National Law Review: Reverse Mortgages, Beyond the Commercials

A recent article on National Law Review breaks down the federally-insured reverse mortgage product and recent changes to the program, cautioning consumers to understand the loan before getting one. But the author might need to do some more research, too. 

“You have likely seen the commercials for reverse mortgages,” it says. “While the advertisements urge viewers to ‘call now to secure [your] reverse mortgage today,’ and make them seem risk-free, obtaining a mortgage of this type is a serious decision that should not be made without fully understanding its pros and cons.”

The article calls the reverse mortgage’s monthly payment option an “annuity” and goes on to say that if a loan ends up exceeding the value of the home by the time it comes due, the house becomes the property of the lender.

In reality, borrowers or their estates can opt to repay the loan with other resources in those circumstances. 

The National Law Review also discusses recent changes made to the Home Equity Conversion Mortgage program, partially in response to borrower confusion about how the loan works and resulting misuse. 

“In recent years, the HECM program has experienced increasing defaults and it was discovered that many borrowers are confused about what a reverse mortgage really is (thanks, at least in part, to deceptive advertising common in those TV commercials),” says the article. “Instead of using the loan as a long-term financial tool, borrowers were using it as a last-ditch effort to manage a money crisis.”

HECM reforms include limiting the amount of money that borrowers can access at closing, requiring set asides for tax and insurance payments, and plans for a financial assessment.

“Hopefully, the changes will improve the program and help seniors use reverse mortgages in the way that they were intended to be used,” the article concludes.

Read more.

Written by Alyssa Gerace

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