Ford Pintos and Reverse Mortgages

by
Amy Catling, C.S.A.

Remember the Ford Pinto? The hatchback from the 1970's that everyone remembers for its tendency to explode when rear-ended?

Reading an article about reverse mortgages in the September issue of Consumer Reports reminded me of the Ford Pinto. Usually, when I read or hear of the same old tired warnings about reverse mortgages that have very little to do with fact, I inwardly heave a sigh and start patiently explaining what is accurate and what is inaccurate. For years, I've considered it very important to educate consumers on reverse mortgages, whether the product is right for them or not. Eventually, I thought, more and more people will know the facts about reverse mortgages, and that can only be a good thing.

But the article in Consumer Reports left me speechless. And it reminded me of the Ford Pinto, which I'll get to in a moment. It has also left many in my profession very angry: so upset that the National Reverse Mortgage Lender's Association (NRMLA) felt it necessary to refute the article point-by-point in their last newsletter.

The Consumer Reports article profiled three reverse mortgage borrowers: a gentleman whose wife had died and who now found himself having to sell his home, heirs that received a bill for a mother's reverse mortgage that was a $588,000 surprise, and seniors that took out a reverse mortgage and were talked into using the proceeds to buy an annuity that turned out to be more for the seller's benefit than their own.

In the first case, that of Ernest and Norma Minor, they chose to do something that is strongly warned against by NRMLA, by myself, and by most other allied professionals who work with seniors. Reverse mortgage borrowers must be 62 or older at the time of closing – Mr. Minor was not yet 62, but Mrs. Minor was. The Minors elected to take the husband off the deed to the house, making the wife the sole borrower. For two years, everything was fine. Mrs. Minor's medical bills were paid off, the mortgage to the home was paid off, and presumably the couple was happy with their reverse mortgage until Mrs. Minor passed away in 2007.

With reverse mortgages, the loan has to be paid back when the last borrower no longer lives in the home. If Mr. Minor was still on the deed to the home and a borrower, he would be at home right now and his story would never be in Consumer Reports. His story actually illustrates perfectly why we encourage people NOT to take themselves off the deed to the house because they are too young to qualify for a reverse mortgage, but their spouse is 62 or older. We cannot force them to refrain from doing this, of course, but if they choose to go forward anyway they are required to sign a Non-Borrowing Spouse certificate which details exactly when and why the loan will become due.

The second case detailed in the article is the $588,000 “surprise” bill that a mother's heirs received. Many years ago, a woman had obtained a reverse mortgage through a private lender that had nothing to do with the federal reverse mortgage program that makes up the vast majority of the reverse mortgages in this country. Because these old reverse mortgages were private programs, the lender could make any rules they wanted, as opposed to the federal program which is under the constant scrutiny of Congress, HUD and the FHA. This woman's lender had something called “shared appreciation” attached to her reverse mortgage: she had agreed to give the lender 100% of her home's appreciation over time. And in those 15 years, her home had appreciated in a way that no one ever expected! In any case, those types of products no longer exist, which is why it is an inappropriate example in a magazine story on reverse mortgages published in 2009.

Thirdly, a couple were talked into taking out a reverse mortgage and handing over $100,000 of the proceeds to an unscrupulous person who put the money into a poorly performing annuity. The salesperson, however, probably saw his bottom line increase that year! It is a fact that there are people who prey on seniors; you'll find them in every profession, including the financial industry. Any of us can be talked into things that aren't good for us if the salesperson is slick enough and we believe that they are professionals and they know what they're talking about. It didn't even have to be reverse mortgage money that got placed into that annuity – it could have been life insurance money, or investments, or an inheritance. Regardless, this is yet another outdated example. An insurance brokerage set up to pull such schemes would be precluded by HUD from being involved in the sale of reverse mortgages today.

After reading all this, I thought that it was as if Consumer Reports wrote an article in 2009 about the dangers of the Ford Pinto and applied it to all cars. Don't buy a car!! Cars explode on impact!! Look what happened to these people when they got a car!! And the fact that Pintos haven't been made in years? Doesn't matter. And the fact that car manufacturer's safety standards have increased probably 100 fold since then and continue to do so? Doesn't matter. And the millions of people who are zipping happily around the country in their non-Pinto cars, getting from here to there with no explosions at all? They don't matter, either.

But those other people DO matter. They're consumers, too. What about my parents? They've been enjoying the benefits of their reverse mortgage for three years. What about my office assistant? Her parents have had a reverse mortgage for seven years, and they and their three children wouldn't have it any other way. Or the 83 year old woman outside Miami who needed a hip replacement, was turned down five times by her insurance company that was waiting for her to die, took out a reverse mortgage, paid for the surgery, then used the balance to hire a lawyer and sued the insurance company, which then paid her back for the surgery.  Or the gentleman outside of Denver who was suffering from diabetes, lost a leg and needed transportation to his dialysis, who could not keep up on his real estate taxes and whose bathroom had failed and was using his sink for everything. He took out a reverse mortgage, paid up his taxes, fixed his bathroom and now can afford transportation to his weekly dialysis treatments. Where are their stories?

There are now over 400,000 reverse mortgage loans outstanding in the United States .  Reports from both AARP and large banker members of NRMLA indicate that upwards of 93% of the borrowers feel the product has improved their lives.   They have primarily utilized these loans to pay off mortgages and reduce their monthly expenses, to avoid foreclosure, to afford in-home health care.  But where is even one of these hundreds of thousands of success stories in Consumer Reports?


Amy Catling, Certified Senior Advisor
GIA Mortgage Corporation
Email: acatling@giamortgage.com
Phone: 1-207-251-0633
Serving reverse mortgage clients in Maine, New Hampshire and Massachusetts

Apply Now

Return to Loan Options