Consumer Reports - The Reverse Mortgage Stigma II:
Industry Exec Responds to Critics
Editor’s Note:
Consumer Reports
magazine has consistently urged older Americans to be careful in
considering Reverse Mortgages, but they brought their efforts to a new
level in July with testimony before the Senate Commerce Committee naming
this mortgage option for seniors to be a major scam. This was followed
by a media news release. Below is a response by an industry executive to
a report by KABC Los Angeles.
By Michael Branson,
All Reverse Mortgage Company
Sept.
2, 2009 - I wrote an article titled
Reverse Mortgage Stigma after a news item that appeared on KABC (Los
Angeles). Since then, we started talking and re-reviewed the news item.
The original news item that ran can be
found online here. When we originally saw the report, we were
struck by many things that just didn’t add up so we decided to do the
leg work that the reporter, Ric Romero either did not do, or
conveniently left out.
The news report quotes an 83 year old borrower’s
daughter as saying that her parents’ worst decision that they ever made
was to take out a reverse mortgage.
Ric Romero states that, based on
this example, borrowers should beware because “reverse mortgages can
ruin your finances”.
And finally, Andrea Rock of Consumer Reports warns
that fees and interest add up leaving the borrower with no equity for
themselves or to pass to their heirs. All of this sounds terrible, but
let’s examine the real facts and not the hysteria.
Firstly, Mr. Romero states that in this borrowers’
case, fees of more than $100,000 added up on this loan in just 4 short
years. But then, KABC was kind enough to give us a snapshot of the
borrowers’ most recent statement showing that the balance increased by
just $601.50 for the month.
The statement itself shows that the original
balance was $201,107.10 and the average of the index plus the margin for
the past 4 years would be about 6.06%
You wouldn’t even accrue $100,000 at today’s
balance and we know it’s been growing so Ric decided that $61,969.40 was
close enough to, how did you put it Ric, “Fees and interest charges of
more than $100,000 pushed Arlene’s loan to far more than she can get for
her house”. Not even close Ric!
And that leads us to our second level
of erroneous reporting that they could have determined with just a small
bit of research if they were interested in the truth and not the
sensationalism of this juicy story.
Again, KABC was kind enough to give us a snapshot
of the borrower’s Deed. From public records, we are able to determine
that the borrower’s home in Sacramento currently has model match homes
which sold recently in the immediate neighborhood for $132,500 and
$156,000.
Zillow.com currently estimates the borrower’s home to be worth
$123,000.
I find it journalistic sensationalism at best - and a
complete dereliction of their profession to completely ignore all this
information.
The borrowers received more money after all fees
were paid on their reverse mortgage than the property is even worth
today. Add to this the fact that they were able to live in the home
without having to make a payment for the past 4 years.
To falsely state
that because of fees and interest the borrowers now cannot get as much
for the home as is owed on it and therefore are going to lose money as a
result of their decision to obtain a reverse mortgage is just wrong!
The downturn in home values is the reason they
cannot get as much as they owe on it and in fact have already received
more cash out of the property than similar properties in the
neighborhood sell for. In short, they are in the same situation as
nearly every other homeowner in California and across the country who
has taken out a loan, ANY LOAN, and accessed a good portion of their
equity any time from 2003 through 2007.
As I stated, this borrower received more money than
her home is currently worth, she lived in the home for 4 years with no
payments, and due to the FHA insurance and the non-recourse nature of
the reverse mortgage loan, she will never have to repay more than the
property is worth on a bona fide sale. Yet the bold print around the
reverse mortgage headline on the KABC webpage is that a reverse mortgage
can ruin your finances?!
But wait, there is a statement that the borrower or
the borrower’s daughter claims the broker steered her parents into a
poor investment and that she has seen little of the money. But what
does that mean? Did the investment become worthless and the money is
lost forever? Is it a long term investment on which she will eventually
receive funds but just has not yet? Is the principal still intact but
just has not been returning a monthly income as stated or what?
This is the real story about the reverse mortgage,
not the mortgage itself but what happened to the funds, and as is the
case with almost every other report on “reverse mortgage abuses”, this
reporter misses it entirely.
Almost every time I have seen an abuse, the abuse
comes not with the reverse mortgage itself but with the fact that
someone was looking for a way to cheat the senior borrower out of their
money. But having been a mortgage banker for 34 years, I’ve seen this
same problem over and over with Option ARM loans and Home Equity Lines
of Credit as well.
But I didn’t blame the loans in those cases any more
than I do the reverse mortgage in this case if the investment really did
relieve the borrower of her funds…I blame the person trying to make
additional income by selling a financial product to a senior borrower
that they should not be buying. But again, I’m not making that claim
here because Mr. Romero did not do a good job of letting us know where
the money went.
What I do know very clearly now after having more
facts than Mr. Romero was willing to give in his report is that the
borrowers received more money than their home was worth in today’s
market and if they had not invested those funds poorly, they would be
singing the praises of their reverse mortgage and we would never have
seen this piece.
The
reverse mortgage interest and fees did not erode the equity in the
home as Andrea Rock from Consumer Reports suggests, due to the fall in
home values, the borrowers borrowed more money from the very beginning
than this property is worth today. Zero interest and Zero fees would
still make this property over encumbered in today’s market based on the
cash they received.
I am truly sorry if the nature of the investment
means that the borrower has lost her money…but that is NOT the fault of
the reverse mortgage.
And if it turns out that the investment is still
there but has not been yielding a monthly income as first thought but
the borrower can sell it now and regain her cash, then she is in a much
better position than the reporter is letting on.
I am frustrated by reporters, like Mr. Romero, who
have the title of “Consumer Specialist” and then completely miss the
boat on their reporting.
Of the hundreds of thousands of reverse
mortgages currently insured by FHA, to pull this one out as his shining
example of danger in the product is a travesty to seniors who will now
be frightened because of his lack of factual reporting and that is
something that all borrowers really should watch out for… not the
reverse mortgage that can help them live richer lives but ”Consumer
Specialists” like Mr. Romero and KABC who don’t get their facts
straight!
Michael G. Branson (CEO
All Reverse Mortgage
Company) is a Mortgage Broker who has over 31 years of mortgage banking
experience. The company is one of several Reverse Mortgage companies
that are regular advertisers in SeniorJournal.com.
Sept.
2, 2009 - I wrote an article titled
