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Monday, April 4, 2011

Reverse Wealth Redistribution: The Reverse-Mortgage Ripoff




Posted by Donna Rosato


For an elderly person with few assets, a reverse mortgage can be a lifesaver: It enables cash-poor retirees to tap equity in their house for living expenses, home repairs or health care needs. If you're 62 or older, reverse mortgages allow you to borrow against the value of your home and not repay the loan until you sell the house, move out or die. If the amount owed is more than the value of the house, the lender eats the difference. If it's less, you (or your heirs) keep what's left over after paying off the loan. In the meantime, the loan provides income, which you can take as a lump sum, monthly payout or line of credit drawn on as needed.

But make no mistake: Reverse mortgages, which come with high fees and hefty interest charges, are a costly option and often sold by aggressive salespeople who push inappropriate financial products on vulnerable seniors. That's why Senator Claire McCaskill (D-Mo.) held hearings Monday in St. Louis on reverse mortgages. A year and a half ago, Sen. McCaskill began investigating problems associated with reverse mortgages, including predatory lending, aggressive marketing and the potential risks to the federal government -- which insures 90% of reverse mortgage loans. Comptroller of the Currency John Dugan earlier this month said reverse mortgages bear a striking similarity to the risky sub-prime mortgages that got so many Americans in financial hot water. The Federal Housing Administration estimates it may lose $800 million from insuring these loans in the next fiscal year.




Yet the number of people getting reverse mortgages keeps rising. Even as home values are falling (leaving seniors with less equity to tap), more than 112,000 reverse mortgage loans were made in 2008, up from about 22,000 in 2003, according to the National Reverse Mortgage Lenders Association. Monthly reverse mortgage loan volume is setting records too, with nearly 9,000 reverse mortgages made in May.

My colleague Walter Updegrave wrote about the problems with reverse mortgages last year, spelling out how greedy salespeople not only persuade seniors to take out high-commission reverse mortgages, but also convince them to spend the proceeds on high-priced financial products such annuities, boosting their commissions even more.

Retiree advocates at AARP say that predatory lenders are also attempting to get seniors to use proceeds of their reverse mortgage to buy expensive long-term-care insurance. But in most cases, it makes more sense for seniors to use the payout for actual long-term care, not a hard-to-use insurance policy.

If you are considering taking out a reverse mortgage or have a parent or family member who is, don't fall for a pitch from a salesman who cares more about a lucrative commission than determining whether a reverse mortgage makes sense for you. To learn more about reverse mortgages, check out resources at AARP and HUD.

Do you know anyone who is considering a reverse mortgage or has had a negative experience taking out a reverse mortgage? Tell us about that experience.

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Responses:


I commented about my loan below. However, reading all the comments no one mentions the problem of loan management. The servicers at Bank of America seem to have turned over loan management to data collector CoreLogic. If you are living in your home with a HECM very difficult if you have no access to information and the Bank is supplied the wrong information about your account. Unlike a regular mortgage, you must adhere to an extremely difficult criteria for elderly people. If you are out of your home for more then 2 months, you must tell the Bank. Why is not clear. They appear to be constantly worried about this. So, if you are ill and in rehab, this could be a stressful time with the Bank. If you are out of your home for more then one year, even if it is health related and family is taking care of your home for you, you will hear from the Bank and it will be foreclosed. So, the most vulernable population, aging and with unpredictable futures, cannot rely on family to help even if they would. If you cannot have home care, you have no home, That is traumatic for those that are able to eventually live in their home and receive care but need medical intervention. You pay your taxes. But the Bank stalks you. It is wise to send them receipts every month because if you do not and they get the wrong information, it can become extremely difficult to fix. That happened to me because of CoreLogic. I pay taxes quarterly but someone I kept on hearing I was not paying my taxes. I also heard they were checking with a county. I pay my taxes to a city who pays the county. that can mean trouble. I have a grace period of 10 days before being late. Bank of America servicer says that will not be agreed to. And on


