Baby Boomers Beware

Be Careful Out There!

"Rocco, Moose -- help grandma find her wallet."

For those of us who still have home equity and are over 62 years of age, yet another peril lurks.Reverse mrotgages are hawked on TV by some well known actors. One of those actors, is remembered for the over the top sit-com episode now known as "Jump the Shark". Need I say more?

I was surprised to learn that it is even possible to default on a reverse mortgage. Since I thought a reverse mortgage is your home equity coming back to you in an orderly fashion, I had to read the article to learn more.

According to a May 5, 2013 Wall Street Journal article, titled: "Reverse-Mortgage Defaults Increasing",written by Anne Tergesen

"Defaults occur when a borrower fails to pay property charges, including property taxes and homeowners insurance. Of the almost 600,000 reverse mortgages outstanding, 9.8% are currently delinquent, up from 8% in 2011, the first year for which statistics are available, according to the federal Department of Housing and Urban Development, whose Federal Housing Administration insures virtually all reverse mortgages."

I am still researching reverse mortgages to find out if something about them has changed over the years. As I remember from real estate classes, one of the big pitfalls of a reverse mortgage is that you could live too long. A good problem, some would say. But not so good if you outlive your reversed mortgage and thereby render yourself homeless. Mortgage defaults can occur when the homeowner fails to pay real estate taxes or insurance. Likewise the reverse mortgages are usually written to last the duration of the youngest borrower's life. What if the youngest borrower predeceases the elder? And reverse mortgages generally remain in effect so long as a borrower stays in the home. What if a borrower requires nursing home care?

According to the government: Frequently Asked Questions about HUD's Reverse Mortgages

"The Home Equity Conversion Mortgage (HECM) is FHA's reverse mortgage program, which enables you to withdraw some of the equity in your home.  The HECM is a safe plan that can give older Americans greater financial security. Many seniors use it to supplement Social Security, meet unexpected medical expenses, make home improvements and more."

Unfortunately the HUD site does little to explain to seniors the dangers of reverse mortgages. According to a 2012 article in Forbes, "The Hidden Truths About Reverse Mortgages", by Carol Rosenblatt,

• The Elder Might Need A Care Home in the Future
• It Can Affect Any Dependent in the Home
• It Can Go Into Default
• When the Elder Dies, the Heirs Must Pay Off the Loan
• The Amount the Lender Will Loan is Limited

There is more to the story than the rosy pictures shown on TV. We know by now that we have to careful when dealing with anything in the marketplace, particularly anything real estate related - think robo signing et al. And, as people age their analytical skills fade or fail. Letting the buyer beware is not the right thing to do for grandma and grandpa trying to comfortably live out their years.