PSA: Warn your parents and friends about reverse mortgages

[nabil]

So, some of you might already know that I've been reading a lot of economics blogs for the last few years-- for about four years, with increasing intensity over the last year.

For about six months or so, economics bloggers who I consider to be extremely reliable-- some of the same folks who pointed out the problems with subprime loans before the housing crash-- have been warning about a new potential danger:  increased pressure on retirees and other homeowners to take on reverse mortgages.

Reverse mortgages have been around for some time; they are almost always a bad idea.  What's changed?  Well, what I'm reading is that some of the same people who made a lot of money off of commissions from subprime loans-- the same folks who pressured and outright lied to put people in subprime mortgages, even when they qualified for better loans, because the commission on subprime was higher-- have been looking around for new ways to make money.  And they've spotted reverse mortgages.  Like subprime several years ago, there is very little consumer protection or regulation around reverse mortgages.  There is a large population of aging folks facing financial trouble due to the current recession, with all or most of their assets tied up in their homes.  If you aren't too worried about ethics-- and the folks who lied to put people in subprime loans clearly aren't-- there is vast money to be made by swindling retirees out of their homes with reverse mortgages.

I just saw my first supporting evidence outside of the economics blogosphere that this might be a real risk.  I'm doing laundry, and the laundromat just showed an infomercial clearly aimed at retirees, sponsored by a real estate agency, offering to send you a free informational DVD with the facts about reverse mortgages and why they might be the right solution for you.  My blood is boiling; this ad would be very effective on confused retirees like my grandfather during the early stages of Alzheimer's; it was presenting an ad for a particular company as a neutral source of information. 

I'm reminded of the ways that real estate agents and others who financially benefited from the housing bubble and directly from subprime loans were regularly on TV as experts during the bubble.  When I was looking at possibly buying five years ago, it was difficult to find anyone on TV representing the perspective that you should make a 20% downpayment and only take out a mortgage that you could afford.  All the talking heads were repeating that "Housing always goes up; none of the old rules of thumbs on mortgages apply; taking out a huge loan on a small salary is just fine." 

I very much hope that we will _NOT_ see a wave of the same sort of salesmanship presented as objective truth on reverse mortgages.  Possibly the Obama White House will move to add consumer protections and regulation to ward off this risk; possibly enough people have learned risk aversion from the subprime fiasco that we will not have the same sort of massive foreclosures on retirees who have all of their savings tied up in their homes.  I'm not holding my breath.

I just phoned my mother; I assume that she will be targeted over the next few years for reverse mortgages.  (As a retiree, a widow, and a woman she is a prime target for con artists and scum bags.)  She also is a caregiver for a number of older women, also widows, who are even more likely to be targeted.  I strongly suggest that you talk to your parents, friends, and aging relatives and let them know that the same scumbags who did hard-sells on subprime mortgages-- sometimes outright lying, saying that the papers their clients were signing were different contracts then they actually were-- are now targeting retirees and homeowners for reverse mortgages.

And if you see more and more ads selling these reverse mortgages, and more and more talking heads on TV talking about how safe and fabulous they are-- just remember that a few years ago the talking heads were saying the same things about taking out mortgages with 5% or less downpayment, for loans that were entirely disproportionate to your salary.

xoxo

Nabil

Comments

[manomano.livejournal.com]

Thanks for the warning!