Reverse Mortgages By The Numbers

We have always felt that Reverse Mortgages were another type of gambling with the future. Especially when the homeowner is young, well young for taking the RM, say in their 60s. Who knows what the future will hold and how long they will live. Through the RM program we are encouraging seniors to take all their savings now and pay a hefty price for doing it. Sure it will be great if their short term needs are met or they live even better than before, but what is the cost. Finally we found someone who ran some of the numbers in this article from The Northern Star titled Reverse Mortgages Come With Danger. Yes this is from an Australian paper, it appears not many in the US actually acknowledge the problems with reverse mortgages. Let's take a look -

The idea behind reverse mortgages is that older homeowners can cash out part of their home's value, with the funds received either as a lump sum, a series of cash payments or a combination of both. The money can be spent however the homeowner chooses, be it to buy a new car, take a holiday or simply meet living expenses.

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A strong point of appeal with reverse mortgages is that no repayments are required until you sell the property or die. However, interest is charged from day one, so it doesn't take very long for the overall debt to escalate, potentially outpacing the increase in your home's value.

To see just how quickly the debt can snowball, let's say that a retiree aged 65 takes out a reverse mortgage, receiving an initial lump sum of $50,000 at the start of the loan, with a further $500 a month paid for the first five years. By the time the homeowner is in his or her mid-80s, the debt plus interest will have grown to $400,000.

The mounting debt may alarm family members, but it should also concern our homeowner.

That is because around 50pc of both men and women currently aged 65 have a 50pc chance of living to their mid-80s.

What is going to happen to the 80 year olds with no equity left? Their savings depleted so they can buy their grandchildren ice creams? Which is what some are suggesting -

Meg Burns, director of the FHA's office of single-family program development, said she's heard only positive feedback.

“One of the things you hear all the time is how this program made a really big difference in their lifestyle, just in little things, like now they can take their grandchildren to get ice cream,” Burns said.

How great will that work out in the end? Sure it feels good now but if it costing seniors their savings and really costing about double due to all the fees and interest how good will that really taste?

We are also wondering about the clause to keep up the property. How is the homeowner going to keep up the property in their 80s when they have no equity for maintenance? And how are we going to evict people whose houses are in disrepair but their Reverse Mortgage requires the house and property to be maintained? If these are not maintained properly the value will decline. The problem is already messy, and the strong push for Reverse Mortgages will make things even messier.

A Reverse Mortgage to Save a Business

If you can not get a HELOC for your business and are over 62 why not try a reverse mortgage. That apparently is a new school for funds. Hopefully it will not catch on. It reminds us of that old saying - if yo find yourself in a hole, stop digging. But taking a reverse mortgage out to fund a business sounds more like if you find yourself in a hole, dig faster. A hole one will never get out of is pretty much what this sounds like. And when they decide to stop digging they will be trapped for good.

The article that brings us this lovely story - The Charlotte Observer's Hope, worries over reverse mortgages - also reminds us about the independent counseling regarding reverse mortgages. We would love to find out more about this. How much counseling, how long, what is discussed, does the homeowner just have to show up and sit through some spiel, or do that actually have to process the information and answer questions? Are all the trainings the same - some required format - or can the interested party just show they know something and finish the program. If any reader has been through this counseling send us a short note about what happened, thanks. Now let's get into the story -

[C]ritics say [reverse] mortgages, though just a niche of the larger industry, are a ticking time bomb and have some parallels to subprime mortgages: They are complex and hard to comprehend, and they may be useful for a small number of sophisticated borrowers who understand the risks but dangerous for those who don't.

Doris Simmons, 69, of Indian Trail, says she carefully considered the downsides of a reverse mortgage and decided it was her best option when the recession started to hurt her business.

She's heard all the objections, like the critics who say you can usually get more money by selling your house. “Not in today's economy,” she replies, and she doesn't really want to move anyway. Her house has been in the family for 50 years and brings memories of her children.

Does Ms. Simmons realize that her Reverse Mortgage is based on the same value as the selling price would be. It is not like her house will be worth more taking out a reverse equity rather than selling it...

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Last year, Simmons fell behind on her house payments, which were about $550 a month. Though she'd bought the house years ago, she still had a payment because she'd taken out a home-equity loan in the late 1990s for business improvements.

She heard about reverse mortgages from a Bank of America representative who was helping with the home-equity loan. She'd also heard about them on TV and was skeptical, but met with a housing counselor anyway and eventually decided it was the best option. It's been a double gain: It eliminated her house payment, and gave her extra income to catch up on bills.

The reverse mortgage hasn't solved all her problems. She still worries about when traffic will pick up again at Old Timers.

“It saved me for the time being,” Simmons said. “Now I've got to worry about saving my business.”

Reading stories like this seems like 2004 all over again. Lenders pushing loans that give them hefty profits. People thinking they understand the sophisticated loans when very few probably really do. People financially in a hole, digging deeper.

We left it out here, but in the article we have Meg Burns, director of the FHA's office of single-family program development proclaiming the virtues of reverse mortgages since now seniors can bring their grand kids out for ice creams. Yeah, you can not afford a few ice cream cones without a reverse mortgage but can understand the complexities of it after a few hours of independent counseling? Pretty scary times coming for RM holders...

Some Interesting Alternatives to a Reverse Mortgage

Finally some more articles warning about the equity loss involved with a reverse mortgage. We see this as basically taking a gamble against the future. Option ARM takers gambled that housing prices always went up and the accumulation of deferred interest would be less then the increase in the value of the home. Whether they were aware of the gamble or not is another story - but that was the big gamble with the Option ARMs. And we are almost on the verge of an epic wave of Option ARM foreclosures.


So the new product to gamble one's life savings is being pushed - the Reverse Mortgage. This article at Nurido.at (who is this - they seem to be everywhere?) titled A Reverse Mortgage Is A Costly Option To Use Your Home Equity sums up some of the problems and provides some alternatives. Let's take a look -

Unless your home is continually appreciating at a good clip, it won’t take long until there’s little of no equity left as a legacy when you die or move out. This is what makes reverse mortgages so costly to you and you’re loved ones.

If leaving a legacy is not an issue and you’ve the health to live on your own for 10 or more years, then a reverse mortgage may be a reasonable option for you. But if you want to leave a legacy, consider alternative ways to access the value of you home for income. Here are a few:

Renting a portion of you home: If your home has extra bedrooms you may want to rent a room out for the income it can bring you. You may even consider borrowing a little for creating an in-law apartment for renting. This allows you to remain in your house yet use it to create some income. You may find local programs that allow you to borrow cheaply for the renovation needed.

