Tapping Into Homes Can Be Pitfall for the Elderly

[flashl]

Source: NY Times

Erika Baker was 67 years old, divorced and worried about her job when a saleswoman showed up at her door in late 2006.

A reverse mortgage, the saleswoman explained, would give Ms. Baker instant access to hundreds of thousands of dollars tied up in the value of her home. Such a loan, typically available only to homeowners in their 60s and older, would not have to be repaid until Ms. Baker moved out, the saleswoman said.

And if she never moved, the loan would be settled by selling her house after she died. “Your Home Pays You Cash!” read a brochure the saleswoman left behind.

...

Then the problems began. The saleswoman pressured her to put the proceeds of the loan into complex investments that put her money out of reach, Ms. Baker said. She received only about $33,000 in cash, far less than she needed for her final years.

NY Times

Read more: http://www.nytimes.com/2008/03/02/business/02reverse.html

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There seems to be NO END to creative means to take the one investment for most Americans.

[mike_c]

1. capitalism in all its glory....

Everyone is a potential resource to be harvested.

[ShockediSay]

16. Less big government regulation is the answer - J McCain

WHAT?!?!? THAT'S BULLSHIT!!!

[napi21]

2. It's foolish for younger people to take on a reverse mtg. for sure,

but older people could benefit. If you have people who are in their 70's and really strapped for cash, their home is most likely paid off and as far as I can seer, the only thing they'd be jeprodizing is someone elses inheritance.

[flashl]

3. So, if you are 70 and your home's value is $200K receiving ONLY $33K is OK? nt

[dkf]

6. The "complex investment" she put her $ into was an annuity.

The value might still be there, but her access to it might be restricted due to fees.

The article is vague on the value, but there is definitely a point on the fees generated on both the reverse mortgage and the annuity.

And I'm not sure which vehicle would be more complicated to explain, the reverse mortgage or the annuity. But I do think that if this is the first time a person is being informed about either one of these things, they probably won't get it.

Financial education is one of the most important things we need. And if a person isn't well versed in this stuff, they better find a good friend or family member who is.

[napi21]

8. That's not the way reverse mtg's work. The older you are, the more

$# you get. Wheck out this calculator:

https://www.newretirement.com/Services/Reverse_Mortgage_Calculator.aspx

I did mine just as an example. My husband is 65 & I'm 64. Our house is valued at $150,000, and it's fully paid for. We qualified for $81,000 right now. If we were to apply in 5 years from now, that amount would be higher. It's based on your life expectancy.

[flashl]

10. This is more about companies like Senior American Funding practice ...

“Every scam artist is getting into this business,” said Prescott Cole, an elder-care advocate who has worked with numerous reverse mortgage borrowers. “Because reverse mortgages are so complicated and give you money up front, years can pass before a senior realizes they’ve lost everything.”

Reverse mortgage lenders and brokers dispute those accusations, noting that the loans are heavily regulated and have helped hundreds of thousands of people.

...

For example, Senior American Funding, the company that sold Ms. Baker her loan, has been sued three times in the last 13 months by clients who said they were misled. (Two of those cases were settled out of court for undisclosed sums. The third, filed by Ms. Baker in California state court last month, is pending.)

The company, which is licensed in 16 states, has originated mortgages worth more than $100 million since 2004.

...

However, a former sales agent, Hani Shenoda, and an agent who still works at the company who spoke on the condition of anonymity because of fear of retribution, said in interviews that managers at Senior American Funding encouraged them to pressure older homeowners into unwise loans and investments. The company disputes that assertion.

On Tuesday, after being contacted by a reporter, Senior American Funding announced it would no longer sell combinations of loans and investments like the one Ms. Baker had bought.

Continuation from article

IIRC, the mortgage industry is also regulated but we have a subprime meltdown.

[DissedByBush]

4. Can be fun

The former oldest woman in the world, Jeanne Calment, died at age 121 in 1997. She signed one of these agreements with a middle-aged man in 1965 when she was 90 years old, and the apartment was worth only 10 years of payments. The guy she made the deal with died in his late 70s two years before she did.

