Seniors were sold a risk-free retirement with reverse mortgages. Now they face foreclosure.
Tom is just an actor with a trustworthy image, and an irrelevant tool for purposes of discussion.
I've been opposed to the marketing of reverse mortgages since their inception. The idea of tapping hidden equity developed over long periods of time with no safety mechanisms for people (often people of less sophisticated financial understanding) during their years as their intellectual power fade further always seemed to me as a disaster waiting to happen. Outside of marketing ploys, there is no such animal as a risk free mortgage. Every bank institution mortgage demands payment of homeowner's insurance with the lending institution listed as a mortgagee to protect their interests, and a method for protecting the mortgagee from tax liens (usually in the form of a tax escrow account to managed by the mortgagee, money garnered through the periodic payments known as mortgage payments). Since reverse mortgage tap equity rather than build equity, there are no such mechanisms in place to protect the lender, and subsequently the borrower (the mortgagor).
Often over the years as friends and family mentioned the possibility of assuming a reverse mortgage as they paid off their primary mortgages on their homes. Lured by the ability to cash out and not deal with payments, to enhance their living income is appealing. I have always advised them they first had to consider and calculate their liquidity needs to cover the insurance and tax payments that had been relatively invisible to them as they amortized their mortgages and the money for those expenses were collected during the maturation of those mortgages. For many it was often as shock, especially as real property values rose as did insurance premiums and real estate taxes. Shock was often the reaction. And most of those who were lured into accepting reverse mortgages did not receive similar advice. Mortgage bankers and brokers who marketed these reverse mortgages were far more interested in the commissions they received than the welfare of the mortgage lenders or borrowers.
Relatively very few retiring Americans have the cash reserves to manage the costs of homeowners insurance premiums and RE taxes, as well as maintenance when failing health demands increased outside hiring, as well as their daily living and health expenses. Americans do not plan well for their latter years. Often, tho at the decision making times, the emotional loss of giving up a home where they raised their families and lived significant portions of their lives, as well as improved their own visions of the self status and worth as successful adults, causes some pain, yet the best solutions have been to sell the empty nest, relocate to smaller easier manageable houses or condominiums, even rentals, utilizing the skills of professionals to minimize the gains taxes shocks they will also face, for happier finances during retirement years.
For reasons I will not pretend to understand why, minority communities were the last to seek out professional advice from disinterested third parties, those with no stake in the process. I've seen the results repeatedly, and not only for the issue of reverse mortgages. And unfortunately, social service personal which service those same communities do not have the financial training to offer quality advice. This is where relatively inexpensive consultations with lawyers, CPA's, qualified estate planners can make a high quality difference. Depending on the words of self serving mortgage bankers and brokers is not a solution.
Without legislatively created protective controls, reverse mortgages should be redacted from portfolio offers. And that alone is not a solution. Professionals need to step up with their consultive services for all who are approaching their latter years for assisting with better planning and avoiding the pitfalls of poor financial understanding. It isn't that people are stupid, they are uninformed having been too busy living their lives raising their families to think about themselves. And even so, finding the right professional to meet their needs is also not a simple task. Doing a small bit of research to check credentials and levels of satisfaction by other clients of the professional is also important.