Sell Your Home to Your children: Your children can pay you a monthly payment toward ownership of your house. You could arrange that you’d have a right to live in it as long as you live. What better way to have your cake and eat it too - leaving all that equity to your children for the payments made to you.

Sell Your Home And Pay for an In-law at your child’s house: Here, you’ll have to move out of your home, but you get to live with your children, increase the value of their home, and have money from your home sale that you can live on -and leave as a legacy.

Sell and Buy-down: Again, you have to move out of your home, but if you buy down to a condo much better adapted to your age and needs, your extra equity from you home sale can perhaps supply sufficient income for you to live on. You may want to buy a life annuity with it too.

Because basically after all the fees involved with a reverse mortgage there may be nothing left after 10 years or so.

The selling point (from lender/broker) is the same with HELOCs during the bubble - it is your money and you are smart enough to use it wisely. Until we found that people were using HELOCs like ATMs - paying for vacations, eating out, the latest in entertainment and fashion, etc., etc.

How many people taking reverse mortgages will end up in the same bought as the HELOCers? Extracting all the equity early and left with nothing down the road...

Reverse Mortgage as Last Choice

When their are no other options on the table perhaps a reverse mortgage may work. But for many people this option will take all future options off the table. Reverse mortgages are just another option to drain equity. With the continued downward spiral in home values their may be no equity for homeowners if and when they decide to sell. We many several people who see their properties as their retirement nest eggs. But since reverse mortgages can let healthy 62 year-olds extract a large portion of their equity now it can easily cause trouble down the road. Over at CBS News in an article titled Reverse Mortgages" "Loan of Last Resort" their is a warning of trouble that reverse mortgages may cause. Let's take a look -

It's a last resort for many Americans who are strapped for cash, but reverse mortgages are a way to make ends meet for an increasing number of homeowners.

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[Early Show financial contributor Vera Gibbons] said about 10,000 reverse mortgages are being done each month, because homeowners need the cash.

"They've lost a lot of money in the stock market," she said. "...They need the cash infusion."

Gibbons said people who can't get a loan or refinance due to the credit crunch are finding their way around it with a reverse mortgage, which have no income requirements.

...

Gibbons said many seniors are funding their retirement with a reverse mortgage because they need the cash infusion.

"This is a loan of last resort," Gibbons said. "People have exhausted the options, and can't rent the house or sell it or downsize...so they're doing this."

Have people really exhausted all their other options? Just like we did with HELOCs and HELs? Or are they taking the easy, short-sighted, dead end road to financial misery. Kind of like Option ARM holders. Looks good initially but their will be problems down the road. Very messy, very complex with a brand new set of problems.

There are warnings that reverse mortgages will cause a wave of financial problems and hardships in the future. We agree. Money will be lost. People who think they are hurting financially now probably will get hit much harder in the future.

The article also notes the maintenance requirements on the properties. But if there is no money left who will be for the maintenance. And what level of maintenance. Will most of these properties be fixer-uppers or tear-downers in the future? With little to no money for upkeep left, probably.

Reverse Mortgages Are Increasing

Due to the falling 401Ks and IRAs more and more people are looking to supplement their retirement savings through Reverse Mortgages. While in the short term this may be a good idea in the long term we really wonder. Many areas are still over-valued and other areas may take years and years and years to get anywhere close to bubble peak prices. But that has not stopped the push for reverse mortgages. They are getting more popular than ever. Here is a chart from the Wall Street Journal illustrating that in the first 4 months of 2009 there have been more than half last years total -



And the projections are that these numbers will continue to keep rising at steady rates. But just as with Option ARMs - that these are sophisticated tools for the knowledgeable financial planners - they are being used by ordinary people with no real finance background or understanding of the complexities involved. But a short training, seminar, lecture on the Reverse Mortgages is supposed to remedy all those issues. Let's look at the current status of Reverse Mortgages in this Wall Street Journal article titled Seniors Drawn To Mortgages That Give Back -

In March and April, the number of reverse mortgages backed by the government jumped nearly 20% from the same period last year. In April alone, the government insured 11,660 reverse mortgages, the highest monthly total since the government-backed program began in 1990. By contrast, the number of new home-equity loans, which similarly allow homeowners to tap the equity in their homes, fell around 70% in the first quarter from the prior-year period, according to Inside Mortgage Finance.

More seniors are turning to reverse mortgages to supplement their retirement savings, which in some cases have been decimated by stock-market losses. At the same time, more seniors now qualify for a reverse mortgage since Congress in February raised the maximum home value that seniors can borrow against to $625,500 from $417,000. The bill also capped reverse-mortgage origination fees at 2% on the first $200,000 and 1% on any amount over that, with fees not to exceed $6,000. Other upfront costs include an insurance premium and closing costs.

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For lenders, the risk is that when it is time to sell the home, it will be worth less than the amount lent. As housing prices have plummeted, concern has grown that losses from these loans have mounted. Nearly all private offerings of reverse mortgages have disappeared, leaving the Federal Housing Administration as the only game in town. The FHA doesn't make any loans, but it insures lenders against any losses on federally-insured loans, called Home Equity Conversion Mortgages.

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While reverse mortgages are more popular than ever, more borrowers are finding that their homes are worth much less than they believed, and they may be unable to qualify. Around one-third of borrowers who might have closed reverse mortgages two years ago no longer have enough equity in their homes to qualify, says Jeff Lewis, chairman of Generation Mortgage Co., an Atlanta brokerage. Around 85% of his reverse-mortgage customers are retiring their existing mortgages.

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Another reason for the growing demand: A tough housing market has made it harder for seniors to sell their homes and downsize. Brokers also say seniors are increasingly using reverse mortgages to pay off loans that have reset to higher payments. "There's definitely an increased cognizance of its value as...a bailout option," says Peter Bell, president of the National Reverse Mortgage Lenders Association.

The WSJ articles reads as if the government is supplementing seniors who can not afford their lifestyles. The government is covering the reverse mortgage industry for those who have lost retirement funds due to the stock market collapse. Or worse, the government is covering for some that made bad decisions on their original mortgage.

Think about the long term - if all the equity is pulled out their will be no updating on these properties. Many of these properties, that are not already, will become fixer-uppers. Rather than encouraging more home and people to invest their equity into something affordable they are spending their equity and staying someplace that is not affordable. There are stories about reverse mortgages turning homes into prisons. Owners have no more equity so can not afford to relocate. Something that was supposed to provide security can easily become a trap.

