McLaughlin & Quinn, LLC - Providence | Boston

As the economy has slowed and housing values have dropped, reverse mortgages have become even more attractive to seniors looking for ways to use the equity in their homes without moving. But a new study by the Government Accountability Office (GAO) raises concerns about the adequacy of consumer protections for reverse mortgage borrowers, who are sometimes subjected to misleading marketing and inappropriate cross-selling of other financial products that may be unsuitable for them.

A reverse mortgage allows homeowners 62 or older to convert the equity in their home to a flexible cash advance that does not have to be repaid until the homeowner moves, sells, or dies. Almost all reverse mortgages are made under the Home Equity Conversion Mortgage (HECM) program, which is administered by the Department of Housing and Urban Development (HUD). In the first quarter of 2009, HUD backed about $7.8 billion worth of reverse mortgages, the largest amount in any quarter since the agency launched the program in 1988, the Washington Post reports.

While reverse mortgages look like no-lose propositions at first glance, they are complex products that have significant downsides for some. For example, these loans carry large insurance and origination costs, they may affect eligibility for government benefits like Medicaid, and they are not ideal for parents whose major objective is to safeguard an inheritance for their children.

(more…)