by deceptive mailings and other advertisements.â€ť
Richard actually thinks that itâ€™s mailings and advertisements that are confusing seniors?
What about the countless articles in the mainstream media containing little more than inaccurate hype and deceptive scare tactics that are sure to confuse seniorsâ€¦ because they certainly have confused meâ€¦ you know, like THE ONE HEâ€™S QUOTED IN that ran in the Huffington Postâ€¦ or the one above from Forbes Magazine above and the one above that from ABC Newsâ€¦ or the ones below for that matter.
Cordray isnâ€™t concerned about biased, inaccurate and incomplete coverage by the New York Times, the Washington Post or ABC Newsâ€¦ they can get it entirely wrong and mislead seniors about reverse mortgages.Â But, he is concerned about mailers and advertisements?
Yeah, that makes total sense because whenever I hunger for knowledge or am seeking information, I always first check my mailbox to see if thereâ€™s any junk mail on the subject.
The irony of Richard Cordray warning of mailings and advertisements misinforming seniors about reverse mortgages, while being quoted in an article thatâ€™s doing exactly that on steroids, is overwhelming.
MSN MONEY MAKING NO SENSEâ€¦
MSN Moneyâ€™s, â€śMore seniors turn to risky reverse mortgages,â€ť was really just more of the same, although the article did manage to be a little more offensive in parts, no easy task it should go without saying.
Hereâ€™s one of my favorite offensesâ€¦
â€śThe concern is that many are using reverse mortgages to drain their home equity too early, leaving them nothing to fall back on in 15 or 20 years.Â In aÂ 2012 report to Congress in 2012â€¦â€ť
Thatâ€™s the concernâ€¦ nothing to fall back on in 15-20 years?
How about if I need something to fall back on now?Â If Iâ€™m still alive in a couple decades, Iâ€™ll worry about that then.Â And besides that, how about if I take the money now and use it to start making more money so I can save for the next 20 years, so Iâ€™ll have saved more by then? Â Would that be okay with everyone?
Thereâ€™s lots of possibilities, but only one that I really donâ€™t like the sound ofâ€¦ Richard Cordray being able to tell me when I can take advantage of the reverse mortgageâ€™s benefits, and when I canâ€™t.Â In fact, Iâ€™d HATE that.
MSN Money also has a financial planner babbling incoherently, sayingâ€¦
â€śReverse mortgages are particularly complicated loans.â€ťÂ UMMâ€¦ NO, THEYâ€™RE NOT.
â€śA reverse mortgage taken in desperation can even make things worse,â€ť a certified financial planner I will not name, told CNBC:
GOOD POINT, SO DONâ€™T WAIT UNTIL YOUâ€™RE DESPERATE TO GET ONE.
“When an older couple cannot afford to live in the home anymore, getting a reverse mortgage will only delay the loss of the house and will leave them with no assets,” he said.
FIRST OF ALLâ€¦ Who said anything about a couple that can no longer afford to live in their home?Â And why would a reverse mortgage leave anyone with no assets, more than any other mortgage?
Better to sell the house and downsize, move in with a family member, take on a roommate or explore whether one of your adult children might be willing to purchase the family house through an installment sale.
OR, HEREâ€™S ANOTHER IDEAâ€¦ Better to mind your own business, you pompous windbag.Â Iâ€™d love to introduce you to some of the seniors I know and watch this guy say that to them.Â I know a few seniors that might just knock his block off for saying something like that.
After that MSN Money just says the same things the others doâ€¦
Like how fees and rates are higher than traditional mortgages, which is just a stupid thing to say because thereâ€™s nothing to compare reverse mortgages to.Â The better question would be: How much are the rates on a reverse mortgage, compared with the rates on the other loans I donâ€™t have to repay?
Thereâ€™s also the accusation about how banks that service reverse mortgages can charge for sending out statements, but having asked aroundâ€¦ no one does, so why doesnâ€™t Don Currie of High-Tech Lending know that?
And last on MSNâ€™s hit parade is the, â€śfalling behind on property taxesâ€ť stupidity, which puts any home into foreclosure eventually.Â MSN Money also throws in insurance and maintenance, just to point out two obvious things that donâ€™t apply to reverse mortgages directly either.
AOL Real Estate ran this extra scary headline: â€śReverse Mortgages Pose Big Risks for Seniors, Warn Attorneys and U.S. Officials, but then simply ran the identical story that ABC News ran about the McMahans that you read about earlier in this article.