More numbers need to be generated - like how many people do not follow through with their RM after the economic lesson - we guess very, very few. Most are given the hard sell by that point to just finish the transaction.

Short term gains for long term losses. Rather than giving back Reverse Mortgages seem more like taking from the future.

New Reverse Mortgage Issues

Not that we do not already have a long list of potential problems with reverse mortgages - now we get word that new changes will make more problems. But maybe these new changes will be a deterrent of sorts. Ever changing interests rates and closing points are bound to scare many people away. Perhaps this will turn out to be a good problem. In an article in The Record titled Reverse mortgage: declining reliability we get a glimpse of the new changes and the effects they are already having. Let's take a look -

Reverse mortgages are becoming more popular, in part because retiree stock accounts have lost so much value. Federal data show a record 11,261 reverse mortgages were made in March, up from 9,086 the month before. The National Reverse Mortgage Lenders Association expects the number to grow to about 150,000 this year, up 30 percent over last year.

Last month — and without any real warning — Fannie Mae made changes that allow for higher margins for reverse mortgage lenders. Simply put, margins are the interest rate spreads a lender makes on the loan. So, the higher the margin, the higher the interest rate the borrower pays.

Worse still, under the new rules the margin — typically 2 to 3.5 percentage points — can change from the time a borrower submits an application and the loan is funded, which can be up to 120 days.

The borrower signs a disclosure form from the lender projecting the maximum amount of money the borrower may receive. But with rates that can change, the seniors will not really know how much they can borrow until closing, or days before. That makes the disclosure form practically useless, Smaldone said.

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But within the industry, fears are mounting that the higher margins are turning the reverse mortgage industry into the more traditional loan market, creating heavy competition that could lead to over-lending and introduce more predatory lenders.

Is this a bug or feature? And the sudden changes that caught the lending industry off-guard? There is definitely more to this than meets the eye.

Reverse Mortgage Costs

We are very leery about reverse mortgages. Planning ahead for ones future is already complicated enough - but putting future roadblocks up for shorter terms gains does not seem very logical or well thought out. We have often felt that the only ones who do well with Reverse Mortgages are the lenders and brokers. In a USA Today article titled Reverse mortgages can be costly as seniors cash in on equity describes just how little the homeowners actually receive. Before looking at the article let's take a look at some of an example of what the homeowner actually receives -

Example: A 75-year-old woman owns a home valued at $250,000. She qualifies for an HECM credit line of $135,484, with a 7% interest rate. At closing, she withdraws only $67,742 of the loan. Assuming that the interest rate stays the same and that she remains in the home for 12 years and doesn't take any other loan withdrawals, this is the cost of her reverse mortgage: Total amount borrowed $67,742 Loan costs Upfront costs $12,000 Total mortgage insurance premiums $7,933 Total monthly servicing fees $5,040 Total monthly interest charges $111,056 Total loan costs $136,029 Total loan amount owed $203,771

While it is no surprise that the lenders are doing well - this illustrates how well - the lender receives 2/3 of the total amount owed. Our worry about what happens when the example woman turns 87 and needs to live in a more assistive environment but may be close to destitute thanks to the Reverse Mortgage.

Now onto the article -

When faced with dwindling savings and mounting debt, elderly homeowners often consider a reverse mortgage for a cash infusion or to wipe out a monthly home mortgage payment. These days, some seniors also are using them to help stave off home foreclosure.

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You must pay a one-time fee for the paperwork and processing of your loan. But last year, the government reduced such origination fees.

Before the change, homeowners paid a 2% fee on the loans. Now they pay 2% on the first $200,000 and 1% on any amount over that, with the fee capped at $6,000.

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"If I were a consumer, I would focus more on the interest rate," says Meg Burns, director of the Federal Housing Administration Single Family Program Development. "That's an expense that is paid out over the long term of the loan, and it's a place where the product could be costly."

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"It is just one part of a retirement strategy," says Brent Neiser, director of Strategic Programs and Alliances for NEFE. "It has its own set of cost and issues. And it should be one of the last options for supplementing your retirement paycheck."

We hear some of the same promises for Reverse Mortgages that we did for HELOCs. Using your property for trips, presents, etc. does not many any more sense than for big screen TVs or granite counter tops. But then again Top Ramen does taste better off a granite counter - or maybe not...

Reverse Mortgage Now Poverty Prevention Programs

It seems that reverse mortgages is taking a new turn. During the bubble the idea of equity as a retirement plan. With the equity evaporating throughout the country and housing sales cooling everywhere a new approach was needed. Compounding that with 401Ks turning into 201Ks many people are seniors are looking to reverse mortgages to keep up the standard of living - or at least not have it deteriorate into poverty status. In an article from the LA Times titles More homeowners turning to reverse mortgages states that while reverse mortgages are surging, often they are used to stop paying traditional mortgages. Let's take a look -

Their retirement accounts flattened by the sour economy, older homeowners are increasingly turning to so-called reverse mortgages -- the sometimes expensive loans that don't require payments until the borrower sells the home or dies.

The Federal Housing Administration insured 11,261 reverse mortgages in March, a jump of 17% from the same month last year.

Experts say the loans -- which are only available to those over age 62 -- are on the rise for several reasons, including provisions in the federal stimulus package that have made them cheaper and easier to get.

Increasingly, lenders say, even well-off seniors are relying on the loans to provide monthly spending money at a time when their retirement accounts and other income may be limited.

Strapped homeowners with fairly sizable mortgages are paying off their notes and living rent-free in their homes, said Mike Branson, Chief Executive of All Reverse Mortgage Co. in Garden Grove.

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"People are looking at [reverse mortgages] to live now, which wasn't the case that long ago," [Nancy West, a spokeswoman for the U.S. Department of Housing and Urban Development] said. "A lot of the time, they're seniors that have mortgages that they shouldn't have been put into -- and have lost their livelihoods in the process."

Using reverse mortgages to stay out of poverty is probably necessary for many people. Although we are still concerned about long-term issues involved with reverse mortgages. Since one can start borrowing at 62 and easily live another 30 years problems of poverty may not be alleviated, rather just pushed down the road. These reverse mortgages are a short-term solution to a big and growing problem.

