Posts Tagged ‘Reverse mortgages’

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.

Reverse Mortgage Consideration – WABI-TV

Video of interview featured January 7th WABI-5 Morning News

This morning, Russ Van Arsdale with Northeast Contact discussed reverse mortgages also known as a home equity conversion mortgage.

It’s a financing arrangement for people 62 and older who own their homes outright or have a small mortgage. Instead of you making payments, a reverse mortgage allows you to receive money, based on the equity of your home.

Russ warned our viewers that the deal can be too good to be true.

He advises folks to log onto www.hud.gov and search for reverse mortgage.

Also, if you are approved for a reverse mortgage, you still need to pay for normal maintenance on the home, pay for property taxes and homeowners insurance, pay the mortgage insurance premium, and pay loan orientation and servicing fees and closing costs.

You’ll also probably pay a $125 feed for counseling with an organization approved by the U.S Department of Housing and Urban Development. That’s required to get a reverse mortgage, although the fee can be waived.

Reverse mortgage agreements can be complex

Reverse mortgage agreements can be complex

1/9/11 07:40 pm  Updated: 1/9/11 07:44 pm
By Russ Van Arsdale
executive director, Northeast Contact

Reverse mortgages offer financial security to many seniors. But not all reverse mortgages are created equal, and those considering the option should think carefully about the ramifications.

Unlike a traditional mortgage requiring monthly payments by the borrower, a reverse mortgage uses the equity in a home as a source of income. Homeowners who are 62 or older can get cash payments or lines of credit by drawing on that equity.

It sounds simple, but some reverse mortgage agreements can be quite complex. Borrowers have to pay a fee to start the process, plus closing costs and compounding interest on the principal of the loan. The loan becomes due when the borrower dies, leaves the home for a year or longer, doesn’t maintain the property or fails to pay the property taxes or homeowners insurance.

The costs can add up fast. They can be crippling in cases where the borrower doesn’t fully understand the agreement. And some sellers use seniors’ precarious financial situations to try to sell them additional products that may not suit their needs.

Such cross-promotions are often used to sell seniors annuities or long-term care insurance. Some sellers pressure their potential customers to buy those products in order to get a reverse mortgage.

Salespeople can be downright misleading, not only on the potential risks of reverse mortgages but also in cross-promoting their products.

This has opened the industry to criticism from consumer advocates who say buyers are often sold financial products that don’t do them much good.

The federal Department of Housing and Urban Development requires counseling for people considering reverse mortgages. However, a recent report by Consumers Union, publishers of Consumer Reports, indicates such counseling often does not take place.

The Federal Reserve Board in August called for some big changes in the way reverse mortgages and associated products are sold.

The Federal Reserve Board changes would:

  • Improve disclosure and make clearer all advertising of reverse mortgages.
  • Ban specific unfair sales practices.
  • Make consumers better aware of their right to rescind sales.
  • Make sure consumers get new disclosures when re-negotiating an existing reverse mortgage.

Critics including Consumers Union say the Federal Reserve Board’s new rules don’t go far enough. They’d like to see better counseling, including a fair determination that a reverse mortgage is in the borrower’s best interest. There are even calls for sellers to have a fiduciary responsibility, meaning they could be held liable if they don’t act in the customer’s best financial interest. Continue reading

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