The reverse mortgage is a scam!  I am a banker and I see every day deceived elderly customers who get fooled by these “reverse mortgages”, they end up losing everything and put their heirs in jeopardy.  – Tim

I’ve been a mortgage banker for over 40 years.  During that time, I have worked for many big banks, mortgage companies, and insurance companies with many different lending products.  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.

Education is the key, and that careful consideration should be given to how a reverse mortgage will impact kids and families.  Relatives should be included in the decision to understand how reverse mortgages work.  Then, we’re positive no one would make a blanket statement deeming it a “scam.”

ARLO teaching on reverse mortgage scam

The pot calling the kettle black

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.

Those lending programs had to be regulated and, in most cases, outlawed; the HELOCs that are so popular with the banks still today 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 have 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.  Still, many lose their homes due to bank loan officers who need to educate the borrowers better.  People don’t realize what will and can happen – so does that make the product itself a “scam”?

The Truth about Reverse Mortgages

ARLO teaching the truth about reverse mortgages

With a reverse mortgage, the borrower can stay in their home for life without making 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 is the problem; most do not have that kind of money.  If people are worried about what the heirs will have, they 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.  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.  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?

Also See: Here’s the Real Truth About Reverse Mortgages (No BS)

Firsthand Experience With My Mother

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 did not know anything about them at that point in my career.  After researching them and how they would improve her life, I was all for it, and she still has it today.

Yes, it means less of an asset she will pass to me and my two siblings.  Still, her comfort and dignity are 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 she bought and paid for on her own to live comfortably now.

That does not put me in jeopardy, and if I were 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.

Please Educate Yourself

A bit of education goes a long way.  I’m sorry if I got long-winded.  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 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.  They can’t make the payments, and the banks do 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 prepared 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.

Top FAQs

Q.

Is a reverse mortgage a hoax?

Reverse mortgages are not a hoax.  They are a loan, though, and borrowers should understand how they work.  You accrue interest on the loan and pay it back once you leave the property.  Still, you can choose to make any payments you wish at any time without penalty if you do not want the interest to accrue.
Q.

What is the catch to a reverse mortgage?

There is no catch – you need to educate yourself and ensure you understand the loan and that it suits you and your circumstances.  Borrowers can go many years making no payments, saving them tens or even hundreds of thousands of dollars in payments over this time.  However, you are accruing interest on the loan, and you need to decide your goals.  If you want to leave the largest asset for your heirs, you may not want a reverse mortgage, as you will be living on your equity instead of leaving it to them.  If you decide to sell later, you can always do so with a reverse mortgage because you always own the home.  Reverse mortgages are very good for some borrowers.  They do not meet the goals/needs of others, and you need to be sure you understand them before you close the loan if you are contemplating this loan.
Q.

When is a reverse mortgage a good idea?

When you want to remain in your home and have no intention to move in the short term, if you know that the relief from the current mortgage payment or the payment you will receive from the reverse mortgage will make all the difference in your lifestyle, then a reverse mortgage may be right for you.  If you love the home in which you live but need a little help financially to remain, a reverse mortgage could be just the answer.  Your way of life could be more fulfilling because you are hampered by being short of monthly funds but still active.  It would take little to improve the quality of your life, a reverse mortgage could be a great way to augment your income for life.
Q.

When is a reverse mortgage NOT a good idea?

If you run your numbers and you feel that things will still be too tight even after the reverse mortgage, it may be time to downsize instead.  If your home no longer meets your needs, is too big, or doesn’t have the amenities you need, a reverse mortgage will not solve those issues.  If you want to move in a year or two, the costs of a reverse mortgage are too high to use as interim financing.  A reverse mortgage can be a bad idea if you want to maintain all your equity to leave to an heir or cause.
Q.

What does Suze Orman say about reverse mortgages?

Suze Orman has flipped on reverse mortgages a few times.  Her most significant concern was the fixed-rate, lump-sum payouts for borrowers who did not need the money.  We also believe borrowers should take only what they need in reverse mortgages.  By only borrowing what you need as you need it, interest owed only accrues on the funds you borrow, and your line of credit increases on the unused funds giving you greater access to funds in later years.  If you do not need the funds, you or your heirs never need to repay them to keep or sell the home, but if you need more money later, they will be available to you.

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