Real Estate

                New lender guidelines for reverse mortgages will go into effect in 2010.  Seniors thinking of applying for this type of

program should learn about their rights and pitfalls.  According to mortgage regulators, many who enter this type of real estate

transaction do not realize how it will impact them financially until it is too late.  Counseling is often inadequate and seniors don’t

understand what they are signing.

                Basically, a reverse mortgage allows a borrower to receive lump-sum payments, credit lines, periodic disbursements or a

combination in exchange for their home equity.  These mortgages typically are restricted to homeowners 62 and older who want to turn their

untapped equity into cash.  Borrowers can remain in their homes while collecting payments. 

                Reverse mortgages can provide money to supplement retirement income, pay for uninsured medical expenses and keep homes in

good repair. The funds drawn down incur interest charges and fees for insurance and servicing, which generally must be paid back only

after the occurrence of a so-called "maturity event"—when the borrower sells, moves, dies, fails to make property tax and insurance

payments or allows the house to deteriorate substantially.
                Though often promoted as easy, guaranteed income for life, reverse mortgages can be quite costly and restrictive.  They

can strip senior homeowners of the equity in their home and leave them with no assets for the future. Contrary to what is heard in some

commercials, reverse mortgages are not a government benefit, require repayment and carry risk.  Reverse mortgages are actually loans.  It

is the lenders' not borrowers—who are protected by the government in case of loss.

                New guidelines will require lenders to be upfront about the details involved in reverse mortgages.  They are designed to

prevent lenders from presenting additional financial products as a requirement for obtaining a reverse mortgage; failing to explain the

potential downsides of reverse mortgage payment alternatives upfront; and failing to inform borrowers upfront about their own

responsibilities under reverse mortgage contracts.

                For more information on reverse mortgages, call HUD at (213) 894-8000 or visit www.hud.gov.