Comment from our reader:
I am a banker and I see everyday deceived elderly customers who get fooled by these “reverse mortgages”, they end up losing everything and put their heirs in jeopardy. The reverse mortgage is nothing but a scam! – Tim
I’ve been a mortgage banker for over 40 years and during that time I have worked for many big banks, mortgage companies and insurance companies with many different lending products. I would certainly say that there were many lending products that I would classify as less than advantageous for the borrower and some as downright dangerous, but reverse mortgages are not a scam.
I do agree that education is the key and that careful consideration should be given to the question of how a reverse mortgage will impact kids and family. In fact, we believe relatives should be included in the decision, to understand what is a reverse mortgage. Then, we’re positive no one would make a blanket statement deeming it a “scam”.
I’ve seen many of the programs that you “bankers” offer that have resulted in foreclosures through the years including loans with no income or asset verification that borrowers had no possible hope of being able to pay back and you were relying on equity all along so that when the borrowers couldn’t make the payments, you knew you could foreclose and take the home; loans with negative amortization and balloon payments that the banks offered that caused people to lose their houses; all manner of step programs, buy-downs and other gimmicks that caused payments to rise faster than borrowers’ abilities to keep up with the increases, so much so that those lending programs had to be regulated and in most cases, outlawed; the HELOCS that are so popular with the banks still today that have a 10 year draw period at interest only and then go into a reset period with a payment that is double or triple the one that the borrower had that they could afford and then they can’t extend it or get another loan when the payment is raised beyond their ability to pay.
I can go on and on. In my 40+ years I’ve seen scores of lending programs that “bankers” and other lenders thought were great, but borrowers were hurt when they didn’t understand them well enough.
All you have to do is Google Wells Fargo Bank to see what “bankers” are doing for folks these days. Sure, these programs can be viable tools for some, but many lose their homes due to bank loan officers who don’t educate the borrowers well enough and people don’t realize what will and can happen – so does that make the product itself a “scam”?
Reverse Mortgages are not Scams
With a reverse mortgage, the borrower can stay in their home for life without having to make a monthly mortgage payment. Not so with the other programs I just listed. And if a borrower stays in a home and makes payments for 20 or 30 years with a typical bank loan, they will pay 2 1/2 or 3 times the amount they borrowed back on the loan in interest charges. If the senior homeowner had that kind of money, they could put it in an account and the heirs would still inherit but that’s the problem, most don’t have that kind of money.
If people are worried about what the heirs will have, then the heirs can make the payments for the elderly homeowners or give them the money they need to live on and then there is no erosion of the equity. Unfortunately, it’s not usually the case where the heirs are willing or able to make the payments or augment the seniors’ income and so it is up to the senior homeowners to find a way to live. The reverse mortgage allows them to use the equity to either eliminate their mortgage payment or give them extra cash for needed items – or maybe both. If it means that the heirs are left with less because the senior homeowner needed the funds to live on, how is that a scam?
Tim, I was a Mortgage Banker for 30 years when my mom came to me and asked me what I thought about reverse mortgages as she was considering one and wanted my advice. I had never originated a reverse mortgage and didn’t know anything about them at that point in my career. After really researching them and how it would improve her life, I was all for it and she still has it today. Yes, it means less of an asset that she will pass to me and my two siblings but her comfort and dignity is much more important than us receiving her home as an inheritance.
She has not “put us in jeopardy” as you put it, she is using the equity in an asset that she bought and paid for on her own to live comfortably now. That does not put me in jeopardy and if I was that concerned with the amount I would get from the home when she passed, then I could always make the payments she needs to her now to augment her income myself – but I don’t feel she owes me her home. It is hers, not mine and she has been so happy since she got her reverse mortgage and has the resources to live as she wishes.
So Tim I will tell you that a little education goes a long way and I’m sorry if I got long winded, but I get more than a bit steamed under the collar when I see others who misrepresent the program or worse yet, appear to be so selfish that they put their own needs ahead of the needs of the senior borrower who bought and paid for the home and now needs the equity to continue to live in it.
As a banker, you really need to look at your own profession’s history and products (as well as the loans coming due right now) before you start claiming that the reverse mortgage is “some scam” because we have people coming to us in desperation daily when their bank loans are coming due or payments are tripling and they can’t make the payments and the banks are doing nothing to help them.
We have thousands of customer reviews from homeowners we have helped over the past 10 years, many saving people’s houses and allowing them to remain in their homes when they thought all hope was lost as their bank was preparing to foreclose. How much equity do you think those heirs would have gotten after the bank foreclosed and where would those borrowers have gone?
As I said, the reverse mortgage allows the senior homeowner who bought and paid for the home to stay in the home mortgage payment free for life, unlike the “evil” bank loans that are coming due and are first ruining the credit of the borrowers when they can’t make the payments and then foreclosing on people daily.