Reverse Mortgage Loan Blog

In late-night commercials, a pitchman such as Robert Wagner (who starred in the early-’80s series “Hart to Hart”) explains that reverse mortgages are a way for people 62 or older to achieve financial security by tapping their home equity. The homeowners never have to make a payment (indeed, they collect money) and they can continue to live in and own their homes. That’s all true. But there’s much more to know about these highly complicated and often expensive forms of credit. Last week, Comptroller of the Currency John C. Dugan, warned that tougher oversight may be necessary.

“While reverse mortgages can provide real benefits, they also have some of the same characteristics as the riskiest types of subprime mortgages — and that should set off alarm bells,” Dugan said to a banking group. According the OCC, 90 percent of all reverse mortgages are insured by the Federal Housing Administration. Dugan said closer federal oversight may be necessary to protect the FHA and homeowners.

Basically, a reverse mortgage allows a person who owns a paid-off home (or who has only a small balance remaining) to set up a line of credit against his or her home equity. The homeowner can receive a big sum of money upfront, get monthly checks and/or establish a line of credit. Typically, after the owner dies or moves, the house is sold to pay off the debt and heirs receive any money that’s left.

A reverse mortgage can be a fine way for the elderly to remain in the homes and neighborhoods they love. But, they carry big fees, and so for the first few years are quite expensive financial tools.

But consider these elements of risk: elderly homeowners, large pots of home equity, confusing documents, big fees and the potential for profit.

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