Reverse mortgages: Federal regulators call for consumer guidance

[Dec 27, 2009.]

 

The Federal Financial Institutions Examinations Council, a regulatory body made up from several financial regulatory agencies, is calling for mandatory consumer guidance concerning reverse mortgages. Elder homeowners may take out reverse mortgages to pay for health care and other major expenses. The regulators believe that consumers with reverse mortgages may be susceptible to fraud and misuse of their reverse mortgage loan proceeds. The Council recommends three areas of guidance for consumers:

• Consumer education: Provide adequate education and information about reverse mortgage loans including how they work and potential impact on home equity and estate planning. The U.S. Department of Housing and Urban Development (HUD) already requires borrowers of FHA insured reverse mortgage loans to attend HUD-approved counseling as a contingency of loan approval.


• Mandate independent borrower counseling: Entities providing counseling for reverse mortgage borrowers could not be affiliated with mortgage lenders.


• Prevent conflicts of interest: Some homeowners have been approached with investment proposals or solicited for purchasing financial or insurance products after being approved for a reverse mortgage. Regulators seek to prevent potential conflicts of interest arising from such solicitations.

Avoiding Problems with Reverse Mortgage Loans

Consumer knowledge of how reverse mortgage loans work and their features, benefits and potential risks is likely the best way elder homeowners can avoid being scammed in connection with reverse mortgages. Mortgage loans are a matter of public record, and scammers are notorious for their ability to search public records and pose as mortgage lenders or legitimate service providers. Some homeowners may mistake such solicitations for legitimate correspondence from mortgage lenders or their financial institutions. It's best not to respond to unsolicited offers of financial assistance, or claims for services requiring up-front fees or "investments."

Reverse Mortgages: Learning More

• Understand common terms associated with reverse mortgages: The AARP provides consumer information about reverse mortgage loans including a glossary of reverse mortgage terms. Familiarizing yourself with the lingo of reverse mortgage loans and lending can help prevent misinterpreting reverse mortgage loan information.


• Reverse mortgage loans' reduced home equity can impact your estate: Consulting with an estate planner, financial advisor or attorney can help you understand how a reverse mortgage can affect your estate and heirs.

Shop mortgage lenders and ask questions. Researching reverse mortgage options online and making a list of questions can help you get the information you need. Don't be pushed into selecting a reverse mortgage until all of your questions and concerns are addressed to your satisfaction.

 

About Author:

Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.