Investment News journalist Sara Hansard recently wrote about an Arizona woman who took out a reverse mortgage and used the proceeds to purchase other financial products recommended to her that didn’t need meet her income needs. While a situation like this isn’t common, using a reverse mortgage to fund risky financial products continues to be something the media consistently reports on.
“The reverse mortgage was a tool to get the annuity sale” said Michael Black who is a senior adviser for Michael Phillips Black Wealth Management of Scottsdale. Mr. Black, who also acts as an expert witness in securities and insurance litigation in addition to being a financial adviser added that, “Reverse mortgages are being oversold, not explained well and sold to the wrong people.”
Using a reverse mortgage as a financial planning tool is loved by some and hated by many because it can be abused. Is there anyway we can make everyone happy and create safeguards for seniors which make sure they aren’t taken advantage?
Sen. Claire McCaskil is trying. She was the leading force behind a provision added to the Housing and Economic Recovery Act of 2008 which prohibits lenders from requiring a reverse mortgage borrower to buy insurance, annuities or any other products in order to get the mortgage. The law also requires that financial companies must institute firewalls to prevent the cross-selling of reverse mortgages with other financial products.
As we wait for HUD to provide guidance on these provisions from the Bill, industry associations like the American Council of Life Insurers in Washington, have said it supports “strong laws and regulations that protect seniors from being misled in connection with reverse mortgages.” However, “we should not make it difficult for them to get the products that they may want and need,” said the ACLI, which pledged to work with the Department of Housing and Urban Development as regulations are developed to implement the provisions. To read a copy of the article check out the link below.