Selling Reverse Mortgages

Funny thing about reverse mortgages. They are harder to get when needed more. With 401ks downgraded to 201ks and 101ks people are looking to supplement their retirements with something else. And while we do not like reverse mortgages - the demand is still rising. Unfortunately while the demand is increasing those qualifying are decreasing. One solution found in the following article from the Orlando Sentinel titled Reverse mortgages a lifesaver for some, but beware of shady lenders is to sell the reverse mortgages yourself. Lets take a look -

More than 112,000 [Reverse Mortgages] were sold in 2008, up nearly 50 percent from 2006, the trade group reported. Orlando now ranks seventh nationwide in reverse-mortgage sales, with more than 3,500 in 2008, according to federal regulators.

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At its best, a reverse mortgage offers people 62 and older a sweet source of cash as a monthly payout, line of credit or lump sum. The money is tax-free, and the loan doesn't have to be paid until borrowers die or sell their home. Most reverse loans are also federally insured, which protects the payout even if the lender goes under.

But at their worst, reverse mortgages may come with confusing terms, high-pressure sales tactics and expensive fees. Such practices have tainted reverse mortgages in the past, as some lenders were accused of trying to manipulate older homeowners into squandering their home equity.

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Don Mulcahy says his finances have run a lot smoother since he put his mortgage in reverse a few years back.


The 68-year-old former telephone salesman from Orlando used the proceeds to pay off his regular mortgage and save almost $1,000 a month. He liked the idea so much he started selling reverse mortgages himself.

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"Unfortunately, we find a lot of seniors coming to us now in need of getting a reverse mortgage because otherwise they're looking at personal bankruptcy," [Richard Schram, an executive with the Consumer Credit Counseling Service of Central Florida]said. "If they don't have their home paid for, they're trying to get out from under the monthly mortgage payments to avoid insolvency, save their homes and have money to pay other bills."

That is one of our big fears. People use what little equity they have left now and get into even more trouble in the future. Extracting all, or what little, equity one has left to pay off the now will be very short-sighted in the long run. We are living longer and to have a growing group of aged individuals in their 80's and 90's virtually destitute is a scary future. We understand that their will be some people who will understand the complexities and may have funds or families to fall back on if the future becomes bleak.

But to take virtually all of your savings now when one may have another 20 to 30 years of retirement left does not sound like good judgment in any way. This may be one of the saddest and scariest parts of the housing bust - the future of our seniors.

The Reverse Mortgage Bite

Due to the current mortgage situation reverse mortgages are being pushed, hard. There appears to be a lucrative market with the shrinking 401Ks and IRAs, so taking money out of one's property is appears to be one easy way to keep up a current lifestyle. And what better way than a reverse mortgage.

Proponents of reverse mortgages discuss the federal insured programs - which of course does not cover all of them - and the counseling required. They argue that these are sophisticated customers who understand and want the product. Anyone who states otherwise does not understand Reverse Mortgages. The current target for this group is Consumer Reports with the article titled Hard-sell reverse mortgages. Lets take a look -

[A] reverse mortgage should be a last resort. When homeowners use it to splurge on travel or pay off credit cards, they lose an important safety net that might be needed for an emergency. Lenders, though, are promoting a wide range of uses for reverse-mortgage cash. Financial Freedom Senior Funding Corp. of Irvine, Calif., suggests using the money for "special things you've always wanted to do, such as travel or hobbies."

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The dangers are outlined in a lawsuit filed against Financial Freedom. The suit claims that the company advised its business partners to encourage seniors to take out as much money as possible in reverse mortgages so that the fees and interest paid to lenders would be maximized.

The complaint goes on to say that Financial Freedom encouraged and trained partners, some of whom were insurance agents, to sell insurance products to seniors with the money gained from the reverse mortgage. In turn, Financial Freedom would obtain additional interest on the extra money borrowed.

The plaintiff, Betty Adcock, 80, says she was persuaded to replace her home equity line of credit with a reverse mortgage. Her daughter, Carol Anthony, had already helped her establish a $150,000 no-fee home equity line for emergency expenses. During the first three years, Adcock had borrowed about $19,000. But her daughter said at a December 2007 Senate committee hearing that "in place of the no-fee home equity loan, she now had a reverse mortgage that charged 18 closing fees." The fees totaled a staggering $16,791.23, Anthony said. The salesman, according to the suit, advised Adcock to choose a reverse mortgage payment option that required her to take out $1,002.88 monthly, increasing the amount of interest she would have to pay. The suit claims that the reverse mortgage required that Adcock immediately make home repairs of about $5,500 and pay Financial Freedom for monitoring whether the repairs were done. On the date the loan closed, she owed $56,741.59.

With the help of her daughter, Adcock paid off the reverse mortgage six months later at a final cost of $71,942. Financial Freedom denies the allegations.

Wow that is a hit. Over $56 grand just to close the loan. For a total cost of almost $72,000 to hold the loan for 6 months. But remember the reverse mortgage was a good thing. It helped her in some way.

Reverse Mortgages Upon Death

Reverse mortgages have the clause that they must be repaid upon death of the owner, sells the property or moves. It sounds pretty simple. Especially the death clause - the owner no longer needs the property or the extra funds. Just sell the property and the entire reverse mortgage issue is closed.

But what happens when the house does not sell? Who is responsible for the upkeep of the property? And what restrictions are placed on the property until it does sell? The Montana Missoulian has a two-part series on reverse mortgages. Of course most of the articles discuss the wonderful benefits of a reverse mortgage - of course quoted by people having a financial stake in issuing more reverse mortgages. But the articles also provide a few negative issues in the reverse mortgage trend. The first article in the series is titled Turning home equity into cash. Lets take a look -

It's a viable option for people over the age of 62 who want to stay in their homes but have little or no savings, assets or other cash options to pay their bills. This is how it works: Senior citizens who own their homes can convert the equity in those homes into cash without having to move out or repay the loan each month, explained Greg Harper, Missoula branch director for the Consumer Credit Counseling Service of Montana.

The money paid to the homeowner, which is usually between 65 percent to 75 percent of the assessed equity, is paid back to the lender when the homeowner sells the home, moves into another living situation or dies and the home is then sold.


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Federally insured Home Equity Conversion Mortgages (HCEMs) are the most popular reverse mortgages offered, and account for 90 percent of all such mortgages in the United States. In 2008, the number of HCEMs grew by 6.4 percent, amounting to 115,176 loans.


...
“We have been doing counseling for reverse mortgages for four years and we have had a 400 percent increase over the last four years,” [Tim Robbins, director of Consumer Credit Counseling Service of Montana] said. “Four years ago, we were counseling between four and six homeowners a month. Now we are seeing about 20 to 25 people a month.”