The New York Times on heirs facing reverse mortgage problemsâ€¦
Itâ€™s not enough that the media appears to be involved in a coordinated, if misguided attack campaign targeting reverse mortgages, the New York Times piece written by Jessica Silver-Greenberg, â€śPitfalls of Reverse Mortgages Pass to Borrowerâ€™s Heirs,â€ť was written to scare seniors by making them think that the reverse mortgage they take our will someday harm their children.Â
(The link above, by the way, will take you to Jessicaâ€™s piece in the Boston Globe to make a pointâ€¦ thereâ€™s an echo effect.)
And then, backing up the Timesâ€™ assertions was the prominent financial blog, Naked Capitalism, that ran the even more damning headline: â€śHow Banks Fleece Heirs on Reverse Mortgages.â€ť
I responded to the â€śPitfallsâ€ť article on Mandelman Matters and if you want to see what I had to say en total, you can click here: â€śHeirs of Reverse Mortgage Holders Should be Happy, Happy and Happy.â€ť
But, in a nutshell, the story in the NYT was about heirs of reverse mortgage holders trying to buy properties after the death of their parents, which HUD allows them to do at 95 percent of market value.Â The heirs profiled in the article were said to be having trouble buying the properties in question.
Jessica says she did interviews with 25 families that were having problems buying properties with reverse mortgage liens, and also that interviews with â€śelder care advocates, housing counselors and heirs suggest that it is a growing problem already affecting an estimated tens of thousands of people.â€ť
I called HUD to find out what they knew about what Jessica had written, and after talking with the HUD official, he sent me the written rule and said he thought it might be any number of things causing the problems, but he seemed reasonably certain that it would be resolved.
It seemed to me that the problem revolved around the appraised value of the properties, and since home values have fallen fairly dramatically for the most part, itâ€™s not hard for me to imagine that there are heirs who unhappy about their inheritances, if you know what I mean.
Naked Capitalism wrote a post in support of Jessicaâ€™s article, characterizing the situation as being one of â€śbanks violating Federal law on the settlement of reverse mortgages out of an estate.â€ť Â
I donâ€™t knowâ€¦ maybe Iâ€™ve just become desensitized, but it seems a little heavy-handed for a description of heirs trying to buy properties after a reverse mortgage at 95 percent of market value and having difficulty doing so.
My best advice after reading everything I could would be to contact HUD, they seemed ready, willing able to help straighten things out.Â And once it does get straightened out, Iâ€™m sure the New York Times will run a story of how they all lived happily ever after and reverse mortgages worked out just fine.Â Youâ€™re sure about that too, arenâ€™t you?
The article also had the type of sentences that continue to drive me to distraction, like: â€śThere is no data on how many heirs are facing foreclosure because of reverse mortgages.â€ť
Itâ€™s sort of like me saying, â€śThereâ€™s no data on how many times the New York Times has scared a senior citizen out of getting a reverse mortgage and somehow ruined the seniorâ€™s life as a result.â€ť
I DONâ€™T KNOW WHAT THAT IS, BUT ITâ€™S NOT AS HECM REVERSE MORTGAGEâ€¦
Lastly, thereâ€™s the Washington Postâ€™s â€śReverse mortgages can become nightmares for seniors and their relatives,â€ť and this article uses, as its representative example, an loan with inconceivably onerous terms that bears no resemblance whatsoever to the HECM reverse mortgage.
I responded to it separately in: â€śReverse Mortgage Nightmares Should Never Happen,â€ť but you can get the flavor of what I said, as follows
A reverse mortgage with an interest rate of 9.95 percentâ€¦ plus a clause granting the lender a 50 percent share of any increases in the value of the home, plus an additional 2 percent for something called a â€śmaturity feeâ€ť to increase the lenderâ€™s payout even moreÂ
And, as if those terms werenâ€™t egregious enough, on top of that the mortgage required the borrower to purchase a $33,000 annuity that would be added to the principal balance and that would both accrue compounding interest and reduce the amount that the lender would pay out to the homeowner in the future.
A nightmare?Â Iâ€™d say so.Â Â In fact, those are about the scariest mortgage terms Iâ€™ve ever heard in my life.Â I couldnâ€™t even imagine who would offer a mortgage of any kind with those sorts of terms and costs.Â
Even the reporter for the Post found the loanâ€™s terms shocking, sayingâ€¦ â€śIs this for real? Do mortgages with such terms actually exist in this country today? Â They do.â€ť
But, to the Washington Post, itâ€™s a reverse mortgageâ€¦ which makes reverse mortgages very bad things.Â Thereâ€™s probably not another example of the loan described in the Washington Post article to be found anywhereâ€¦ it truly is an abomination.Â And now, to the tens or hundreds of thousands that read itâ€¦ itâ€™s a reverse mortgage.
The only problem isâ€¦ itâ€™s absolutely nothing like a HECM reverse mortgage.
A TRAGIC CONCLUSION
Money isnâ€™t everything, I know.