I commented about my loan below. However, reading all the comments no one mentions the problem of loan management. The servicers at Bank of America seem to have turned over loan management to data collector CoreLogic. If you are living in your home with a HECM very difficult if you have no access to information and the Bank is supplied the wrong information about your account. Unlike a regular mortgage, you must adhere to an extremely difficult criteria for elderly people. If you are out of your home for more then 2 months, you must tell the Bank. Why is not clear. They appear to be constantly worried about this. So, if you are ill and in rehab, this could be a stressful time with the Bank. If you are out of your home for more then one year, even if it is health related and family is taking care of your home for you, you will hear from the Bank and it will be foreclosed. So, the most vulernable population, aging and with unpredictable futures, cannot rely on family to help even if they would. If you cannot have home care, you have no home, That is traumatic for those that are able to eventually live in their home and receive care but need medical intervention. You pay your taxes. But the Bank stalks you. It is wise to send them receipts every month because if you do not and they get the wrong information, it can become extremely difficult to fix. That happened to me because of CoreLogic. I pay taxes quarterly but someone I kept on hearing I was not paying my taxes. I also heard they were checking with a county. I pay my taxes to a city who pays the county. that can mean trouble. I have a grace period of 10 days before being late. Bank of America servicer says that will not be agreed to. And on and on. Try to unwind that mess. I tried with NJ Banking and Insurance. Immediately told me to contact Comptroller. Comptroller literally puts it right back to the Bank and the Bank never acknowledges letters, calls, etc. with any answers to your questions or requests. No fees refunded. No equity returned. Terrible people to deal with. And in NJ no one is trained to deal with HECM. The phone is the only tool. For senior citizens that can be very difficult. No ability to sit down and talk with someone about the problem. Very very bad arrangement for a loan. So, when you are old and you need the most help and the most patience, and you need to have a home, difficult to find employment, the HECM is the very worst loan you can get. And yes, the fees are outrageous! You pay a servicing fee up front to the year you turn 100. You have to have mortgage insurance and that was 2 percent for me. Now it is less. I think that the attitude of customer service people dealing with the elderly is also very different then any customer service people I have spoken with during my life as a consumer. Not helpful and long silences so that you think they have hung up. 

You will need HUD counseling to get this loan but it is totally inadequate in preparing the consumer with the details of what will be required. YOu will also have to keep the house in good repair and of course, no one tells you what that is. Imagine, an old person in an old house and unless FHA says it needs repair, it is assumed all is well. Hopefully it is. Be careful that you read that FHA report BEFORE you sign. Mine was false. Maybe a 203K would be a loan to consider BEFORE the HECM to assure you have can afford this mortgage when you have an older home. Ask the building inspector in your town if your home is to code? You can get your own Broker and negotiate a fee and the banks don't tell you this. That is the law. You also are able to see all the documents you are to agree to and sign BEFORE the day they come to have you sign them. Ask HUD these questions. What are your rights? Do not listen to any salesman.

Posted By Barbara Brandt Ewing NJ: March 15, 2011 12:32 am



My mom took out a reverse mortgage in 2005 from Wells Fargo-the fees were exorbitant, she only got about 1/3 the value of the home in the lump sum payout,the interest and fees run approximately $500.00 or so a month

(she doesn't have to pay this, just charges against the equity) to ensure there is nothing left for anyone but the bank and Wells Fargo turned over the servicing to CSL (?) in Oklahoma who never answers the phone. At the time, my mom could not get a loan for some things she wanted and it seemed like a great idea, but it's a RIP OFF! Buyer beware!

Again, this guy pretended to be affiliated with Countrywide. I asked him about the information I was hearing about Countrywide and he told me not to worry -- that is a"
different division then the division I work for." Soon my loan was with Bank of America and they act as if they have been punished.


As to the broker, he is an independent and has a webpage that says this. He came to my house a second time before I knew this and brought his own attorney. He and the attorney were paid and I have tried to figure out if the closing fees were bogus or reasonable. Cost about $14K.
FHA never warned me (in counseling) about these types of brokers. I did not understand that this was going on. When I bought the house, I went to a real estate company and they were regulated and they were my agent. When I went to closing, I hired the attorney.


One thing is broker said that I am sure is a lie -- the FHA has different standards for houses that they finance under a reverse mortgage then a regular mortage. Thus, no documentation about the survey, the deed, the insurance, etc. How can this be true? What is FHA doing here? Now there are complains in Washington about Reverse mortgages?? What gives??


