Chicago, ILFor some seniors, the money offered through a reverse mortgage can be a lifesaver. People living on a fixed income might not have enough money to make ends meet in the case of illness or injury, so money obtained from a reverse mortgage lender can seem like the ideal solution. Unfortunately, some reverse mortgage lenders are accused of unethical tactics, including misleading seniors about the risks associated with a reverse mortgage so they experience a reverse mortgage default and their home is foreclosed.
Reverse mortgages are offered to senior citizens as a way to access money in the value of their homes. The terms of a reverse mortgage mean the senior does not have to pay back the loan until her or she either moves out or passes away, although the homeowner is still responsible for paying insurance and taxes.
Some seniors allege, however, that reverse mortgage lenders use aggressive and misleading tactics in marketing the program. For example, some lenders are accused of marketing the loans to seniors who cannot afford the fees associated with reverse mortgages. Other lenders are accused of marketing the loans as "free money" to be used to finance cruises and vacations.
In some cases, lenders are accused of putting the older spouse on the deed and pressuring the younger spouse to keep her name off the deed. When the person listed on the deed passes away, the remaining person is left to either pay off the reverse mortgage or face foreclosure. Some widows say they were never told they could face foreclosure if their husband died.
Meanwhile, some lenders are accused of telling seniors they will not lose their home, even if they default on the reverse mortgage. Furthermore, seniors may not realize that if they take out a lump-sum loan the interest charges are added monthly. By the end of the loan, the amount owed can be more than double the value of the original loan. Making the situation worse is that, according to a report by the Consumer Financial Protection Bureau (6/28/12), seniors are taking out reverse mortgages at a younger age, increasing the amount of time interest adds up on the loan.
Officials are now working on rules to ensure seniors are better informed about reverse mortgages before they take out a loan, but for some seniors, those regulations may come too late. Already seniors face foreclosure on their homes—homes that were already paid for.
"Reverse mortgages are inherently complicated products that are not easy for the average consumer to understand," the Consumer Financial Protection Bureau concluded in its report to Congress. "Consumers particularly struggle with the rising balance, falling equity nature of the loan. Recent innovation and policy changes have increased the complexity of the choices and tradeoffs consumers have to make when deciding to take out a reverse mortgage loan."
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