Banks Bristle At Reverse Mortgage Rules
FACE-TO-FACE: A bill under consideration on Beacon Hill would require in-person counseling for anyone seeking a reverse mortgage on their home.
Earlier this spring, as the state Senate was getting ready to pass a bill cracking down on foreclosure procedures, Sen. Susan Tucker, D-Andover, decided the time was right to strike. The Andover Democrat put together some language to include in the bill dealing with another housing related issue: Reverse mortgages.
Reverse mortgages are a way for senior citizens whose mortgages are fully or mostly paid off to pull out some of that equity for their day-to-day needs without risking losing their home. Essentially loans written based on age and home value, reverse mortgages don’t need to be paid off until the borrower moves out or dies.
Greater Restrictions
There are already a number of constraints on reverse mortgages at the federal level, but Tucker believes more are needed. As passed by the Senate, the new language would require that reverse mortgage borrowers who make less than half of their area’s median income and have assets worth less than $120,000 outside of their home get face-to-face financial counseling. Currently all reverse mortgage borrowers must get counseling, but it can be done over the phone.
“One thing everybody agrees on is that these instruments are extremely complicated,” Tucker said. “It sounds so easy, and they’re sold as lifestyle enhancers rather than instruments of last resort.”
But many of those who deal in reverse mortgages say the new requirement would have little value for borrowers. Some even say the real problem is not that the loans are too easy to fall into, but that potential borrowers are scared away from them by misconceptions.
Dick Williams, senior vice president of mortgage lending at Rollstone Bank & Trust in Fitchburg, said the bank has been doing reverse mortgages for about five years and has done about 100 of them. The loans are actually underwritten by Financial Freedom, a California-based company that specializes in reverse mortgages. Williams said almost all the borrowers it’s worked with have chosen to get their counseling over the phone.
“That tells me that it’s more convenient for these seniors to do phone counseling, as opposed to getting in their car to do something face-to-face,” Williams said.
Bruce E. Spitzer, director of communications for the Massachusetts Bankers Association, said the proposed change would be logistically difficult. Especially for people in rural areas, and for those with limited mobility, he said in-person counseling could be a challenge. And he said the organizations that do the counseling would have to ramp up their staffing to handle more in-person contact.
The Senate bill provides an 18-month delay before the change would go into effect, but Spitzer said that might not be long enough to get everything in place.
Whether or not they see any value in the in-person counseling requirement, most local lenders seem to see reverse mortgages as a special type of product that should be treated gingerly.
Williams said Rollstone doesn’t market reverse mortgages extensively and doesn’t make follow-up sales calls to people who inquire about them. It also encourages potential borrowers to involve their family members, attorneys or other advisers in their decision-making.
Joseph Festa, vice president of residential lending at Hudson-based Avidia Bank, said the bank handles reverse mortgages only when clients are referred to it. As a board member at the nonprofit group Homeowner Options for Massachusetts Elders, Festa said he’s heard horror stories about the loans.
“My own personal opinion, I think the product’s oversold,” he said. “There are other solutions … I just think some of those programs don’t offer sufficient counseling.”
Lora Baldracchi, vice president of retail lending at Southbridge Savings Bank, said she thinks face-to-face counseling is almost always preferable to phone conversations. But she said there are rare cases where the phone makes more sense, such as one borrower the bank worked, with who is blind.
Checking all the Options
Baldracchi said reverse mortgages won’t work for everyone, and when people inquire about them the bank sometimes offers alternatives like referrals to groups that provide assistance with heating and other basic needs. But she said many people are more afraid of the loans than they should be.
“There’s still a great deal of misunderstanding,” Baldracchi said. “Everybody thinks we’re going to take their house.”
In the past year, the number of reverse mortgages has plummeted. In Central Massachusetts, a tally of federally insured reverse mortgages fell from 26 loans worth $4,984,006 in March 2009 to 15 loans worth $2,528,416 in March 2010.
Lenders say that may be partly a result of falling home prices that reduced the amount of cash that borrowers could extract from their homes.
Still, Tucker and others believe the long-term trend is for reverse mortgages to become more popular as the population ages.
To some, like Christopher Tremblay, CEO of Mortgage Dreams LLC in Charlton, that could be a mixed blessing.
Tremblay said he doesn’t like to deal in reverse mortgages because their closing costs can be extremely high. But he said he sees value to them in some cases—including one very close to home. He said his grandmother is from a generation that places great value on leaving a house to the children, but he’d like to see her get some extra money to spend on her own needs.
“I’m trying to tell her that maybe it’s a good option for her, because her retirement is almost out,” he said.
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