Senior Homeowners’ Foreclosures Should NOT Be Blamed On Reverse Mortgages

HomeownershipWe are seeing articles in the media about seniors with reverse mortgages who are losing their homes to foreclosure.  Is this unfortunate?  Yes!  But let’s look at the reason rather than blaming the product, the reverse mortgage.

All homeowners regardless of age are responsible for paying their property taxes and keeping insurance on their home or risk losing it to foreclosure or not having funds to rebuild after damage to the home from a storm.  This is true whether one has a reverse mortgage, a traditional loan, a Home Equity Line of Credit (HELOC), or no mortgage.  Blaming the reverse mortgage for one’s lack of taking responsibility of general homeownership duties is misplaced by the media and the homeowners.

Several years ago I talked with a woman who was behind on her property taxes and the county was foreclosing on her.  She could have qualified for a reverse mortgage, paid the back taxes, improved her cash flow with funds in a line of credit (or for others paying off a current mortgage and eliminating the monthly mortgage payment) and have funds to pay future property taxes and keep insurance on her home.  Instead she listened to her brother who said reverse mortgages are bad, even though he had no basis for the statement and wouldn’t get the facts before making a decision.  By listening to her brother and not doing the reverse mortgage, the county foreclosed on her property.  She lost $280,000 in equity because she didn’t do the reverse mortgage and pay off the back taxes.

Stories about the county foreclosing on properties because one has not paid back taxes do not make the news…why?

Reverse mortgage maintains lifestyleThe reverse mortgage can, and has, helped those 62 and older have the funds to pay their property taxes and insurance along with other homeowner responsibilities.  More times than not we hear the stories on how the reverse mortgage has made a difference in the lives of seniors.  How it has given them funds to cover their needs, maintain or improve their lifestyle, plan for their future long-term care needs or purchase a new home so they can downsize, move closer to their children or buy their dream home.  See below links to articles on these uses.

The reverse mortgage lenders have reached out and worked with many borrowers who were delinquent in their property taxes and insurance to find a solution to help them get caught up on their late payments.  Some used reverse mortgage proceeds, others worked out a payment plan.  Because they have worked out a plan, these reverse mortgage borrowers are not facing the foreclosures.  Only those who did not respond to lenders’ and/or work out a repayment plan are facing the foreclosures.

As of April 2015 a Financial Assessment is required to determine reverse mortgage borrowers’ ability and willingness to pay property taxes and insurance into the future.  This consumer protection for borrowers helps make reverse mortgages more sustainable for seniors who want to remain in their homes.  This assessment does take into consideration the occasional life circumstance where one may have been late on a payment.

Be educated about reverse mortgagesBorrowers should take time to be educated and understand the reverse mortgage, as they should with any mortgage or financial product.  With the reverse mortgage they are required to obtain 3rd party counseling where the counselor explains the product.  The loan officer they are working with should also be explaining the features and terms of the reverse mortgage.  Borrowers then get to decide whether they choose to proceed.  It’s their decision and they should not blame a product they chose for their circumstances that likely benefited them over time.

© 2016 Beth Paterson, CRMP, Beth’s Reverse Mortgage Blog, 651-762-9648

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