SeniorTruth

The reverse mortgage industry is hot. And it’s having great success getting members of the media to help it advertise. I’m afraid that some media mavens aren’t looking carefully enough.

Take for example the July 15, 2007 piece in the Los Angeles Times real estate section written by Lew Sichelman. Right now you can find the full article online.

In the midst of telling us how wonderful reverse mortgages can be, he warns that “Although all this [reverse mortgage] activity holds the promise of lowering costs and increasing consumer choices, it also raises the question of rip-offs.” That’s a valuable warning.

But then he adds (egads!): “Fortunately, reverse mortgages are loaded with consumer protections.”

My problem with Mr. Sichelman’s comment? He fails to consider or note:

• Reverse mortgages are not for everyone. They can be an extremely costly way to obtain funds, especially for a homeowner who is unable to stay in his or her home at least five years.
• Homeowners need to shop and compare the terms of different mortgages — some are much more costly than others, in particular in the ongoing costs.
• Writing reverse mortgages can provide significant compensation to the salesperson. The worse the financial deal for the homeowner, the more money the salesperson can make. I expect the great majority of reverse mortgage salespeople are fair and reputable, but unfortunately each industry has its “pigs.” We repeatedly see totally unsuitable annuities being sold to seniors, with the sales motivated by big commissions for the salespeople. See our annuitytruth site for more on unsuitable sales of annuities to seniors. Reverse mortgages appear to be subject to the same commissions-as-temptation problem. We’re actually receiving reports now of seniors being sold reverse mortgages so that they can use the proceeds to buy deferred annuities — yikes — the “double pig” strikes.
• He relies heavily on the independent counseling requirement. But, from what we’ve seen, the one-time independent counseling can be hard-pressed to look at the client’s full financial and personal picture or compare the precise terms of different reverse mortgages, and has the risk of giving a false sense of security.

Here’s hoping that the media will balance the extolling of reverse mortgages with more consumer protection information.

For our 2007 H.E.L.P. Is Here article on reverse mortgages.