Reverse mortgages may be the next subprime crisis, according to the National Consumer Law Center.
Some of the same U.S. lenders that helped drive the real- estate boom with loans to homebuyers who couldn’t afford the payments are now targeting seniors, the center said. Brokers, who are given financial incentives to sell the loans, may be making misleading claims to potential customers, according to a report titled “Subprime Revisited” that was released Tuesday by the Boston-based NCLC.
“This market is designed to serve seniors, so when we find abuses cropping up and migrating from the subprime market to the senior market, that sounds an especially loud warning bell,” said Rick Jurgens, an advocate at the NCLC who contributed to the report.
Reverse mortgages enable people age 62 and over who are looking for extra cash to use the equity in their homes and receive lump-sum payments, periodic checks, a line of credit or a combination of the three. Lenders are repaid from the sale of the home when the borrowers die or move.
The former maximum payout for reverse mortgages backed by the Federal Housing Administration was $417,000. That limit was increased temporarily to $625,500 in February. Origination fees are capped at $6,000. In 2008, more than 100,000 seniors used reverse mortgages to tap more than $17 billion in home equity, according to the Housing and Urban Development Department.
