FINRA Warns on Reverse Mortgages
There aren't many areas of the mortgage origination business that are booming, but one area -- reverse mortgages -- has seen high growth despite the industry downturn. And it's now an area that financial experts are growing increasingly concerned about. The Financial Industry Regulatory Authority, known as FINRA, sounded a warning siren on reverse mortgages Thursday, issuing an investor alert urging homeowners over the age of 60 to weigh all of their options before tapping into their home's equity. The securities industry regulator cautioned that reverse mortgages – which it said "are being aggressively marketed as an easy, cost-free way for retirees to finance lifestyles or to pay for risky investments" – can jeopardize the financial futures of unwary seniors. "Reverse mortgages are an extremely costly way to fund an investment," said FINRA CEO Mary L. Schapiro. "Homeowners need to consider all the risks and explore all of their options before taking out a loan that may prematurely deplete their home equity, which is often a homeowner’s most valuable asset and most precious source of retirement security." It's a characterization that John Yedinak, president of Terme Mortgage in Illinois, a reverse mortgage originator, sees as inaccurate. "Reverse mortgages are very safe," he said. "They allow a senior to eliminate their mortgage payment, and depending how much equity they have in the property, receive a lump sum, monthly, or tenure payment." But Yedinak, who runs a popular blog covering the reverse mortgage industry, did say that he's growing increasingly concerned about some industry practices, including selling reverse mortgages with products like deferred annuities, which he characterized as "very dangerous." "It has been all over the press lately and our industry needs to find out how we can stop that from happening," he said. "It sounds like the government will step in to help combat this problem but it needs to happen sooner rather than later." To read the full FINRA alert, click here.