Reverse mortgages put borrower’s heirs at risk

CONSUMER FORUM 

By Russ Van Arsdale, executive director Northeast CONTACT

Posted Feb. 15, 2015, at 7:23 a.m.

The smiling actor in the commercial suggests a reverse mortgage may be the answer to all your financial concerns.

However, the Consumer Financial Protection Bureau, or CFPB, says many have been confused and frustrated by the rules that govern this unique type of borrowing. In a reverse mortgage, a home’s equity is used as a line of credit; instead of making payments, the borrower receives a monthly payment that draws down that equity.

One problem is that reverse mortgages cannot be taken over by a family member when the borrower dies. Many family members have complained to the CFPB about their inability to be added to the loan so they can keep the family home.

Another problem is the confusing process confronting many borrowers when they try to pay off their loans. When the borrower dies, heirs have three choices: sell the home, repay the balance of the loan or pay 95 percent of the assessed value.

Some people have faced delays in getting appraisals, had appraisals done improperly or seen home values inflated so they’ve had to pay more. Many also have reported problems getting responses to questions and concerns about the loans from the parties that service them.

A third problem involves property taxes and homeowners’ insurance. These are the borrower’s responsibility, and the CFPB found some time ago that nearly 10 percent of reverse mortgage holders are at risk of foreclosure for nonpayment of those overdue costs.

Some consumers reported problems stopping the foreclosure process when they tried to pay overdue taxes. Some said their loan servicers incorrectly stated that taxes were overdue.

HUD information for senior citizens

Most reverse mortgages are insured through the Federal Housing Administration’s Home Equity Conversion Mortgage, or HECM, program. Changes apply to terms of HECM loans made after Aug. 4, 2014, so nonborrowing spouses may remain in their homes after the borrowing spouse dies.

That change is not retroactive, so the CFPB urges everyone with a reverse mortgage to do three things:

— Verify who is on the loan. Ask your reverse mortgage servicer what names are listed on the loan, and make sure the records are accurate. They may help over the phone, but we prefer consumers send a letter — and keep a copy — so there’s a written record of the inquiry.

— If only one name is on the loan, make a plan for the nonborrowing spouse. After the death of a spouse, the survivor may qualify for a repayment deferral. That would allow the surviving spouse to live in the home. If not, make a plan for other living arrangements. If you or your spouse is not on the loan but think you or he or she should be, seek legal advice right away.

— Talk to your children and heirs, and make plans for any nonborrower family members who live in the home. Make sure family members know what to expect when the reverse mortgage comes due. The mortgage servicer should be able to supply written information about options. Talk these over with your family and ask questions about anything you don’t understand.

To read more in the CFPB’s guide to reverse mortgages, visit http://files.consumerfinance.gov/f/201409_cfpb_guide_reverse_mortgage.pdf.

Maine’s Bureau of Consumer Credit Protection issues a guide called “Finding, Buying and Keeping Your Maine Home.” It’s available online at maine.gov/pfr/consumercredit/documents/MortgageGuide_RevisedOnline.pdf.

Consumers can receive a printed copy by writing to 35 State House Station, Augusta, ME 04333-0035 or calling 1-800-DEFederBT-LAW (1-800-332-8529).

Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s all-volunteer, nonprofit consumer organization. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write Consumer Forum, P.O. Box 486, Brewer, ME 04412, visit https://necontact.wordpress.com or email contacexdir@live.com.

Research reverse mortgages before applying — it’s the law

CONSUMER FORUM

By Russ Van Arsdale, Executive Director, Northeast CONTACT
Posted Jan. 06, 2013, at 9:25 a.m.

For many seniors, a financial instrument called a reverse mortgage provides a solution in tight economic times. A reverse mortgage — also called a home equity conversion mortgage (HECM) — may allow an eligible consumer to stay in his or her home and receive cash payments based on the equity of that home.

Reverse mortgages were explained in a recent Bangor Daily News article (BDN, Dec. 28). We’re revisiting that topic to stress that reverse mortgages are not for everyone and that they should be entered into only after thorough research with an approved counselor.

That’s not a suggestion — it’s the law. To receive a reverse mortgage, the National Housing Act mandates counseling from a nonprofit agency approved by the Federal Housing Administration. The counselor provides unbiased information about the reverse mortgage process to help the consumer make an informed decision.

That’s not necessarily the kind of information you’ll get from the “as seen on TV” outfits. The stars of yesteryear may believe they’re acting in your best interest … or they may simply be playing a role. Outright scammers are also on the scene, sometimes using reverse mortgage schemes to cheat seniors out of the equity they’ve built up.

Reverse mortgages are designed for homeowners age 62 and older. To qualify, the borrower must live in the home as his or her principal residence and have either no mortgage or just a small amount left on the mortgage. The reverse mortgage allows several methods of payment to the resident, based on the amount of equity in the home.

Let’s say you have more monthly expenses than available income. Under one reverse mortgage arrangement, you might receive monthly payments allowing you to cover those expenses. Perhaps you are expecting some sizeable medical bills; a line of credit might be another scenario. A third option might be a combination of the two.

All of this is not cheap. A few years back, FHA increased the mortgage insurance premium borrowers pay from 0.5 to 1.25 percent of the balance on the reverse mortgage. The borrower pays that, plus compounding interest charges, loan origination and servicing fees, plus closing costs. There’s also a $125 fee for that counseling we mentioned, although members of the Reverse Mortgage Counseling Association (HUD-approved counselors) can waive or delay payment of those fees.

That’s not all. Homeowners are expected to perform normal upkeep on their property. They’re also responsible for paying property taxes and homeowners insurance premiums. If you fail to do those things, the lender can foreclose.

The previous BDN article noted a report to Congress by the Consumer Financial Protection Bureau, forecasting a rise in the use of reverse mortgages by baby boomers. Many have been taking their qualified amounts in a lump sum and refinancing their homes. The Bureau predicts the effect will be to “chip away at their remaining home equity over time.”

It’s all food for a large meal of thought —and counseling — before taking out a reverse mortgage. Will Lund, Superintendent of Maine’s Bureau of Consumer Credit Protection, says senior homeowners might be better served by taking out a home equity loan or home equity line of credit.

For more information, visit the HUD website ( www.hud.gov) and search for “reverse mortgage.”

Consumer Forum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s all-volunteer, nonprofit consumer organization. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write Consumer Forum, P.O. Box 486, Brewer 04412, visit https://necontact.wordpress.com or email contacexdir@live.com.