But, imagine all the times in someoneâ€™s life when money could make a pivotal difference, the times it could lead to someone making very different choices.Â How tragic to think of someone suffering unnecessarily, because they were scared away from a reverse mortgage by biased reporting and boatloads of misinformation.
I received a call from a 74 year-old man who told me that heâ€™s still going to work because he still owes $300,000 on his mortgage, but he told me that it was getting harder and harder, and that he was starting to worry that heâ€™d fall. Â He wanted to retire, but felt he couldnâ€™t until his mortgage was paid in full.Â His home appraised for $1.2 million.
He asked me if I thought he should take out a reverse mortgage to pay off his existing mortgage.Â If he did that, heâ€™d no longer have a mortgage payment, the interest rate would be about 4 percentâ€¦ and he could retire now.Â He was getting Social Security and had about $450,000 in his retirement savings accounts.
I told him that I couldnâ€™t think of a single reason that he wouldnâ€™t do exactly thatâ€¦ replace his mortgage with a reverse mortgage, and retire immediately.Â He had plenty of equityâ€¦ why in the world should keep working just to pay a mortgage that he didnâ€™t have to pay?
He loved the idea, really loved it, so I referred him to someone I knew to help him run some numbers and schedule his HUD counseling session.
A few days later he called me back.Â His daughter had told him that he shouldnâ€™t take out the reverse mortgage.Â He wasnâ€™t sure why, she just really didnâ€™t like reverse mortgages.Â He seemed a kind of depressed over the whole thingâ€¦I would have been too, if I were him.
I thought to myself: How could anyone who used Google to look up reverse mortgages possibly understand themâ€¦ much less think highly of them?Â It took me the better part of a year to gain a comprehensive understanding of how reverse mortgages workedâ€¦. and Iâ€™m a voracious reader with experts that I was able to call on whenever I needed help.
Thereâ€™s not a chance any normal person would be able to figure it all out, and actually Iâ€™d be surprised to find out that even half get past the deceptive headlines discussed above. Think about that for a momentâ€¦ what if more than half the seniors who get the idea that a reverse mortgage might make their retirement years better, get buffaloed by the B.S. thatâ€™s so prevalent online?
I canâ€™t help but wonder how many seniors have made less favorable decisions as a result of biased and wholly inaccurate reporting on reverse mortgages, but itâ€™s impossible for me to believe that itâ€™s not quite a few.Â How would you like to find out that a bunch of reporters had misinformed you about your access to several hundred thousand dollars, causing you to dramatically alter your plans?
For example, Shahien Nasiripour of the Huffington Post just posted a story about Sallie Maeâ€™s deplorable tactics related to student loansâ€¦ to be entirely candid, reading it made me physically ill.
â€śSeven borrowers who had been paying their Sallie Mae student loans on time for years were unexpectedly threatened with asset seizures after a Sallie Mae contractor demanded they immediately repay tens of thousands of dollars simply because a family member had died.â€ť
â€śAll were victims of what the Consumer Financial Protection Bureau calls â€śauto-defaults,â€ť or the largely legal practice of immediately declaring borrowersâ€™ private student loans in default after the death or bankruptcy of a loan co-signer.â€ť
Thatâ€™s both atrocious and reprehensible, as far as Iâ€™m concerned, especially when you consider that Sallie Mae is doing this to childrenâ€¦. okay, â€śyoung adults,â€ť if youâ€™d preferâ€¦ but stillâ€¦ children. Â (From the people who brought us Kindergarten Loans!)
And see what you think of the next paragraphâ€¦ whether anything sounds familiar…
Since anÂ April reportÂ by the CFPB highlighted the troubling practice, the financial services industry has spent four weeks on the defensive, arguing that borrowers who face the demands are often delinquent on their debts, or are just out of college and thus unable to shoulder the burden. Whatâ€™s more, they argue, borrowers shouldâ€™ve known they could face auto-defaults because itâ€™s detailed in their loan contracts.
Now would you care to throw up?Â (Go ahead, Iâ€™ll wait for you to get back.)
Okay, so is anyone thinking that borrowing for college from a reverse mortgage isnâ€™t a FAR SUPERIOR OPTION, if youâ€™re lucky enough to be able to do it?Â I should hope not.Â And yet, I hear about people taking out student loans all the time, but Iâ€™ve never even heard one person talk about borrowing from a reverse mortgage to pay tuition.
There are, in fact, so many potential uses for the money available from a reverse mortgage that I could never hope to list them all in one place, but the way things stand today, reverse mortgages appear condemned to remain a largely underutilized resourceâ€¦ and thatâ€™s a tragedyâ€¦ especially in todayâ€™s economy where we canâ€™t afford to have valuable tools relegated to the sidelines for no good reason.