I dont reccomend a reverse mortgage unless you get a lawyer while you do it.


(she doesn't have to pay this, just charges against the equity) to ensure there is nothing left for anyone but the bank and Wells Fargo turned over the servicing to CSL (?) in Oklahoma who never answers the phone. At the time, my mom could not get a loan for some things she wanted and it seemed like a great idea, but it's a RIP OFF! Buyer beware!


Again, this guy pretended to be affiliated with Countrywide. I asked him about the information I was hearing about Countrywide and he told me not to worry -- that is a"
different division then the division I work for." Soon my loan was with Bank of America and they act as if they have been punished.


As to the broker, he is an independent and has a webpage that says this. He came to my house a second time before I knew this and brought his own attorney. He and the attorney were paid and I have tried to figure out if the closing fees were bogus or reasonable. Cost about $14K.


FHA never warned me (in counseling) about these types of brokers. I did not understand that this was going on. When I bought the house, I went to a real estate company and they were regulated and they were my agent. When I went to closing, I hired the attorney.


One thing is broker said that I am sure is a lie -- the FHA has different standards for houses that they finance under a reverse mortgage then a regular mortgage. Thus, no documentation about the survey, the deed, the insurance, etc. How can this be true? What is FHA doing here? Now there are complains in Washington about Reverse mortgages?? What gives??


I dont recommend a reverse mortgage unless you get a lawyer while you do it.



Posted By Sandra from Colorado: March 12, 2011 1:33 pm


I recently met with a couple that attended my Senior Survival Seminar. A year ago they needed about $14k to pay off bills & fix a leaky roof. Wells Fargo had talked them into a reverse mortgage and over $11,000 in fees! So their current loan balance is $25,000!

Posted By Gary Duell, Clackamas, OR: January 20, 2011 8:00 pm



I got a reverse mortgage after speaking with a broker. He came to my house and spent 1 hour here. He did not tell me he was not an employee. In fact, he made it seem as if he was an employee of Countrywide Bank. I did not know that Bank of America had already planned to buy the bank. He arranged for a FHA inspector. I assumed all was well. I later found out that the inspector filed a bogus report and that he had been reprimanded by the State of NJ that licensed him. The broker never sent me anything so I had no knowledge of the report until after the sale. I told the broker I was going to use the proceeds to bring my home up to code. It was all the money I had and all that I could do to stop the damage and the leaking. This was a 1926 house. I lost my job in 2002 after 9/11 and worked as an over 50 employee in retail. I had little money and this house was all I had.

Posted By Barbara Brandt, Ewing Township, NJ: November 16, 2010 9:28 am



Reverse Mortgage is a rip off. My dad die 10 months ago, now we people knocking on the door, taking picturse of the house, and now we have 2 months to get out of the house. We can't afford to pay a big loan like that back in 2 months, not even in a year... DON'T TAKE IT...

Posted By Jay, Delray beach Florida: August 15, 2010 12:31 pm



My Mother had a reverse Mortgage on her hosue- she passed away a year ago-I was at home with her. Now the bank has a acted as thought I dont even exist although I have sent my execturoship papers to them- but hypocritically- they are trying to sue me. I hate this loan & wish we'd never gotten this for her. The Loan officer left the bank about a year after we got the loan- but I found that out - when I went to tell her that my mother passed away. Dealing with them has been the worst expereince I have had- They have given me so much conflicting information. They have refused to give me any information about the loan I.E the appreaisal report- which they did without even notifying me. Nextly when I asked for the pertaining documents they refused & adiitionally would not discuss the loan with me-it was only this year 2010 that after I threated to get a lawyer because I sent in my executorship last year- they became nice . But it was too late- the loan was due in Feb of this year.

