According to National Consumer Law Center (NCLC), reverse mortgage would be the next sub-prime disaster. It has been noticed that the brokers are making mis-leading claims to the senior citizens in order to give them reverse mortgages. Also, the lenders who were responsible for the real estate boom and the resulting crisis from it are now targeting seniors for reverse home loan scams.
How do lenders scam seniors looking for reverse mortgage?
Some of the reverse mortgage lenders market their products as retirement income. Though the cross-selling has been banned by the Congress in 2008, yet the lenders have been selling annuities along with reverse home loans. Some of the brokers are even seeking higher fees which have led to long-term annuities. In my opinion, this is inappropriate for the seniors as it would tie up their retirement savings for years to come.
It is true that reverse mortgage plays an important role in order to help seniors get mortgage. But it’s important that there should be transparency so that consumers are protected. The government should not only enforce the rules regarding transparency but also ensure that the rules are being followed by the lenders.
How can this subprime fiasco be avoided?
In recent times, the popularity of reverse mortgage has grown by a large extent. As a result, a number of loan professionals are trying to persuade the senior citizens to go for reverse home loans. NCLC has thus suggested about increasing borrower counseling and deciding upon a standard for lenders and brokers.
As per a new rule in the industry, principal limit for Home Equity Conversion Mortgage has been lowered by 10% since October 1st, 2009.This rule has been introduced to tackle the estimated deficit of $798 million from depressed home prices. The new rule will probably help lenders to recover their dues easily and reduce the chances of another subprime disaster.
It is expected that this year, the number of reverse home loan applications would be at an all-time high. If we do not take consumer protection and transparency seriously, there are chances that we would face another sub-prime fiasco soon.