Tapping Into Homes Can Be Pitfall for the Elderly

[ribozyme]

nytimes.com/2008/03/02/business/02reverse.html?em&ex=1204693200&en=14ab518f6d106cb1&ei=5087%0A

As the United States has become an older nation, reverse mortgages have grown into a $20-billion-a-year industry, with elderly homeowners taking out more than 132,000 such loans in 2007, an increase of more than 270 percent from two years earlier. In surveys, many borrowers say reverse mortgages have improved their lives and provided money they needed for retirement.

But hundreds of people who have sought reverse mortgages — in lawsuits, surveys and conversations with elder-care advocates — have complained about high-pressure or unethical sales tactics they say steered them toward loans with very high fees. Some say they were tricked into putting proceeds of their loans into unprofitable investments, while sales agents pocketed rich commissions.

“Every scam artist is getting into this business,” said Prescott Cole, an elder-care advocate who has worked with numerous reverse mortgage borrowers. “Because reverse mortgages are so complicated and give you money up front, years can pass before a senior realizes they’ve lost everything.”

I really do not know why I am impelled to post this. Of course, I will admit that there is no particular dearth of such stories describing situations of people tries to exploit the vulnerable in society. To me, this is common motif in human nature, but I feel that it is necessary to reinforce knowledge of this rather inconvenient truth.

I taught myself a few years ago that I should try to extricate myself from any particular constrictive ideology as a basis for my worldviews. In my candor, I freely admit that I sometimes fail to do this. The one particular ideology I feel I should assail is the belief that market forces can adjudicate the will of the common good and that charity will allegedly solve all injustices so the government should regulate most aspects of business. It seems that the GOP’s emphasis on charity is simply one means of pandering to their religious base and it makes the abolition of government programs more palatable. My main criticism on relying on charity is based on that fact that people are generally too selfish to engage in munificent acts of giving and that most people aren’t Dorothy Days.

Also, the notion that people are rational economic actors (homo economicus) can also be questioned on this basis of this article. Such beliefs are often the basis for many of the GOP’s agendas such as the privatization of social security.

I argue that it’s appropriate for people to pursue their profit motive in business. If you want to change that, you’re going against human nature. But when it comes to setting the rules or creating the institutions, then you should have the general interest at heart, even if it conflicts with your personal interest.

• George Soros

 

[geezerbob]

My personal opinion is that the whole reverse mortgage business is a scam and should be regulated out of existence. Being elderly, however, does not necessarily make a person vulnerable, stupid, or out of touch with today’s world. The people who fall for this fairly new scam are probably separated only by age from the ones who use payday and car title loan sharks. Being older does not necessarily make one wiser, either.

For totally unexpected emergencies, I obtained a home equity line from my credit union. It’s there and available if I need it and have no other liquid assets available at the time. I try to live within my means and have yet to use that credit line. Hopefully, I never will. The option of saying “no” is always available to everybody and this old geezer says it frequently. Maybe some of these “victims” should, too.

 

[SchaferLTC]

Reverse mortgages or RAM’s are highly regulated nowadays and very safe. They protect the borrowers’ use of the home indefinitely while providing a steady stream of supplemental income that can be used to purchase long-term care services, or to pay long-term care insurance premiums for those who are still insurable medically.

Of the 27.5 million households currently aged 62 or older, 13.2 million would be good candidates for a reverse mortgage to pay for long-term care, says Barbara Stucki, a consultant in Bend, Ore., who is heading a study on reverse mortgages for the National Council on the Aging in Washington, D.C. The average amount per household they would be eligible for after costs with a reverse mortgage is about $72,000.

Raise your hands: How many want your taxes used to pay for the care of a woman with $90,000, $600,000 or $3 million in the bank — so her kids can have it? Long-term care is the “rainy day” we save for. With our greatly lengthening life spans, we have to anticipate this expense and plan for it — which is why I write about long-term care insurance and reverse mortgages.

As long as Medicaid remains “inheritance insurance” for the baby boom generation, guaranteeing they’ll inherit their parents’ biggest asset, you can expect the Reverse Mortgage and LTC insurance markets to under perform, and Medicaid–sooner rather than later–to collapse.

The agonizingly frustrating irony is that the whole problem of long-term care financing is so easy to fix. Simply extend the transfer of assets lookback period to capture a more reasonable planning horizon and require that home equity be consumed for long-term care by means of a reverse mortgage before Medicaid eligibility is granted. That strategy encourages people to use their home’s value to remain at home and delay or prevent Medicaid dependency. It also gives them a strong incentive to use home equity to obtain private LTC insurance. Home ownership is a matter of public record so tracking it and requiring its use for long-term care before public welfare kicks in is easy.

