Reverse-Mortgage-Scams

Reverse-Mortgage-Scams

Reverse mortgages do work for some. A reverse mortgage is a way for cash-strapped homeowners age 62 and up to tap the equity they’ve (hopefully) built up in their homes over the years. Under the right circumstances, it can be a handy device.

Also known as a home equity conversion mortgage, a reverse mortgage can offer a lifeline to older Americans who need to access some of their home equity to supplement income and provide living expenses while allowing them to remain in their home.

Advantages:

1. There are no income or credit qualifications required.
2. No payments are required as long as the home remains your principal
residence.
3. Closing costs can be financed by the loan itself, so there’s no initial
out-of-pocket cost. (However, see below for a warning.)

What to watch for:

1. High pressure sales – sometimes mortgage brokers will target vulnerable seniors; similar lending practices we experienced during the subprime mortgage boom. Unfortunately, many seniors are pushed into a loan they do not need.

2. Understating the risk of losing the home – Unknown to many, a reverse mortgage becomes due and payable (and subject to foreclosure) when one of the following circumstances occurs:
a. the property is sold or title to the property is transferred
b. the borrower no longer uses the home as a principal residence
c. all borrowers have died, or
d. the borrower fails to meet the obligations of the mortgage, such as paying property taxes, maintaining hazard insurance, or keeping the property in good condition.
Note: Under a reverse mortgage agreement a home can be foreclosed for something as small as unpaid insurance premiums.

3. Leaving a spouse on the street – The amount that can be borrowed is based on the current interest rate, home equity, and the age of the younger spouse. The older the borrower is, the more money can be borrowed. However, the problem when one spouse is left out of the mortgage agreement is that when the older spouse dies, the surviving spouse can lose the home (see item 2 above).