Posted By R.L PHILADELPHIA, PA: August 10, 2010 1:48 pm

and on. Try to unwind that mess. I tried with NJ Banking and Insurance. Immediately told me to contact Comptroller. Comptroller literally puts it right back to the Bank and the Bank never acknowledges letters, calls, etc. with any answers to your questions or requests. No fees refunded. No equity returned. Terrible people to deal with. And in NJ no one is trained to deal with HECM. The phone is the only tool. For senior citizens that can be very difficult. No ability to sit down and talk with someone about the problem. Very very bad arrangement for a loan. So, when you are old and you need the most help and the most patience, and you need to have a home, difficult to find employment, the HECM is the very worst loan you can get. And yes, the fees are outrageous! You pay a servicing fee up front to the year you turn 100. You have to have mortgage insurance and that was 2 percent for me. Now it is less. I think that the attitude of customer service people dealing with the elderly is also very different then any customer service people I have spoken with during my life as a consumer. Not helpful and long silences so that you think they have hung up. You will need HUD counseling to get this loan but it is totally inadequate in preparing the consumer with the details of what will be required. YOu will also have to keep the house in good repair and of course, no one tells you what that is. Imagine, an old person in an old house and unless FHA says it needs repair, it is assumed all is well. Hopefully it is. Be careful that you read that FHA report BEFORE you sign. Mine was false. Maybe a 203K would be a loan to consider BEFORE the HECM to assure you have can afford this mortgage when you have an older home. Ask the building inspector in your town if your home is to code? You can get your own Broker and negotiate a fee and the banks don't tell you this. That is the law. You also are able to see all the documents you are to agree to and sign BEFORE the day they come to have you sign them. Ask HUD these questions. What are your rights? Do not listen to any salesman.

Posted By Barbara Brandt Ewing NJ: March 15, 2011 12:32 am


My mom took out a reverse mortgage in 2005 from Wells Fargo-the fees were exorbitant, she only got about 1/3 the value of the home in the lump sum payout,the interest and fees run approximately $500.00 or so a month


Posted By Sandra from Colorado: March 12, 2011 1:33 pm


I recently met with a couple that attended my Senior Survival Seminar. A year ago they needed about $14k to pay off bills & fix a leaky roof. Wells Fargo had talked them into a reverse mortgage and over $11,000 in fees! So their current loan balance is $25,000!

Posted By Gary Duell, Clackamas, OR: January 20, 2011 8:00 pm


I got a reverse mortgage after speaking with a broker. He came to my house and spent 1 hour here. He did not tell me he was not an employee. In fact, he made it seem as if he was an employee of Countrywide Bank. I did not know that Bank of America had already planned to buy the bank. He arranged for a FHA inspector. I assumed all was well. I later found out that the inspector filed a bogus report and that he had been reprimanded by the State of NJ that licensed him. The broker never sent me anything so I had no knowledge of the report until after the sale. I told the broker I was going to use the proceeds to bring my home up to code. It was all the money I had and all that I could do to stop the damage and the leaking. This was a 1926 house. I lost my job in 2002 after 9/11 and worked as an over 50 employee in retail. I had little money and this house was all I had.




Posted By Barbara Brandt, Ewing Township, NJ: November 16, 2010 9:28 am


Reverse Mortgage is a rip off. My dad die 10 months ago, now we people knocking on the door, taking pictures of the house, and now we have 2 months to get out of the house. We can't afford to pay a big loan like that back in 2 months, not even in a year... DON'T TAKE IT...

Posted By Jay, Delray beach Florida: August 15, 2010 12:31 pm


My Mother had a reverse Mortgage on her hosue- she passed away a year ago-I was at home with her. Now the bank has a acted as thought I don't even exist although I have sent my execturoship papers to them- but hypocritically- they are trying to sue me. I hate this loan & wish we'd never gotten this for her. The Loan officer left the bank about a year after we got the loan- but I found that out - when I went to tell her that my mother passed away. Dealing with them has been the worst experience I have had- They have given me so much conflicting information. They have refused to give me any information about the loan I.E the appraisal report- which they did without even notifying me. Nextly when I asked for the pertaining documents they refused & additionally would not discuss the loan with me-it was only this year 2010 that after I threated to get a lawyer becasue I sent in my executorship last year- they became nice . But it was too late- the loan was due in Feb of this year.


Posted By R.L PHILADELPHIA, PA: August 10, 2010 1:48 pm

2 comments:

  1. Thanks for sharing this information with all. just keep update the blog with useful information.

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