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Reverse mortgages lead to foreclosure for some seniors

For senior citizens in California who are facing financial struggles, a "reverse mortgage" may seem to be just the thing to help them out monetarily. A reverse mortgage is a federally insured loan in which homeowners can borrow money using the equity in their home. However, some senior citizens who took out a reverse mortgage are now finding themselves facing the possibility that their home will be foreclosed upon.

This is because, even if the homeowner can get a deferment on paying back the loan, they still must pay taxes and insurance, which could prove to be difficult if not impossible. In addition, the requirements of a reverse mortgage loan can be complex and difficult to meet.

According to a Department of Housing and Urban Development report that came out last autumn, almost 90,000 senior citizens with reverse mortgage loans were one year or more behind in paying the necessary insurance costs and taxes, meaning that in fiscal year 2017 their situation would likely end in "involuntary termination." In fact, over 18 percent of those who took out a reverse mortgage between 2009 and June 2016 will be defaulted on due to insurance costs and unpaid taxes.

A HUD spokesman reports that the agency still believes reverse mortgages are a viable option for senior citizens who would like to use their home equity to obtain a much-needed loan. Prior to 2015, if a homeowner was age 62 or above, all that needed to be in place in order for them to receive a reverse mortgage was home equity -- lenders did not have to decide whether the borrower had the financial means to pay insurance, taxes and home maintenance. However, now it is a federal requirement that all homeowners seeking a reverse mortgage to be assessed to determine if they will be able to afford these costs if the reverse mortgage is approved.

The Consumer Financial Protection Bureau has cautioned against reverse mortgages and false advertising. In December 2016, it issued fines to three mortgagors for advising homeowners who took out reverse mortgages that it would not be necessary to make payments each month to avoid foreclosure.

In the end, reverse mortgages may be too good to be true for many borrowers. Homeowners facing foreclosure after taking out a reverse mortgage may want to seek legal advice, to determine if there is any way to save their home.

Source: New England Center For Investigative Reporting, "Foreclosures on the rise for seniors with reverse mortgages," Jenifer McKim, Aug. 30, 2017

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