Posted Oct 16, 2012 11:00 am CDT
Consumer advocates are reporting abuses in reverse mortgages that parallel risky lending practices that prevailed before the financial downturn.
Reverse mortgages are intended to help keep seniors in their homes, the New York Times reports. The homeowners borrow money against the value of their homes, with no need to pay it back until they move or die.
But now subprime lenders are taking over the market as the larger banks are exiting it. New abuses are emerging, the story says.
“Some lenders are aggressively pitching loans to seniors who cannot afford the fees associated with them, not to mention the property taxes and maintenance,” the story says. “Others are wooing seniors with promises that the loans are free money that can be used to finance long-coveted cruises, without clearly explaining the risks. Some widows are facing eviction after they say they were pressured to keep their name off the deed without being told that they could be left facing foreclosure after their husbands died.”
Brokers on the loans make an increased profit when the older spouse is the only borrower, the story says. Incentives also encourage brokers to issue lump sum loans with higher interest charges. Today about 9.4 percent of reverse mortgages are in default, compared to about 2 percent 10 years ago.
The Consumer Financial Protection Bureau is tackling some of the issues with new rules regulating lenders and disclosures.