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SAN FRANCISCO, CA - For seniors who need additional income, reverse mortgages may be an attractive option or may entail devastating financial hazards. A new report by Consumers Union, nonprofit publisher of Consumer Reports magazine, offers help for those trying to sift the bad products from the good in this new and growing industry. The report describes the potential benefits and financial dangers, outlines litigation that illustrates some of the potential pitfalls, and includes a tip sheet for consumers in the market. In addition, Consumers Union recommends that state and federal agencies take specific actions to increase their oversight of and consumer protections in the reverse mortgage market.
Reverse mortgages allow a senior to borrow against the equity in his or her home in order to access funds. The lender gives the borrower a lump sum, monthly payments or a line of credit, which are generally not repaid until the borrower moves or dies. The potential market for reverse mortgages in California is large, with 60 percent, or 2,160,000, of the state's seniors eligible. With senior home ownership and life expectancy rates climbing, more seniors will qualify for reverse mortgages.
The report, There's No Place Like Home: The Implications of Reverse Mortgages on Seniors in California, finds that for seniors in certain situations, the right reverse mortgage can enable a senior to maintain financial independence and an adequate standard of living by converting a home's equity into tax-free cash. For others, however, reverse mortgages have the following hazards:
· High cost, leading homeowners to often owe dramatically more than they borrowed;
· Complex contract terms that are confusing, increase overall costs, and are often not fully disclosed;
· Numerous fees that drive up the costs, including origination fees, points, mortgage insurance premiums, closing costs, servicing fees, shared equity or "maturity" fees, and shared appreciation fees;
· Financial counseling that is often inconsistent and not independent of the lender;
· Adverse impacts on government benefits;
· "Estate planning" fee scams.
"Consumers Union wants to help seniors make informed choices," said Norma Garcia, attorney with Consumers Union and co-author of the report. "We also urge state and federal policymakers to improve consumer protections in this industry. The lack of regulation and education in this relatively new industry has opened the door to numerous hazards. It's important for policy makers to close that door and protect America's seniors."
[The report, executive summary and a consumer tip sheet can be found at http://www.consumersunion.org/finance/i-homeownership.htm, or call 415/431-6747. Brochures are also available in English and Spanish.]
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Consumers Union, publisher of Consumer Reports, is an independent, nonprofit testing and information organization, serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition, and other consumer concerns. Since 1936, our mission has been to test products, inform the public, and protect consumers.
