ARE REVERSED MORTGAGES THE SOLUTION?
Posted on: January, 01/01/2008

Some groups that help home owners who are facing foreclosure are increasingly encountering older borrowers who find themselves in danger of losing their properties. One solution for this group, according to AARP, may be a reverse mortgage, where the bank accepts ownership or partial ownership of the house, but the borrower gets to stay until he or she moves out permanently or dies.

"For a small but crucial number of potential borrowers who are in financial distress, reverse mortgages can be essential in avoiding foreclosures — sometimes on subprime or home-equity loans with very high interest rates," an AARP report says.

Elizabeth Renuart, a staff attorney at the National Consumer Law Center in Boston, reviews hundreds of mortgage documents annually, and says that the adjustable-rate mortgages she has examined this year that she considered "to be made inappropriately were almost entirely made to people over 60. To me, that's a very shocking revelation."

Reverse mortgages have alarmed some consumer advocate groups, however. At a recent hearing before the Senate Special Committee on Aging, legislators and consumer advocates warned that, without better loan counseling and tougher government oversight, a flood of older home owners could be pressured into taking out inappropriate loans — just as millions of mortgage borrowers were persuaded to accept subprime loans that are now going into default at a rapid clip.

"Our goal is to make sure that the reverse mortgages don't become the scandal of the next decade," said Sen. Claire McCaskill (D-Mo.) at the hearing.

Source: The Wall Street Journal, Kelly Greene (12/26/07) and Buffalo News, Tony Pugh (12/17/07)