Be Wary Of Reverse Mortgages
U.S. Bank regulator, John Dugan recently spok at the American Bankers Assocaition Confrence and offered up a warning that reverse mortgages could be the next subprime mortgage product to experience rapid growth while taking advantage of a vulnerable segment of the populartion.
Dugan said that regulators are in the process of crafting guidelines to ensure that robust consumer protections are in place for reverse mortgages. ” While reverse mortgages can provide real benefits, they also have some of the same characteristics as the riskiest types of subprime mortgages- and that should set off alarm bells”.
A reverse mortgage is a complicated loan targeted at homeowners who are a least 62 years old, and allow older Americans to live off the quity in their homes as they age.
In this type of mortage, the homeowner receives money from the lend, which does not have to be repaid as long as the borrower lives in the home.
Fannie Mae currently has about 90% of reverse home mortages as of 2008. Many large banks like Bank of America and Wells Fargo also provide them.
A great majority of reverse mortgages are insured by the FDA and pose limited risk, but a different class of reverse mortgages offer less consumer protections. Dugan fears that as the elderly American population grows, there could be a significant pickup in demand for these mortgages which bear many similarities to the type of subprime products that helped fuel the housing boom and bust.
Dugan urges consumers to be wary of these products and hopes regulators will be vigilant as well.
