Reverse mortgages – know what you’re signing and to whom.

My wife and I were having dinner with her mother yesterday. Her mom’s getting up in years and still lives in the big family home on an acre and has seen some decent appreciation even considering the recent bust.

Over dinner she asked if I knew anything about reverse mortgages? I told her I know 2 things about reverse mortgages –

  1. For the right person a legitimate reverse mortgage can be a wonderful thng.
  2. They are currently the most prevalent form of real estate fraud being perpetrated on elderly people.

Now Jan has had a reverse mortgage for 16 years and it has been a lifesaver. She gets just enough every month to augment her SS and pension but not enough to live a wild lifestyle – well, not too wild. She does drink White Zinfandel out of a box.

So she received a call from somebody she assumed was with her existing mortgage company telling her about a new product. He was very nice, claimed to be almost 70 himself, chatted about grand kids, told her the new product would save her money on interest rate, she would continue to get her monthly payment AND she would get a lump payment of more than $50,000 to spend as she saw fit – buy a new car, take a cruise, help her grandkids – whatever.

Well, she really wasn’t too interested in taking out more money that she really doesn’t need but thought the rest sounded good so she asked me to take a look at the paperwork the guy had sent over. Nice paperwork – 4 color brochures, info on government programs and a breakdown of her situation with numbers that sounded close to what she thought she owed and what her interest rate is.

Trouble is, when we got to looking at it and pulled her latest mortgage statement, we found the numbers really weren’t that accurate – in fact they were actually the sort of numbers you might get if you were just using a public tax database record and making some assumptions on balances and interest. An even closer look revealed that while the logo and name were similar to her existing mortgage company, they weren’t the same at all. Close but no cigar.

Finally, buried in the fine print was the disclosure that there were nearly $8,000 worth of costs & fees buried in the transaction along with some commission for the ‘very nice man’.

Now I’m not saying this is a fraud or a scam – in fact looking at their website they appear to be totally legitimate. Of course, who doesn’t these days. I’m just saying the marketing pitch is a little ‘iffy’. It confused Jan and she’s still pretty sharp – it could easily mislead others into thinking they were just getting a new product from their existing lender, that their rates would go down while their payments would stay the same.

So the worst that might have happened would have been that Jan did the refi, her interest rate might have dropped a few bucks and she would have paid $8 grand in fees and commissions.

OR she might have been signing over her home, forfeiting all her equity to a flim-flam man, and ended up living on the streets at 80. Or with me. That’s why I’ve gotta keep on top of this stuff.

Folks, if somebody calls you or sends you something you don’t quite understand, please, PLEASE talk to somebody you trust. Back in the day it might have been OK to just trust the nice man on the telephone. Today –┬ánot so much. You do bear some responsibility for your own well being and security – after all, you made it this far. Don’t blow it now.