## Reverse Mortgages: A Predatory Lending Practice?
### Introduction
A reverse mortgage is a type of loan that allows homeowners aged 62 and older to borrow against the equity in their homes without making monthly mortgage payments. The loan is repaid when the homeowner sells the home, moves out, or dies.
Reverse mortgages can be a helpful way for seniors to access cash to pay for expenses such as healthcare, home repairs, or debt consolidation. However, there are also concerns that reverse mortgages can be predatory, leading to financial harm for seniors.
### How Reverse Mortgages Work
Reverse mortgages are secured loans, meaning that the home is used as collateral. The loan amount is based on the home’s value, the homeowner’s age, and the interest rate. The homeowner can choose to receive the loan proceeds in a lump sum, a line of credit, or a combination of both.
Unlike traditional mortgages, reverse mortgages do not require monthly payments. Instead, the interest on the loan is added to the loan balance each month. This means that the loan balance will grow over time.
When the homeowner sells the home, moves out, or dies, the loan balance becomes due. The proceeds from the sale of the home are used to repay the loan. If the loan balance exceeds the sale price of the home, the homeowner or their estate may be responsible for the difference.
### Concerns About Reverse Mortgages
There are a number of concerns that have been raised about reverse mortgages, including:
* **High fees and interest rates:** Reverse mortgages typically have higher fees and interest rates than traditional mortgages. This can make them a costly option for homeowners.
* **No monthly payments:** While the lack of monthly payments can be appealing to seniors, it can also lead to financial problems down the road. If the loan balance grows too large, the homeowner may be forced to sell their home or take out a second mortgage to repay the loan.
* **Loss of equity:** Reverse mortgages can erode the homeowner’s equity in their home. This can make it difficult to sell the home or obtain a traditional mortgage in the future.
* **Predatory lending:** Some lenders have been accused of targeting seniors with reverse mortgages and using deceptive marketing practices to convince them to take out loans that they may not be able to afford.
### Protections for Seniors
There are a number of protections in place to help prevent seniors from being taken advantage of by reverse mortgages. These protections include:
* **Counseling:** Before taking out a reverse mortgage, homeowners are required to undergo counseling from a HUD-approved counselor. This counseling is designed to help seniors understand the risks and benefits of reverse mortgages and to make sure that they are making the right decision.
* **Disclosure:** Lenders are required to provide homeowners with a clear and concise disclosure statement that explains the terms of the loan. This disclosure statement must include information about the loan amount, the interest rate, the fees, and the potential risks of the loan.
* **Right of rescission:** Homeowners have the right to cancel a reverse mortgage within three days of signing the loan documents. This gives seniors time to reconsider the loan and to seek legal advice if necessary.
### Conclusion
Reverse mortgages can be a helpful way for seniors to access cash to pay for expenses, but it is important to be aware of the risks involved. Seniors should carefully consider the terms of the loan and seek counseling from a HUD-approved counselor before taking out a reverse mortgage.
If you are concerned about reverse mortgages, there are a number of resources available to help you. You can contact the Federal Trade Commission (FTC) at 1-877-FTC-HELP (1-877-382-4357) or visit their website at www.ftc.gov. You can also contact the National Reverse Mortgage Lenders Association (NRMLA) at 1-800-994-9411 or visit their website at www.nrmlaonline.org.