Reverse Mortgages

Abuses and abusers from the subprime mortgage market are now appearing in the home equity conversion (reverse) mortgage market, putting the equity and savings of millions of seniors at risk   That’s the main finding of a report issued by the National Consumer Law Center (NCLC) in October 2009.  This report can be read on the NCLC website at www.nclc.org by looking under Issues, then Foreclosures and Mortgage Issues, and then Predatory Mortgage Lending.  Click on the report entitled Subprime Revisited: How the Rise of the Reverse Mortgage Lending Industry Puts Older Homeowners at Risk.  In many of these reported scams seniors are offered investment opportunities, foreclosure rescue, refinancing assistance, or free homes.  They are recruited through local churches, investment seminars, direct mailings, and radio, TV, and other advertising.  Seniors should do the following to avoid becoming a victim of these scams:

  • Do not respond to unsolicited ads for reverse mortgages or proposals for investing the proceeds from these mortgages.
  • Make sure that any private professional fiduciary who handles your assets has a valid license from the California Department of Consumer Affairs Professional Fiduciaries Bureau.
  • Make sure your lender follows all the requirements of California Assembly Bill 329, the Reverse Mortgage Elder Protection Act of 2009, which became effective on Oct. 11, 2009.  Except as specified, this Bill prohibits lenders from associating with any party that is associated with any other financial or insurance activity, and from referring the borrower to anyone for the purchase of an annuity or other financial or insurance product prior to the closing of the mortgage or the expiration of the right of the borrower to rescind the mortgage agreement.  It also requires the lender to provide the borrower with a list of at least 10 counseling agencies in California approved by the U. S. Housing and Urban Development (HUD), and a checklist of issues the borrower should discuss with a counselor.  One issue is whether the prospective borrower’s financial needs would be better met by other options like a less costly home equity line of credit.  The checklist must be signed by the counselor and provided to the lender before the loan is approved.  The lender is also required to inform the borrower that senior advocacy groups advise against using the proceeds of the mortgage to purchase an annuity or related financial products without discussing the financial implications with your counselor and family.  These advocates have long cautioned that reverse mortgages should be a last resort because of their higher fees.    
  • Do not sign anything that you do not fully understand.