Which setting is more suitable for a major financial decision in retirement, a bank or at the older person’s kitchen table?
A 67 year old, divorced, woman, worried about her job, had a saleswoman who showed up at her door and she let her into her home. Sitting at the woman’s kitchen table, the saleswoman recommended a reverse mortgage loan of $218,900, with a variable interest rate initially set at 6.57 percent. The saleswoman did not explain that within 10 years, the $218,900 loan could grow to as much as $400,000.
The same saleswoman then pressured her to put the proceeds of the loan into complex investments that put her money out of reach. She received only about $33,000 in cash, far less than she needed for her final years.
“I thought this was a safe way to make sure I’d never run out of money,” the older woman told a reporter for the New York Times. In an article published in the Times on Sunday, March 2, 2008, the victim of this scam told reporter Charles Duhigg “Then everything became so confusing. No matter where I turned for help, it seemed like things got worse.”
According to the Times article the salesperson who exploited this older consumer works for a company which is licensed in 16 states, and has originated mortgages worth more than $100 million since 2004. If the borrower had sought this loan through a savings bank or credit union where suitable consumer protection and oversight of the bank employee was in place, many of the loans would not have been made. But other, more suitable, alternatives would have been reviewed with the borrower resulting in new business for the bank and a satisfied customer to spread the word about why the bank is the best place to go to discuss financial alternatives for older people.
For many elders, especially those who want to stay in their home as long as possible, a reverse mortgage can be a very suitable financial transaction. Despite the eligibility age that the federal government has set at 62, these federally insured loans are rarely suitable for those in their 60’s…or their 70’s for that matter.
For those in their 80’s who have grown frail and require services such as a home health aide, a reverse mortgage can be the difference between staying at home and moving into a nursing home according to elder advocacy organizations such as AARP and the National Council on Aging. Visit the Council’s web site at www.ncoa.org to get their excellent free handbook on reverse mortgages “Using Your Home To Stay At Home “
According to the Times article, as the United States has become an older nation, reverse mortgages have grown into a $20-billion-a-year industry, with elderly homeowners taking out more than 132,000 such loans in 2007, an increase of more than 270 percent from two years earlier.
“In surveys, many borrowers say reverse mortgages have improved their lives and provided the money they needed for retirement. But hundreds of people who have sought reverse mortgages – in lawsuits, surveys, and conversations with elder-care advocates – have complained about high-pressure or unethical sales tactics they say steered them toward loans with very high fees. Some say they were tricked into putting proceeds of their loans into unprofitable investments, while sales agents pocketed rich commissions.”
The Times quotes Prescott Cole, an elder-care advocate who has worked with reverse mortgage borrowers “Every scam artist is getting into this business,”. “Because reverse mortgages are so complicated and give you money up front, years can pass before a senior realizes they’ve lost everything.”
A 67 year old, divorced, woman, worried about her job, had a saleswoman who showed up at her door and she let her into her home. Sitting at the woman’s kitchen table, the saleswoman recommended a reverse mortgage loan of $218,900, with a variable interest rate initially set at 6.57 percent. The saleswoman did not explain that within 10 years, the $218,900 loan could grow to as much as $400,000.
The same saleswoman then pressured her to put the proceeds of the loan into complex investments that put her money out of reach. She received only about $33,000 in cash, far less than she needed for her final years.
“I thought this was a safe way to make sure I’d never run out of money,” the older woman told a reporter for the New York Times. In an article published in the Times on Sunday, March 2, 2008, the victim of this scam told reporter Charles Duhigg “Then everything became so confusing. No matter where I turned for help, it seemed like things got worse.”
According to the Times article the salesperson who exploited this older consumer works for a company which is licensed in 16 states, and has originated mortgages worth more than $100 million since 2004. If the borrower had sought this loan through a savings bank or credit union where suitable consumer protection and oversight of the bank employee was in place, many of the loans would not have been made. But other, more suitable, alternatives would have been reviewed with the borrower resulting in new business for the bank and a satisfied customer to spread the word about why the bank is the best place to go to discuss financial alternatives for older people.
For many elders, especially those who want to stay in their home as long as possible, a reverse mortgage can be a very suitable financial transaction. Despite the eligibility age that the federal government has set at 62, these federally insured loans are rarely suitable for those in their 60’s…or their 70’s for that matter.
For those in their 80’s who have grown frail and require services such as a home health aide, a reverse mortgage can be the difference between staying at home and moving into a nursing home according to elder advocacy organizations such as AARP and the National Council on Aging. Visit the Council’s web site at www.ncoa.org to get their excellent free handbook on reverse mortgages “Using Your Home To Stay At Home “
According to the Times article, as the United States has become an older nation, reverse mortgages have grown into a $20-billion-a-year industry, with elderly homeowners taking out more than 132,000 such loans in 2007, an increase of more than 270 percent from two years earlier.
“In surveys, many borrowers say reverse mortgages have improved their lives and provided the money they needed for retirement. But hundreds of people who have sought reverse mortgages – in lawsuits, surveys, and conversations with elder-care advocates – have complained about high-pressure or unethical sales tactics they say steered them toward loans with very high fees. Some say they were tricked into putting proceeds of their loans into unprofitable investments, while sales agents pocketed rich commissions.”
The Times quotes Prescott Cole, an elder-care advocate who has worked with reverse mortgage borrowers “Every scam artist is getting into this business,”. “Because reverse mortgages are so complicated and give you money up front, years can pass before a senior realizes they’ve lost everything.”
In Part 2 on Wednesday I'll discuss the role banks can play to end the growing epidemic of financial scam artists with bogus credentials who prey on older Americans.
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