Reverse Mortgages Can Endanger Seniors, GAO Warns
Reverse mortgages can be a great deal. They allow senior homeowners to convert their home equity into much-needed cash while continuing to live in their homes. But watch out, warns the Government Accountability Office (GAO), reporting that a lack of oversight by the Department of Housing and Urban Development (HUD) leaves seniors at risk to abusive lending practices in the reverse mortgage market.
Typically backed by HUD and offered by private lenders, reverse mortgages, or Home Equity Conversion Mortgages (HECMs), offer senior homeowners additional income by allowing them to make withdrawals from the equity built up in their homes. Participating seniors do not have to pay back the home loan or the accumulated interest until they die or sell the home. However, HECMs require substantial insurance and startup costs, and offer a ripe field for mortgage fraud scammers.
In its report on reverse mortgages, the GAO found that in some instances, the federal agencies responsible for protecting consumers from the misleading marketing of mortgages were failing to adequately inform seniors of the dangers of reverse mortgages. As an example, noted GAO, claims that reverse mortgages offer seniors a “lifetime income” though often made are always misleading “because there are a number of circumstances in which the borrower would no longer receive cash advances.”
“HUD's internal controls do not provide reasonable assurance that counseling providers are complying with HECM counseling requirements,” GAO reported.
To address the situation, GAO recommended that the heads of all federal agencies responsible for oversight of the mortgage lending industry strengthen their programs for consumer awareness and better monitor industry marketing practices and claims related to reverse mortgage products.
In a related story, the FBI recently reported that incidents of mortgage fraud increased 36 percent to 63,713 during fiscal year (FY) 2008, compared to 46,717 reports in FY 2007.
Also See:
Mortgage Fraud Soaring, FBI Reports
Obama’s Home Loan Help Program Goes Online
Comments
Please publish more on both typical gterms, and perils, of reverse mortgages and related insurance and other services which may be marketed with them, and, also, provide links to information on the economics and law involved in greater detail and depth.
Like far too much advertising, much of that for reverse mortgages may or may not be literally true but is, nevertheless, prone to verbal slieght of hand that has all the effect of outright fraud. They are always advertised as “federally insured,” but don’t disclose that this insures the lenders, not the borrowers seeking reverse mortgages, against loss, confusing some seniors.
Closing costs, required insurance, etc., should be better disclosed. I’m a retired lawyer with a lot of real estate and related experience, and, even with more disclosures than retired when I started 50 years ago, there are a lot of opportunities for borrowers to be shocked or taken advantage of. I defy anyone to figure out how to compare costs of housing credit using variable-rate notes.