The CBS Early show ran a feature on Reverse Mortgages this week during their Money Watch segment. While it was mostly positive and spoke about the recent reduction in closing costs, there were some this about the piece that bothered me.The first thing they mention is a Consumer Reports "investigation" about how the number of reverse mortgages that have "failed" has quadrupled in four years.
2004 = $81 million
2008 = $381 million
It's enough to scare off seniors and have them ignore the rest of the story. But what does this really mean and how does it effect seniors who are interested in this product.
When you take out a reverse mortgage, the biggest upfront fee is the FHA mortgage insurance. This equals 2% of the value of your home. This is used to protect you and your heirs so that when the time comes when the loan is due, either because you pass away or move out of the home, you are not liable to the bank if the home is valued at less that the balance of the loan. This is whats called a non-recourse loan. So when they say that in 2008 $381 million of reverse mortgages failed, what they mean is that loans worth $381 million came due and the home were worth less than this amount. So the seniors and their families were protected. This should not scare you for any reason.
The second issue is that even though they talk about how closing costs have been reduced, they continue to raise the issue of the high costs of the reverse mortgage. With all costs associated with any loan, you have to weigh the cost against any benefit. With a reverse mortgage the cost are justified for many people. Now with those costs reduced, the product has become very attractive. Regardless of this, they still bring up the high costs.
Here is the spot.
No comments:
Post a Comment