WE’RE HEARING about remorse mortgages. I mean reverse mortgages. The stories paint a picture of all that can go wrong with a reverse mortgage. Mortgage brokers are depicted as greedy and predatory. Good luck trying to sell an RM to anyone who just hears one side of the story.
Although financial abuse of the elderly is far too prevalent, the horror stories out there about RMs gone bad should not overshadow the fact that the RM product can be useful to some borrowers. Also only a handful of bad actors should not create a label for the entire mortgage broker/loan originator profession.
This week AARP has an article about RMs and some gut-wrenching stories about some consumers who were either victimized or did not understand the loan product they got into. I also came across a discussion among Michigan attorneys who assumed the worst about the product and the loan originators without realizing how the RM product works.
Let’s face it, the reverse mortgage is not for everyone. Let’s also face the fact that like every other profession there are unfortunately a few bad apples in the mortgage industry out there. The AARP article criticized ads for RMs as “slick TV spots.” We have all seen The Fonz and the guy who used to be married to Natalie Wood shilling RMs. One would think that those ads could not possibly hook anyone into doing anything but unfortunately as Lincoln supposedly once said, “You can fool some of the people.”
Then the article stated that “others now risk losing their homes after aggressive mortgage brokers failed to disclose the terms of the loans.” The article then went into horror stories about people losing their homes. However, let us not forget that RMs typically require borrowers to attend counseling. Counseling about the terms of the RM loan. What is the mortgage broker supposed to do? Attend RM counseling with the homeowner to make sure they are listening?
Closer to home I was reading a complaint about a RM posted by an attorney. He had a client with a RM and could not figure out what was wrong except he knew that the Lehman Brothers name appeared on some documents along with a mortgage broker. The RM loan (HECM) was on a vacation property which the attorney realized was a no no.
The attorney thought the fact that only one spouse was on the loan was a smoking gun. That the lender should have known this meant the property was not a principal residence. Hello? Many times there is only one spouse on a RM loan to intentionally increase the loan amount. When the loan borrower spouse dies the RM can be called in which leaves the surviving spouse with a big problem.
Then I saw another complaint about a RM that had to be paid off because the owners had been in a nursing home for over a year. The kicker here was that the attorney then had a question about how to get a HELOC for these owners. I am not 100% sure of anything anymore but I pointed out to the attorney that HELOCs are typically an owner-occupied product and you need to sign some sworn statements to that effect.
Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at