 

[roanoker]

I love the quote from George Soros. He’s everyone’s hero. Upstanding, moral patriot…Roanoker

 

[rlg94086]

My personal opinion is that the whole reverse mortgage business is a scam and should be regulated out of existence. Being elderly, however, does not necessarily make a person vulnerable, stupid, or out of touch with today’s world. The people who fall for this fairly new scam are probably separated only by age from the ones who use payday and car title loan sharks. Being older does not necessarily make one wiser, either.

For totally unexpected emergencies, I obtained a home equity line from my credit union. It’s there and available if I need it and have no other liquid assets available at the time. I try to live within my means and have yet to use that credit line. Hopefully, I never will. The option of saying “no” is always available to everybody and this old geezer says it frequently. Maybe some of these “victims” should, too.

Explain to me how a reverse mortgage is a scam. I realize you can get a home equity loan, but that involves making payments on that loan that many people can’t afford to make. A reverse mortgage allows them to receive income from their equity without having to sell their home and move. A pretty good deal.

Now, when it comes to the people doing unethical things, that is something we have to clamp down on and adjudicate. It is not a Republican/Democrat issue as the OP incorrectly tries to assert. Unethical business people come from both sides of the aisle. It also has nothing to do with charity versus government programs.

 

[Dale_M]

AARP suggests that a Home Equity Conversion Mortgage, a federally insured program of the U.S. Depart of Housing and Urban Development should be the first choice. The costs are lowest and the return generally greatest. State and local governments also have reverse mortgage programs, but they are often restricted to certain uses such as home repair.

As for other sources of reverse mortgages, AARP more or less suggests that the buyer beware. They don’t rule them out, but indicate that a prospective client should look over the numbers extra carefully.

 

[rlg94086]

AARP suggests that a Home Equity Conversion Mortgage, a federally insured program of the U.S. Depart of Housing and Urban Development should be the first choice. The costs are lowest and the return generally greatest. State and local governments also have reverse mortgage programs, but they are often restricted to certain uses such as home repair.

As for other sources of reverse mortgages, AARP more or less suggests that the buyer beware. They don’t rule them out, but indicate that a prospective client should look over the numbers extra carefully.

Sure. That is the case for just about everything.

 

[Joe_Kelley]

Explain to me how a reverse mortgage is a scam. I realize you can get a home equity loan, but that involves making payments on that loan that many people can’t afford to make. A reverse mortgage allows them to receive income from their equity without having to sell their home and move. A pretty good deal.

Now, when it comes to the people doing unethical things, that is something we have to clamp down on and adjudicate. It is not a Republican/Democrat issue as the OP incorrectly tries to assert. Unethical business people come from both sides of the aisle. It also has nothing to do with charity versus government programs.

In the latest warning I received * it was noted that many purveyors of such mortgages are charging excessively high fees for processing them. Further, many of them are in the business of pushing risky investments which they urge the mortgagees to use as a repository for the funds they receive.*

 

[rlg94086]

In the latest warning I received * it was noted that many purveyors of such mortgages are charging excessively high fees for processing them. Further, many of them are in the business of pushing risky investments which they urge the mortgagees to use as a repository for the funds they receive.*

That, I agree, is possibly unethical (depending on how they are pushing)and the regulators should investigate such practices.

I may be mistaken, but in a reverse mortgage isn’t a monthly payout the primary option? It may be naive on my part, but in a regular fixed mortgage you make payments over a period of time (say…30 years) and your payments w/interest total up to a quite higher amount than your original principle. I thought the idea of a reverse mortgage would be that the bank now owns your home, but they pay out the value of your home (at time of reverse mortgage origination) with interest over a set time period. They would make their money on the differential in selling a loan in the equivalent amount to someone else, whom they then collect a standard mortgage payment over time, as well as the home’s appreciation. Is that incorrect?

Otherwise, I guess Plan B would be the better choice. Sell your home, put the proceeds into something stable (like an annuity that pays you monthly) and move to a condo, apartment or cheaper home in a different state.

[EDIT ADD] BTW…Plan B has the same pitfalls. If you don’t invest the proceeds of your home wisely and take a chance in higher risk investments, you could lose your retirement. [EDIT END]

 

[duskyjewel]

I read the entire story in question. The woman featured admitted that she was confused and feeling pressured by the sales person. Then she went and signed the documents anyway. If she can’t be bothered to use the brain God gave her, that’s no one else’s fault. There is no virtue in stupidity.

What i don’t understand about the story is, this woman is in financial crisis. Why doesn’t she sell the house, upon which the reverse mortgage will be repaid? According to the story, she took less than half the value of her house on the loan. The market is bad, but not that bad. She could probably sell it and come out ahead, and then buy a little condo or something. The only thing worse than making a stupid mistake is stupidly persisting in it, instead of doing something to repair it!