[dysfunctional press]

7. not just "former oldest woman" in the world- but the longest-living human ever up to this point....

she lived to be 122.

[momster]

5. Never Answer the Door!

No, but really, some strange woman appears at your door and you take her word on money matters? I don't buy *magazines* from door-bell ringers and I question Girl Scouts pretty closely before buying cookies! I think the problem here is less reverse mortgages...which are a fine idea for certain older people, my daughter's nana has one...than a door-to-door scam that Mrs. Baker fell for. Why did she let the lady talk her into 'investments' that had nothing to do with her original transaction?

If you want a reverse mortgage, go talk to your banker, not some random gal ringing your door-bell. Are elderly people going to read this article and be scared to take advantage of an excellent way to realize cash, not realizing that it isn't the *mortgage* that's the problem, it's unscrupulous people taking advantange?

[flashl]

9. Unscrupulous people IS the point and not reverse mortgages.

There is an entire cottage industry that thrives on elderly women.

[YvonneCa]

11. Have you seen any of the TV ads...

...for reverse mortgages with Robert Wagner? I think it is criminal...at least as underhanded as the sub-prime mess. They are preying on widows who don't know what a reverse mortgage really is. And then they take their home away in their 'golden years.'

[flashl]

13. Yes, everyone now must retain a lawyer and an accountant

Ms. Baker owned a home worth about $600,000 but was living paycheck to paycheck, teaching child-rearing skills to low-income mothers for about $400 a week, when she was told in 2006 that her job was ending.

... the saleswoman recommended a loan of $218,900, with a variable interest rate initially set at 6.57 percent.

Because reverse mortgages do not require borrowers to make immediate repayments, the interest charges are added to the debt every day, and the total amount owed grows over time. The saleswoman did not explain that within 10 years, Ms. Baker’s $218,900 loan could grow to as much as $400,000, Ms. Baker said. That debt would be paid by selling the house when she moved out or died.

The saleswoman also did not emphasize the high fees, Ms. Baker said. The loan’s fees cost her $17,100 — almost 8 percent of the total loan — which was paid out of the proceeds as soon as the loan closed.

To ensure that borrowers know such details, the federal government requires them to speak to an independent adviser before closing a reverse mortgage.

“We make potential borrowers talk to a counselor to make sure they understand what they are doing,” said Renée Shadel, an investigator with the Washington state attorney general’s office. “These can be great loans for some people, but only if they understand them.”

But critics say these counseling sessions are often brief and unhelpful. Some elderly borrowers, for instance, said their sessions lasted only 10 minutes, rather than the 60 to 90 minutes most counselors say they need to explain the loans.

Critics say some sessions are so brief because reverse mortgage companies are paying for the advice. One of the largest reverse mortgage counseling companies, Money Management International, often asks lenders to pay for providing advice to the lender’s clients, according to a company spokeswoman.

...

“Anytime anyone gives a counselor a donation, they expect a quid pro quo,” said Buz Zeman, a reverse mortgage counselor with Housing Options Provided for the Elderly, a nonprofit group financed by government grants. “The point of counseling is to make people consider other options. That’s difficult if you feel like your next paycheck relies on convincing someone to get the loan.”

So, to be in compliance with regulations, lenders pay counselors? And, no one is suspicious?

[AndyTiedye]

12. What Happens With a Reverse Mortgage if the Property Value Drops?

[demigoddess]

14. you still owe the money, interest and all, your heirs might have to pay it

for you.

I think all reverse mortgages are a scam, even if you do not add in the annuities scam, because the interest adds up from day one and the house may lose value as it ages or the neighborhood changes. And where will you get the money if you need to go into a nursing home???? Selling the house was what people used to do.

[diello]

15. when the property drops in value

the payoff is still capped at the current appraised value. FHA eats any difference. That is why the mortgage insurance is high and taken at closing.