I just read an article in the Modesto Bee titled "Reverse mortgages a new threat to seniors"
By TONY PUGH
McCLATCHY NEWSPAPERS - last updated: December 22, 2007 http://www.modbee.com/business/story/160490.html
The headline is a bit misleading. The author is basically talking about how unscrupulous loan originators are advising their borrowers to use the proceeds from a reverse mortgage to buy a deferred annuity. I agree with the author that that is a deplorable practice which, in most cases, does not benefit the senior. However, a cursory reading of the headline may scare some seniors away from reverse mortgages. Perhaps the headline should have read: "Using a Reverse Mortgage to purchase an annuity is a threat to seniors".
Anyway, here is my response to the article in the Modesto Bee:
Although I agree with a lot of the content of this article, I feel that the subject line is misleading. Reverse mortgages in and of themselves are neither good nor bad. The better question to ask is: Is this an appropriate financial tool for MY situation? In many cases, it is. A borrower needs to understand that the reverse mortgage will consume equity. Is that important? It depends. If the borrower has a mortgage and is using every dime to make their house payment, the reverse mortgage will pay that off and provide them financial relief. That is a good use for a reverse mortgage. Or, consider the borrower whose spouse has died and his/her income has been reduced. Why not tap into the equity of the home to make life easier and to have some financial peace of mind? For the borrower who is planning to stay in their home, realizes they won't be leaving all the equity to the kids, and has a real financial need, the reverse mortgage can be a Godsend.
As for lumping the sale of a reverse mortgage with an annuity...I totally agree that RARELY will that benefit the borrower and is a practice that needs to be highly scrutinized and regulated. I originate reverse mortgages and I warn my clients to stay away from annuities. They are a bad deal. If the borrower needs a monthly income stream, the reverse mortgage can provide that in many cases and no annuity is needed. I deplore the practice of getting a senior into a reverse mortgage, then turning around and selling them an annuity. Shame on those greedy salespeople!
So, buyer beware. Look for reverse mortgage professionals who have been in the business for at least two years and who do NOT try to sell you an annuity or get their insurance buddies to contact you. Look for a professional who will sit and talk to you about the suitability of the reverse mortgage for YOUR situation. They should ask you questions like: How long do you plan to stay in your home? How do you feel about not leaving equity to your heirs? What is your monthly income and why do you need this money? Can you find it elsewhere? A good professional consultant will not put you into a reverse mortgage if it is not right for you. I know -- I am such a consultant!
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