In their March issue, Consumer Reports Magazine has continued their biased, unsubstantiated attack on reverse mortgages with their on-going refrain that reverse mortgages should only be a product of last resort. This time, taking aim at One Reverse Mortgage's ads featuring Henry Winkler.
The article, "Reverse Mortgages: Know the Traps," states that reverse mortgages carry huge costs and can lead to foreclosure. However, at the same time, they acknowledge that recent program changes have led to increased competition among lenders, new loan options and lower up-front costs for borrowers. Without any detail or substantiation, it then reiterates that "other costs have increased dramatically, and ballooning finance charges can quickly drain your home equity."
Claiming that reverse mortgages can lead to foreclosure for failure to pay property taxes and insurance, the article fails to acknowledge the efforts by the industry, in cooperation with HUD and counseling agencies to proactively help borrowers explore options for bringing taxes and insurance up-to-date. Nor does the article discuss guidance from HUD that makes foreclosure a last resort of lenders and servicers to resolve default issues, only on borrowers that show no willingness to work with their lenders on a positive resolution.
Keying in on the requirement to maintain taxes and insurance as a burden carried by reverse mortgage borrowers paints a negative picture without a reasonable basis. All homeowners, regardless of whether they have a mortgage of any type or not, bear the responsibility of maintaining their property taxes or risk losing the home to tax sale. Additionally, all homeowners that do have a mortgage (reverse or any other type) are required to maintain homeowners insurance.
The article then takes aim at the FHA insurance, calling it a "federal bailout of lenders that is paid by borrowers." It claims that the potential results of the tax and insurance defaults threaten the solvency of the government insurance fund, while making the loans virtually risk-free for lenders. It claims that borrowers pay "hefty" fees for the mortgage insurance while lenders reap the benefits. Of course, it fails to mention that the insurance also provides non-recourse provisions for borrowers and their heirs, and also protects their available funds in the event that the lender is unable to provide them.
Taking a worst case scenario approach, they suggest that if all the loans currently in technical default were to go to foreclosure, the resulting loss to the insurance fund could be $1.47 billion. Obviously, this stark picture is intended to connect reverse mortgages to the current fiscal crisis in the federal and many state and local governments. The inclusion of the efforts by HUD to ensure that the insurance fund is self-sustaining and the on-going steps to resolve default issues outside of disclosure, however, would only inconveniently lessen the impact of their dire warnings.
The issue with this article, like their previous reports, is not that they raise concerns about reverse mortgages that a borrower should review when considering the product. The problem is that a non-profit advocacy group that claims a mission of working for "a fair, just, and safe marketplace for all consumers and to empower consumers to protect themselves," is so blatantly providing biased, unsubstantiated claims against a product.
With an industry that has an extremely high customer satisfaction rate and relatively low claims of abuse, it is unknown why this organization has chosen to take on reverse mortgages so negatively. Clearly they do not see the potential damage that can be done by stoking the fears about a product that has the ability to not only help those older homeowners in need, but can also help extend retirement funds in a comprehensive retirement plan.
