Sunday, March 16, 2008
Like in a scene from Night of the Living Dead, mortgage professionals are about to descend on Las Vegas in an attempt to revive their careers. Senior citizens beware!
If the folks in Washington want to really make good on their promises to reform mortgage lending, they ought to start with reverse mortgages because that's where the action is right now.
While lenders are shutting down their conventional mortgage lending operations, they're adding staff to the reverse mortgage division.
According to this report in the Wall Street Journal last week, retirees should collectively grab their wallets and hang on tight.
Older Homeowners Cautioned On Use of Reverse MortgagesSeven percent of the home's value!
The Financial Industry Regulatory Authority urged homeowners over the age of 60 to carefully weigh their options before tapping into their home equity through reverse mortgages to obtain additional income for their retirement years.
The group, formed by a merger of the NASD and some regulatory functions of New York Stock Exchange parent NYSE Group Inc., warned that a reverse mortgage -- an interest-bearing loan secured by the equity in a home -- can jeopardize their financial futures.
With a reverse mortgage, a bank makes payments to a homeowner instead of the homeowner making payments to a bank. The loan is repaid, with interest, when the borrower sells the house, moves out or dies. Reverse mortgages have high fees -- typically about 7% of the home's value -- and they make it difficult for homeowners to leave the property to their heirs.
The warning notes that, in some cases, those who sell the mortgages may profit from the their sale, giving them twice the incentive to talk someone into a loan they may not need.
Do you know how big a number you get when you multiply that by the total number of senior citizens who are now strapped for cash?
This week's cartoon from The Economist: