Helping Seniors Make Informed Financial Choices

Recently a prospective client told me about a negative news story on reverse mortgages that was aired on NBC Nightly News with Brian Williams.  I did some research myself and this is what I learned.

The senior featured in the news story was a 75 year old woman who lived in Los Angeles.  She was talked into taking a lump sum distribution from a reverse mortgage to purchase an annuity that did not mature until 2033.  It is unclear who the fast-talking culprit was who convinced her to invest this way, however, if it was a life insurance agent, their license should be lifted. 

This is not an appropriate investment for a 75 year old who, most likely, will not live to see the investment mature.  But please don’t blame the reverse mortgage.  It was the inappropriate use of the funds, not the reverse mortgage that was irresponsible. 

I saw the actual Nightly News piece with Tom Costello and was very concerned with the piece, particularly the interview with a woman identified as Robin Talbert with the AARP. 

I have to believe that only part of Ms. Talbert’s comments were represented in the piece on the program as her comments stated “We’re all living longer and you don’t want to outlive that equity in your home” to which the piece cut away immediately to Mr. Costello who added “Because the bank could then take the home”.  Ms. Talbert is absolutely correct, and the AARP champions all things for seniors, but they are extremely aware of how reverse mortgages operate and Mr. Costello’s remarks were edited in a way to mischaracterize reverse mortgages.

This is the type of misinformation and misreporting that we have been running into for several years now.  While I do not know all of the borrower’s circumstances in this particular situation and I always get extremely angry when I hear of any professional who does not keep the client’s best interests at heart, it is not the Reverse Mortgage that is the “rip off” here, it was the end use of the funds. 

 

“The moral of this story is do not believe something just because it was “in the news.”

The notion that the bank will take the borrower’s home when her equity is gone is just plain wrong and bad reporting.  The whole idea behind the reverse mortgage and one of the reasons borrowers pay mortgage insurance is that no matter what happens to the equity, the borrower will never make another house payment and the borrower, or the borrower’s heirs, will never owe more than the property is worth, regardless of what the equity position does.  The loan is set up so that you own your property, not the bank.  If the Nightly News or Mr. Costello had researched reverse mortgages more thoroughly, they would have learned that if the borrower had chosen what is known as the “tenure option” or payments for life, she would have received those payments for the rest of her life so long as she continued to occupy the property and the bank would never “then take the home” when the senior outlived the equity as the report leads the listener to believe.

I think it is very important for seniors to not only go through the required counseling, but also to enlist the assistance of their loved ones or trusted financial advisors whenever available.  In this piece, the borrower said she didn’t really even need the money, she was doing just fine without it.  Her daughter was with her during the television interview and maybe if she had been with her during the reverse mortgage process, she could have prevented her from getting the loan in the beginning. 

(continued on Page Two)