...
Robbins expects reverse mortgages will only get more popular as people live longer in general, and as more baby boomers - many of whom may be financially strapped in their sunset years - hit retirement age.


...
“Talk to your family and heirs about this,” Harper said. “They are going to be a party to this even if they don't think they are. The ownership of the property is something you will them - and they have to deal with that and the debt that comes with it.”

The good news is that 90% of Reverse Mortgages are federally insured the bad news is that there are now at least 128,000 reverse mortgages in the United States. And who knows if these include those innovate REX agreements and other new financial tools. The bad news also is that more and more people are getting them without understanding the full, long-range consequences of them. We know they are getting a big push from the industry - because right now the it is a perfect target for getting commission. People are financially strapped and a lender will be happy to give them additional funding from their homes.

At least not everyone is buying into the wonderful aspects of the Reverse Mortgage. Here is the lone comment from the article (which we are in agreement with) -

" A sign of the times, the elderly grasping at straws to make ends meet.

It all sounds good, but the BIG emphisis here is that bank get's the house, and they ain't doing it because they love you or aren't making a healty profit, so where do you think that profit is coming from - that's right - the elderly lose again. The Bank Always Wins, this is just another way for banks to make a buck and put you on the short end of the stick. In the end, if that means anything and in particular to the heirs - the estate if any is left is worth consideralbly less - Thank you once again to Mr Banker. They always seem to have a way of making you feel like they are doing you a favor by taking your money. "

The second article is titled Daughters inherit reverse mortgage's debt. Lets take a look -

The sisters have been waiting for that special someone for almost two years and now their time is running short to pay off a loan their mother took against the property.


...
Verne Bowers lived on a fixed income derived from a small pension from the railroad and Social Security. Money was always tight and so the extra couple hundred dollars meant a lot.

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“We all thought it was a good idea,” Jarvie said. “Her health insurance was going up. Her prescriptions were costing more. The extra money helped her a lot.”


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Under the terms of the reverse mortgage, the house cannot be rented while the state is part owner. Meanwhile, there are utility bills to pay, grass to mow and all the other maintenance that comes with homeownership.

“We're going to have to do something,” Clawson said. “It might mean that we'll have to get into our retirement accounts to pay off the loan. We need to do something different. ... It's such a nice home. Somebody is sure to want it someday.”

Of course with this article the pro Reverse Mortgage contingent is out in droves. With the "how dare you criticize Reverse Mortgages they are the most wonderful financial tools ever invented." Even though the daughters are very happy with the reverse mortgage and feel that it helped their mother stay financially independent. From the article's portrayal (not quoted above) the sisters are more disappointed in the housing market than having to buy up the property. Here are some of the comments -

Rick wrote on Jan 26, 2009 8:47 AM:

" Your article says this is the second in a two day report on reverse mortgages. Please make sure you add a third day and explain the differences between a state based reverse mortgage and the FHA based reverse mortgage because this situation wouldn't exist if they had done the FHA version as Mr Tucker states. "

Tom Sherwood wrote on Jan 26, 2009 5:09 AM:

" Your headline is misleading. It's one of the reasons that seniors are afraid of Reverse Mortgages. The amount that's owed isn't shown in your article because it's nominal. The sister's have only good to say about how the program helped mom, but you insinuate otherwise. You infer that taking the home being off the market has something to do with the small balance due on the Reverse. Learn to report the facts, fair and balanced, not just your advance opinions."

And Scott Tucker wrote on Jan 26, 2009 6:17 AM:

" An FHA-insured reverse mortgage would have been a much better choice.

An FHA-insured reverse mortgage is "non-recourse," and NEVER becomes the heirs' debt.

Scott Tucker
Author, Reverse Mortgages...from Z to A
Member, National Council on Aging
www.ReverseHomeLoanBook.com "

But at the website Mr. Tucker does not explain to his audience there is a difference types of reverse mortgages. He just cheers about the wonderfulness of reverse mortgages.

Q: "Are reverse mortgages safe?"

A: "You bet. Reverse mortgages are regulated & insured by the federal government…FHA to be exact. And they're safe in another way, too...since the FHA ensures that you can never go above 85% of your home's equity owed with a reverse mortgage, you can be sure that your heirs will get the house back, after you pass-away, with no less than 15% of its value, or 'equity,' left in the house for them."

See Reverse mortgages are regulated by the FHA so how could someone get a reverse mortgage that was not regulated by the FHA? Very confusing. Now for those that follow this day in and day out. Now take someone from the days that nothing but the fixed rate 30 years existed. Who is facing financial troubles. May have recently lost a spouse. Calls up an 800 number or visits a local office or hears a presentation at one of the local senior centers telling them these government backed (but not always) , fixed commission (but not always) loans will make their lives better.

We are anticipating another set of reports when reverse mortgage holders are faced with the challenges of leaving their properties because they need a more managed care facility. But the property becomes a prison. Or when the equity returns end and a 90 year-old suddenly has a huge income drop. Now they have no equity and no secondary source of income. Or their heirs are stuck with the property that has numerous restrictions.

But ignore all that. Listen to the experts who make commissions of the products and tell us "Reverse. Mortgages. Are. Wonderful!" Who would doubt the bankers or lenders in the financial climate? They do not sell shoddy products. They only have the best interest of their customers at heart. Just ignore those pick-a-payments and liar loans they were selling us 4 years ago.
Remember "Reverse. Mortgages. Are. Wonderful!" or maybe not...

Increases in New Reverse Mortgages

Everyone everywhere seems to be trying to cut back. Unfortunately for many this is not being done by choice but by necessity. So when an enterprising broker lets a newly retired individual how they can stop paying their current mortgage and become flush with cash through a reverse mortgage it would seem awfully tempting. And this report from PBS News Nightly Business Report titled The Reverse Mortgage Trend illustrates how tempting it is. Lets take a look at the transcript -

JEFF YASTINE: Reverse mortgages are just what they sound like. Part of the equity in a home is bought by a lender. The only caveat -- the homeowner must be at least 62 years old. And unlike a home equity loan, a reverse mortgage doe snot have to be repaid, as long as the borrower lives in the home. Last year's housing and economic recovery act boosted to $417,000 the amount of equity that can be used in a reverse mortgage and that has the phones ringing off the hook for originators like David Levitt.

DAVID LEVITT, CEO, CIRCLE MORTGAGE CORP.: We've definitely seen an influx in people seeking a reverse mortgage due to what just happened in the stock market -- loss of income, loss of assets, loss of money or income stream.

