Fraud, costs, loan losses threaten to shrink program
Bell proposes an alternative: to increase the income the program generates by raising the mortgage insurance premium (MIP). One of the criticisms of reverse mortgages is the large, upfront MIP. NRMLA's recommendation is to lower the upfront, but raise the ongoing payments by borrowers.
Currently, the borrower pays 2 percent of the home value upfront and then another 1/2 percent per year on the actual balance being drawn down. The NRMLA would prefer to reduce the upfront from 2 percent to 1 percent but increase the ongoing to a full 1 percent.
The other problem facing reverse mortgages is a reported increase in scams. Although the occurrence of scams are still relatively small in number, they seem to be coming from two sources: third parties, such as a title agent involved in the process, but more often than not the relatives of the seniors who participate in a reverse mortgage.
"We just do the loan and the third parties taking advantage of the borrowers are usually financial advisers or someone selling a financial product whom we are not affiliated (with) and don't know," says Lewis.
That's still just a small problem. The bigger fraud comes from the familial network.
"The largest source of scams and thefts with people who have gotten a reverse mortgage are family members who steal from the grandparent or parent," says Bell. "More often than not, the theft is tied to substance abuse by the child or grandchild."
It seems, once the senior gets the dollars from a reverse mortgage a whole new set of problems arise. The new predator is someone whom you know very well.
Steve Bergsman is a freelance writer in Arizona and author of several books, including "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade."
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