How to Reverse A Skewed View of Reverse Mortgage
Unscrupulous people who prey on seniors are an odious lot. But while many seniors are becoming wise to telephone scams telling them they’ve just won a sweepstakes, they probably feel they can trust what they read in Time magazine, or what an elder abuse attorney shares in a letter. Both recent scenarios entail gross misrepresentation of the reverse mortgage industry — and mislead seniors by what should be trustworthy sources of information. Shannon Hicks delivered an excellent, scathing rebuttal to the Time article in 2010. But the damage had already been done.
Here are six handy responses to have at your fingertips for clients, prospects, family members, and detractors:
1) Myth: “A reverse mortgage is one of the most expensive forms of credit you can get.”
Truth: Compared with the cost of selling a home (agent commissions, etc), a reverse mortgage is actually a great savings — plus, the senior homeowner gets to remain in their cherished home. As Shannon pointed out, many lenders now waive loan origination and service fees — and even pay part of the upfront FHA insurance on fixed rate products. Never has the program been so affordable.
2) Myth: “If the senior becomes ill and needs to move to a care facility, the reverse mortgage comes due. This added expense could leave an elder homeless.”
Truth: A reverse mortgage is not due and payable until the last surviving borrower dies, sells the home, or does not live there for 365 consecutive days. This means that even if one spouse has a prolonged stay in a hospital or rehabilitation facility, the reverse mortgage will not be affected, and will continue to provide much-needed cash flow. If the senior is the only resident of their home, the reverse stays in place unless they do not live there for one full year, as long as property taxes and insurance are paid up and the property is maintained.
3) Myth: “When the senior dies, the heirs must pay off the loan, which may exceed the market value of the home. If they can’t pay the debt, the lender has the right to foreclose.”
Truth: This is a particularly sticky and scary myth, as it preys on both elder and heir fears. The reverse mortgage is a non-recourse loan, which means when the property is sold to pay off the loan, there will be no remaining debt for the family to repay — even if the loan balance exceeds the home value. Just like a traditional mortgage, with a reverse mortgage the senior (or heirs) continues to own the home and have sole access to the title; the bank is a lien-holder.
4) Myth: “A reverse mortgage will cause a reduction in Social Security and Medicare benefits.”
Truth: Another onerous and enduring myth. Reverse mortgages have no bearing whatsoever on other sources of senior support or on health care benefits, because the funds are treated as loan proceeds, not taxable income. Needs-based benefits such as Medicaid or SSI can be affected by a reverse mortgage so caution should be exercised in those situations.
5) Myth: “Reverse mortgages are intended for people who don’t really need the money, and will use it for vacations and such.”
Truth: Seniors from all walks of life and economic strata choose reverse mortgages for a variety of reasons, but most borrowers today use their loans for immediate needs, such as paying off their existing mortgage or other debts. About a third of senior homeowners who opt for a HECM do so expressly to be able to afford to “age in place“.
6) Myth: “There is no one looking out for a senior’s best interests when they’re being besieged by celebrity reverse mortgage ads.”
Truth: In the reverse mortgage industry, consumer education is the name of the game. Potential borrowers are required to meet with or speak by telephone with independent, HUD-approved third party counselors in order to be fully informed about the risk and benefits of a reverse mortgage, and to help them determine if a reverse is the right next step for them.