Featuring "Tell Me More's" contributor on matters of personal finance, Alvin Hall, National Public Radio (NPR), ran a segment on reverse mortgages.  It is unfortunate that NPR referred to Hall as an export on such matters because his depiction of reverse mortgages was inaccurate and misinformed.

 

Opening the segment, host Michael Martin plays a sound bite of an advertisement from American Advisors Group, featuring Fred Thompson.  He then follows with an odd introduction stating that was one of dozens promoting reverse mortgages while Bank of America has exited the business.

Hall begins with the standard depiction that reverse mortgages have huge upfront fees.  He then states that he believes Bank of America exited the business because the FHA introduced a loan last October called a Home Equity Conversion Mortgage (HECM) that reduced the fees to .01 percent.  Due that fee reduction, Hall indicated that the product probably wasn't profitable enough for the lender.

Obviously, Hall is unclear on how the FHA mortgage insurance in structured into the loan and .01 percent mortgage insurance cost has no bearing on the lenders' revenue from the product.  He also fails to address the fact that the HECM has existed for over twenty years and the HECM Saver that was introduced in October addressed some of the fee concerns by reducing the upfront mortgage insurance from 2.0 percent to .01 percent.

Probably even more disturbing in his report is how Hall explains what happens to the property when a borrower passes away.  He states that when the borrower passes away, they do not inherit the property, they must sell the home, but they do receive any proceeds that are left after the reverse mortgage is paid off.  He fails to note that heirs do have options to refinance the home, or otherwise payoff the reverse mortgage, if they intend to retain the home.

It is ridiculous that a media outlet is able to portray this segment as a news report reverse mortgages, without bothering to research the facts.  Especially when you consider the potential damage that can be done to senior homeowners who could benefit from utilizing a reverse mortgage.  Reports like this can scare them away from the product before they take appropriate time to get educated and consider if it is appropriate for their situation.

At the very least, NPR should acknowledge the piece as editorial or opinion in nature.