YASTINE: More than 9,700 reverse mortgages were written last month, a 21 percent jump from year-ago levels. And reverse mortgages were popular even before the higher lending limits took effect last month, with originations booming in recent years. But there are costs. Origination fees can run up to $6,000, and there are other fees on top of that. Peter Bell of the National Reverse Mortgage Lenders Association says the biggest users are new retirees who still have a regular home mortgage payment to make.

PETER BELL, PRESIDENT, NRMLA: Once their income drops off after they stop working, it's a challenge for them to continue to make those monthly payments. So they get the reverse mortgage to pay off the existing balance and then they continue to live in the house and they no longer have to make the payments. So the money that was going out each month to make those payments is now available for other uses.

...
YASTINE: With a housing market still in the dumps and a stock market that's proven more risky than many anticipated, more seniors like the Goldsteins are weighing the pros and cons of reverse mortgages.

The bad part of this story is the people who should be making the difficult choices are the first ones lining up for the reverse mortgage. Turning 62 and extracting all that equity. At today's prices. For another trip to the mall? If the choice is between health care and food versus a Reverse Mortgage perhaps long-term financial planning should be the first choice. For many people, there is still a lot of life to be lived perhaps with many new adventures. But they are spending their nest egg now, or what was left of it.

In 2007 there were approximately 195,000 Reverse Mortgages in the U.S. We expect that number to increase. We know the push is strong. Reverse mortgages are the current cash kings in the mortgage industry. And people may be jumping into something before understanding and thinking through the full, long-term consequences.

No Equity Left for Retirement

Many people have counted on their equity to fund their retirement, but now that equity is all but disappearing people either chose to continue working and put off retirement or drastically reduce their planned lifestyles. An article from MSNBC titled Retirees no longer count on home equity portrays how the housing bust has impacted retirement plans. Lets take a look -

Many Americans have recently found themselves changing retirement plans after losing a substantial amount of home equity as the housing market and the overall U.S. economy struggle. These folks face years of living on fixed incomes from pensions, 401(k)s or IRAs, and Social Security, but don't have the time to recover their losses.

...

The good news is about 30 percent of homeowners have no mortgage at all. So even though their properties are probably worth less now than a few years ago, these people can tap into that equity cushion if necessary.

The bad news, however, is that about one in six with a mortgage now owe the bank more than their homes are worth, according to Moody's economy.com. Most of these are property owners who purchased their homes within the past few years, or refinanced their properties and siphoned off too much equity.

...
Choices have been difficult for Ken King, 61, who once planned to retire in his early to mid-60s. The value of his home has dropped $70,000, so he's scrapped plans to sell the five-bedroom house and downsize, because the savings won't be substantial enough to make it a smart move. He's also seen his 401(k) lose value.

...

Finding a smaller and less expensive home has long been relied upon to bolster retirement budgets. Ideally, profits from the sale of a larger home can be used to buy the smaller home with cash, with no mortgage, and the homeowner can pocket the rest. But the current environment of falling home values and tight credit has made home buying a selling a more difficult proposition in many markets.

...

However, experts such as AARP financial "ambassador" Jonathan Pond say reverse mortgages should be something of a last resort, because of high fees and the complicated nature of the loans. Reverse mortgages also mean the home will probably be sold at the end of the loan, mainly because the homeowner, or an heir, will want cash to pay off the mortgage. Seniors who want to leave their homestead to their children may not want to get a reverse mortgage.

Education is key, because of fears that reverse mortgage complexities could be used to trick seniors. To wit, the American Association of Residential Mortgage Regulators and the Conference of State Bank Supervisors established guidelines to be used starting early 2009 to review lenders and brokers selling reverse mortgages to seniors.

The plan - use the house to fund retirement. The reality - nothing left in the house so must keep working. Oh yeah, what about our 401K - nope, nothing left their either. Work, cutback or both.

Now, onto something else we are working on - the new rule of the 30% of homeowners own their homes without a mortgage. This comes from the US Census 2007 American House Survey. We will be posting our analysis of this growing myth shortly.

Even more on reverse mortgages

When we post about reverse mortgages one thing we often hear is how safe they are. While some of them are insured by the Federal Housing Administration (FHA) - these would be the Home Equity Conversion Mortgage (HECM). There are many that are not. All things not being created equal - and private reverse mortgages may not be.

In an article titled How to Fund Retirement Living from the Wall Street Journal, the different reverse mortgages are discussed. Side note - this is a good article for those of us getting up there in age or who have loved ones that are. Now lets take a look -

The amount you can borrow will depend on your age, how much your home is worth and current interest rates. For a HECM the limit is $417,000, but proprietary products may allow you to borrow more.

Payments can be taken as a lump sum, in regular installments or as needed, or through a combination of these options. The accrued principal and interest comes due when the last borrower dies, sells the home or moves out permanently.

A big drawback of a reverse mortgage is the high fees, which closely mirror the closing costs on a regular mortgage.

For this reason, says Sue Hunt, a housing counseling programs manager for Consumer Credit Counseling Service of Greater Atlanta, reverse mortgages tend to make the most sense for people who want to spend the rest of their lives in their homes and whose total income, including the loan, will be sufficient to cover all their future expenses, she says.

With any type of loan, it's important to ensure you understand the fees, interest rates and repayment terms.

For instance, an important safety feature of an HECM is that your payments from the lender are guaranteed by the federal government. Plus, if your home is sold for an amount lower than the value of the loan, neither you nor your heirs will be liable for the balance, which isn't always the case with proprietary products.

While these may be good for certain segment of the population it will probably not be the best choice for many.

We often wonder what the status will be for people with reverse mortgages another 30-40 years down the road. Since they can be acquired at 62 there will be people who have no equity left in the property after they have significantly aged. Will there be a push for them to vacate the property? Probably in private reverse mortgages. But what will happen to the HECM in another 30 years?

We also notice a big push for reverse mortgages of late - perhaps it is seen as the only growth area seen in the mortgage industry.

Looking at Reverse Mortgages

One of our favorite topics outside of HELOCs is fast becoming Reverse Mortgages. A still vital sector of the mortgage industry that sometimes seems almost to good to be true. Just like those Option ARMs were a few years ago. Of course the government is telling people these are safe vehicles to use your equity - but if we recall they also told us that we were not in a recession and the lending industry was strong. We all are seeing how that turned out.

