CBS MoneyWatch says these are reverse mortgage red flags to watch for but are they?

Welcome back to the Industry Leader Update. Despite incidents of predatory lending practices and inappropriate loan placement in traditional mortgage lending which generally are ignored by the national media, the reverse mortgage remains a consistent target of criticism and unfounded allegations.

Are we surprised? No, but it is important to know what narrative is presented to American homeowners. Case in point a recent column in CBS News’ MoneyWatch. Columnist Kelly Ernst writes, “Reverse mortgages can be a great way for seniors to access the equity in their homes to generate retirement income or cover expenses like medical bills. Unfortunately, they’ve also become a prime target for scammers, who are eager to take advantage of this product’s popularity to exploit older homeowners.” To guard against potential fraud Ernst suggests that homeowners look for the following red flags.

First are unsolicited offers.

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Ernst cautions, “If you receive an unsolicited call, email or letter offering a reverse mortgage, be suspicious. Reputable reverse mortgage lenders won’t contact you with an offer for a reverse mortgage without you having requested the information”. Are unsolicited direct mail, emails, or phone calls truly a red flag? Consider for a moment the mail pieces or emails you receive. They’re likely from your local car dealership, real estate agency, grocery store, or health insurance professional. Unsolicited marketing pieces are meant to do one thing- generate interest that hopefully generates a qualified lead.Most industries would strongly disagree that unsolicited offers are in fact a red flag.

The next red flag I would agree wholeheartedly with- Pushy sales tactics. If a reverse mortgage originator, car salesman, or insurance agent is pushing you hard to make a decision that you’re not ready to make then proceed with caution- or even better disengage. This is a sure sign that the salesperson’s interests are more important than you finding a suitable product that truly meets your needs. When it comes to reverse mortgages pushy sales techniques are highly ineffective. In part this is because of the required counseling prior to taking an application or ordering an appraisal. In fact, in California (the nation’s largest source of HECM loans) no application can be accepted nor fees assessed until 7 days after the HECM counseling date.

The third red flag are upfront fees or unexplained costs. We can agree that hidden fees are certainly a red flag, however the upfront costs of a Home Equity Conversion Mortgage such as counseling are clearly disclosed to potential applicants.

The fourth red flag is one that every reverse mortgage professional should avoid; if not for ethical reasons then for the legal exposure it creates- too good to be true promises. Sadly, even today some unscrupulous reverse mortgage originators continue to advertise claims such as ‘you can never run out of money’, or ‘you can stay in your home as long as you want’, or misrepresenting the loan as a ‘government benefit’.

The columnist closes with this valuable piece of advice. “One of the best ways to avoid a reverse mortgage scam is to thoroughly vet any lender you’re thinking of working with. Check with the National Reverse Mortgage Lenders Association and Better Business Bureau to ensure it has the required licenses and registrations. Read customer reviews and ratings to learn what other homeowners think of the lender.”

While we cannot singlehandedly change how the media presents the reverse mortgage, each of us can do our part by upholding the highest standards of ethical sales and marketing practices and promptly report those who don’t to the appropriate agencies and NRMLA.

Resources:
[MoneyWatch] Reverse mortgage red flags seniors should know

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