Banks target smart homeowners with stupid products
The unchecked use of homes as ATM machines has left many home owners in the uncomfortable position of being former home owners.
Now that they're out equity and have little left to be milked for fees and interest, the big banks have turned to another group: people who have been responsible, paid off their mortgages, and preserved their equity. The New York Times reports that the big banks would "love to serve" these people.
Will isn't that just dandy. Having spent the past decade reporting huge profits (and then huge writedowns) helping financially unstable people get themselves into bigger trouble, the industry is now looking to move on to the more responsible borrowers.
To be sure: some retired people who own their homes outright do need to tap into the equity to provide for living expenses. But as I wrote back in March, retirees need to proceed with caution, especially when it comes to reverse mortgages.:
There's a reason salespeople love these products -- and therein lies the problem. One elderly lady quoted in the New York Times piece paid an up-front fee of 8% -- $17,100 -- out of the initial proceeds of the loan. And the independent counsel that people are federally-required to receive before closing on a reverse mortgage appears to be a total joke --oftentimes it's paid for by the lender making it, by definition, not independent.
Now that they're out equity and have little left to be milked for fees and interest, the big banks have turned to another group: people who have been responsible, paid off their mortgages, and preserved their equity. The New York Times reports that the big banks would "love to serve" these people.
Will isn't that just dandy. Having spent the past decade reporting huge profits (and then huge writedowns) helping financially unstable people get themselves into bigger trouble, the industry is now looking to move on to the more responsible borrowers.
To be sure: some retired people who own their homes outright do need to tap into the equity to provide for living expenses. But as I wrote back in March, retirees need to proceed with caution, especially when it comes to reverse mortgages.:
There's a reason salespeople love these products -- and therein lies the problem. One elderly lady quoted in the New York Times piece paid an up-front fee of 8% -- $17,100 -- out of the initial proceeds of the loan. And the independent counsel that people are federally-required to receive before closing on a reverse mortgage appears to be a total joke --oftentimes it's paid for by the lender making it, by definition, not independent.
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Reader Comments (Page 1 of 1)
5-05-2008 @ 12:59PM
diane eisele said...
A few years ago after my husband had a stroke which drained us financially and emotionally, we thought a Reverse mortgage might be helpful even though we were just in our early 60's at the time. Fortunately my husband recovered, and we had a VERY HONEST woman who was very forthcoming about what a reverse mortage would do - including require $17K up front. We were very very lucky we had good information. With the enormous decline in house prices (ours lost $100K in the last year), we would probably be just as homeless now as the poor folks who signed up for subprime mortgages. Yes, indeedy, the banks, mortgage companies are on the prowl for new prey - I hope people feeling the current "financial strangulation" won't become the next victims of the moneylenders greed!
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5-06-2008 @ 5:22PM
Jack said...
Reverse mortgages do not make sense for everyone but they are a great solution for many older homeowners. A borrower in their 60s will receive less equity out of their house because of the acturial tables but for older seniors the percentage of equity available in their home increases. The proceeds from the reverse mortgage can be paid out in a lumpsome , monthly payments to the borrower or a line of credit that allows the senior to use what they need. In the case stated above its important to note that part of the upfront fees are mortgage insurance premiums so that lender and borrower are protected if values were to decline and cause the total mortgage balance to exceed liquidation value. This means that the homeowner that elects monthly payouts would continue to receive those payments for life(as long as thy are in the property) even if balance exceeds the home value. Also the lender cannot take your home or call the loan, you own it as long as you live there and maintain it. The title stays in your name. The income received is also tax free. This is a great product for seniors that want to stay in their homes(big trend) as they age and use the equity to do so. Seems to be a good bit of confusion and negativity around the product. If you are a senior that thinks that there may be merit to this program than ask your friends and/or family to assist in uncovering the real facts of a reverse mortgage. In the end, it's just one of many options.
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