So today we see two new warning on Reverse Mortgages in the papers. The first article we will look at is from the Orlando Sentinel titled Beware of bogus debt relief. Lets take a look -

Also on the state's watch list is the reverse-mortgage business -- a fast-growing part of the troubled mortgage industry.

Available only to homeowners at least 62 years old, reverse mortgages have been embraced by many seniors as well as the Federal Housing Administration. They enable seniors to borrow from their home equity and receive a steady monthly income until they leave the home or pass away. Then the homeowner's heirs sell the home to repay the loan balance.

Though it has generated few complaints to date, regulators are concerned about abuse in the sale of the complicated financial products. Two companies already have been investigated for using potentially misleading marketing promotions that made it sound as if they were acting as agents of the government.

Overall, seniors need to know what they're getting into before they buy a reverse mortgage, regulators said. They need to shop around and make sure they understand the exact terms, benefits and costs, said Meg Burns, director of single-family mortgage products for the Department of Housing and Urban Development.

"The reverse-mortgage business is a safe, very well-regulated business, and it offers seniors some incredibly flexible cash-flow options," she said. "But what we're concerned about is when someone selling a reverse mortgage starts trying to take control and tell seniors what to do with their money."

Still, some seniors aren't happy about their reverse-mortgage deals. Lois Radley, 67, an Orlando resident who took out a reverse mortgage in early 2008, said that she had to pay $12,000 upfront, including fees, taxes and closing costs. And her monthly payout is half of what she expected.

"I was never told they'd be taking that much out of my monthly income," Radley said. "Now I'm stuck with it, and I still don't have enough money to pay my bills. . . . I just want other seniors to know that this is what could happen if they aren't careful."

That seems to be the number one complaint - exorbitant closing fees. The mortgage lenders put it a strong push, and as with the industry as a whole they get the big payout up front. Although many people think of leaving their homes to their heirs - reverse mortgages also makes this an unrealistic dream. Unfortunately Lois Radley story will be echoed by others across the nation in the next few years.

Our next warning comes from SB Wire and is titled The Truth About Reverse Mortgage Refinancing Revealed By Florida Reverse Mortgage Expert. While some parts are flat out falsehoods, the article does have a few bits of useful information. 9Warning - lots of snark below. Lets take a look -

Robbins offers these tips when considering a Reverse Mortgage:

* You should get a significantly lower rate for a Reverse Mortgage to make sense. Don't rush to refinance unless it's truly worth your while. If you're working with a mortgage broker rather than going it alone, you can be assured that they're bringing you the best offers out there. If you're going it alone, you'll have to do the legwork for yourself.

Of course mortgage brokers always look out for the best interest of the client. They never have and never would steer people into loans that give them the biggest commission. And Florida only has honest mortgage brokers (see here, here and here) so seniors have nothing to worry about.

* Consolidating unsecured debt with a refinance loan can be a dangerous idea. You may not be in financial trouble now, but if in a few years things change, instead of simply missing a credit card payment or two, you'll now be in danger of losing your home as well. With a Reverse Mortgage you can totally eliminate your debt for ever!

With a Reverse Mortgage you can totally eliminate your debt for ever! That is some promise. Buy and house and you will be rich beyond your wildest promises The author seems to make contradictory statements. First do not consolidate your unsecured debt but if you do you will be debt free forever!!!

* Your credit score does not count in a Reverse Mortgage, nor does your income. If you've had credit problems in the past like a bankruptcy, it might make sense to not wait to make application and secure your home for life. Most lenders make it hard for people with less than perfect credit to get the best deals. But, again, if you choose to let an expert like a Reverse mortgage broker get involved in the process, they can help you find the best Reverse Mortgage, that most seniors homeowners over the age of 62 didn’t even know existed - which can save you thousands over the long haul.

See you can pay off your debt with your mortgage. Even though directly above it is recommended not to use your property to pay off unsecured debt - if you follow that advice the mortgage broker will not get his commission. So forget that bad credit and get your reverse mortgage today! Be debt free forever by getting a reverse mortgage today. (/snark)

Seriously, Reverse Mortgages are still very new and will probably bring as many new problems to people. While they may be a short term solution we will have to wait and see how they hold up over the long term. We are also concerned about the long-term viability of people who use up all their equity and need to reside somewhere else as they age. The equity that may have provided them the funds to go into a nicer facility or living arrangement will no longer be there. The other options we have seen are much less desirable. All for a payout, like Lois Radley's that still does not cover present expenses...

The State of Our Seniors

The great economic downturn has wrecked havoc on our house values, 401Ks, and IRAs. Now senior savings have deteriorated along with everyone else. The big problem is that this group is depending on this money for living now - not 10 to 20 years in the future after the has passed. In an article from CNN Money titled Seniors Face Grim Choices Amid Market Shock shows just difficult the golden years are since the bubble burst. Lets take a look -

In a poll of 800 homeowners over the age of 65, 31% said that they are staying on the job longer due to their shrinking retirement funds, while another 22% plan to return to the workforce.

...
Seniors are also liquefying hard assets - usually their homes - to fund their retirements. About 80% of seniors own their own homes and 80% of those homeowners have paid off their mortgages in full, according to [Eric Bachman, founder and CEO of Golden Gateway].

About 12% of those surveyed said they are actively borrowing against the value of their homes to make up for market losses. Some are taking out home equity loans, but this kind of borrowing in retirement can be perilous. Seniors can find themselves unable to pay back these loans and wind up losing their homes.

Others are getting reverse mortgages, which let seniors take money out of their homes that doesn't have to be repaid until they die or the house is sold. Golden Gateway, which is a reverse mortgage broker, says that the number of reverse mortgages in October jumped 21% compared to last year.

Another 13% of survey respondents said they're currently trying to sell their homes because they need the money, while 19% are worried about losing their homes altogether.

We, at NJ HELOC Heaven, are not big fans of reverse mortgages (see here, here and here). Overall we see the biggest benefits of the program going to brokers and lenders. And since the rest of the mortgage market has been flailing the push for reverse mortgages seems even more aggressive. While we do not want seniors, or anyone else, to suffer in the current downturn, we do not want to watch a third party drain the equity that someone has built up. Our recommendation is to proceed with much caution regarding reverse mortgages.

Another thing to remember is that not all reverse mortgages are Home Equity Conversion Mortgages (HECMs) - which are federally insured.

Our advice - be careful, go in with both eyes open, and check out your mortgage broker before signing anything. As we noted in one of our previous reverse mortgage posts -

"We may see in the future we may have another minor catastrophe going on, not subprime mortgages, but reverse mortgages."

This is something we do not want to see.

Problems with Reverse Mortgages are starting

Today we come across our first Reverse Mortgage horror story. We expect this to grow quite common in the next few years. Since it seems to be one area that lenders are still pushing very heavily. One of our first rules of thumb - if sellers are pushing it heavily it is usually in their best interest not yours.


It is not really that surprising that the story comes from Las Vegas - one of the hardest hit areas. This article comes to us from the Review Journal and it titled Reverse mortgage leaves borrower stunned and stuck.

His wife is deceased, he just underwent back surgery and now William Lancaster is told he owes $170,000 on a reverse mortgage for a home that's worth $130,000 tops.

...
Lancaster is stuck in Las Vegas with a financial disaster created when he took out a home equity conversion mortgage, also known as a reverse mortgage, on his east Las Vegas home in 2005.

...
The Realtor found "ridiculous" closing costs in documents from Financial Freedom, including $2,600 for mortgage insurance and $4,800 set aside for a service fee.

San Francisco-based Financial Freedom Senior Funding Corp. paid off his $54,000 mortgage and gave him a $60,000 line of credit, which now has a balance of less than $1,000. The latest monthly statement from the lender shows a payoff of more than $170,000.

...

"So approximately $50,000 to $60,000 in interest in two years? That's insane," Berard said. "If mortgage companies are going to do these, why can't they set aside money for an attorney and let the attorney go over this (contract)?"

These numbers sound very suspicious. The money loaned out totaled $114,000 plus assorted fees and interest and just two years later the loan amount is $56,000 more.

A few other areas of concern regarding reverse mortgages. These loans are going to people in later stages of life. Some may only be familiar with nothing more complicated than the 30 year fixed. There also seems to be little in regards to make sure the borrower has the faculties to understand these loans and all the complexities involved. People in the prime of their lives and working in related industries seem to have problems understanding all of the complexities involving mortgages.

"They trust you," he said. "Even in my business, people just sign, even people in their 40s and 30s. When they're 65, they're not going to read it. 'You can live in your house debt-free,' and then you get this (Lancaster's case). I'm a little negative on reverse mortgages.

"We may see in the future we may have another minor catastrophe going on, not subprime mortgages, but reverse mortgages."

We have to strongly agree with that last sentiment. There could easily be a crisis coming down the road. With house pricing still falling the number of people owing more than their property is worth is also growing.

How many of these reverse mortgages will also be underwater? How many of those underwater will need to leave their property for health related reasons? What will they do when they find they are like William Lancaster and owe more than they could ever expect to pay back?

This could easily turn into a very messy and heart-wrenching problem.

Reverse Mortgage Warnings

With spokesmen like James Garner, Robert Wagner and Pat Summerall it is no surprise that the Reverse Mortgage side of the industry is booming. It seems to be one of the few areas of mortgage growth during the last few years. However, other than the wonderful benefits of the Reverse Mortgage that our spokesmen tout there are some hidden issues.


The Wall Street Journal does a good job of discussing some of the issues in this article titled Three Warnings for Hard Times. The article discusses three areas of borrowing funds that should be approach with caution - 401Ks and retirement funds, life insurance and settlements, and reverse mortgages. Let's take a look at the reverse mortgage issues -

If you are over age 62 and have equity in your house, a reverse mortgage might sound intriguing. With a reverse mortgage, you get to convert the equity in your house to cash. You don't have to make interest or principal payments during the life of the loan.

The catch is that the loan costs can be steep. Also, interest is added to the principal, making them "rising debt" loans.

"The bottom line is that reverse mortgages are an expensive option that may prematurely deplete your home equity," Finra said.

A reverse mortgage may be right for you. But you need to evaluate a number of factors, including your health, your spouse's health and other sources of income. What are some alternatives? According to Finra, you could sell your house and then downsize or rent, or take out a home-equity loan. Any of those tactics could unlock the equity in your home without the cost of a reverse mortgage.

One perverse aspect to a reverse mortgage is that one is gambling that ones life ends before ones money does. There is also a large gamble that one needs the equity today more than tomorrow. This mindset caused many problems with HELOCs and Cash-out Refis during the Great Housing Bubble. Hopefully reserve mortgages will not follow suit. Although it is too early to tell all of the problems for both the lenders and the borrowers may face down the road.

More Reverse Mortgage Info

The Reverse Mortgages are still getting pushed hard. Ads can be heard on the radio almost everyday. Trusted spokespeople disclosing the benefits. But this article from Bloomberg warns Reverse Mortgages Promise Seniors Cash, Advisers Urge Caution. Here are some interesting parts -

Reverse mortgages are for people aged at least 62. The loans, which lenders charge fees equal to as much as 6 percent of a home's value, allow borrowers to use their home equity to get cash tax free. After the borrowers die, or move, the lenders are repaid when the house is sold.

Pending legislation may spur more senior homeowners to consider reverse mortgages. Those who have enough equity in their homes can qualify for loans up to $362,790 backed by the Federal Housing Administration. A housing bill in Congress includes a proposal to raise the payout to as much as $550,000 and eliminate the current limit of 275,000 reverse mortgages that the Department of Housing and Urban Development can insure.

...
``Homeowners who have enough cash flow should stay away because there are better alternatives for tapping the asset of their homes, like a home equity line of credit,'' said Tom Orecchio, chairman of the National Association of Personal Financial Advisors in Arlington Heights, Illinois.

...
Homeowners considering a reverse mortgage should take into account their age and how long they plan on being in their houses, Orecchio said. The loans are better suited for homeowners over the age of 75, who plan on being in their homes for a minimum of five years, he said. Borrowers under the age of 75 may outlive the equity in their homes and the fees and costs associated with the loan make an early move prohibitive.

Related financial products offered to borrowers may also tie up their cash. A survey by the American Association of Retired Persons' Public Policy Institute said that 9 percent of borrowers were offered investment products such as annuities and long-term care insurance when they got their loans. Peskin said it is a conflict of interest to sell reverse mortgages along with annuities or long-term care insurance, and won't deal with brokers who do.

Probably a few years down the road we will hear more and more pitfalls about reverse mortgages. People who lose their homes because they live too long. Families that owe money due to reduced home values. There will be stories. We will see grandmas crying on the evening news. Reverse mortgages will probably be like ARMs great tools for people who really understood all of the various consequences - but nightmares for the average person. They are complex legal and financial arrangements and should not be entered into lightly.