Alert
Close

Watch the NASCAR race on Sunday at Martinsville Speedway. Join the Drive to End Hunger!

Highlights

Open

You and Your Town Contest-You could win an AARP RealPad

AARP Auto Buying Program

Contests and
Sweeps

$10,000 Winter Escapes Sweepstakes

Beat the cold and cozy up to a chance of winning $10,000! See official rules.

Driver Safety

Piggy bank on the road - AARP Driver Safety

Take the new AARP Smart Driver Course!

AARP Books

Visit the Money Section

Enjoy titles on retirement, Social Security, and becoming debt-free.

Jobs You Might Like

most popular
articles

Viewed

Reverse Mortgages Ripe for Abuse

A word of caution to older Americans considering reverse mortgages: Tread carefully.

According to a report by the National Consumer Law Center (NCLC) released Tuesday, some of the same lenders that sold risky subprime loans to millions of homebuyers—fueling the real estate boom and bust—are now targeting older people with misleading claims involving reverse mortgages.

Some ads pitch reverse mortgages as “free money” and fail to disclose the fees or terms of the loan. Then there are brokers who use aggressive sales tactics to persuade older homeowners to take out reverse mortgages, even when it’s not in the homeowner’s best interest, because brokers receive high fees from these loans.

Reverse mortgages are typically used by older homeowners who need to cash out some of their equity to supplement Social Security, in order to pay living expenses, unexpected medical costs or home repairs. Homeowners must be 62 or older to qualify, and must have substantial equity in their homes.

In this type of mortgage, the lenders advance money—the current maximum is $625,000—to the homeowner as a lump sum, in monthly payments or as a line of credit. The older the homeowner and the higher the home equity, the more money a reverse mortgage will yield. Lenders are repaid when the owner moves or by the heirs when the owner dies.

The number of reverse mortgages insured by the federal government has soared in recent years, from 7,781 in 2001 to 112,000 in fiscal 2008. Now, the Boston-based NCLC warns that the $17 billion reverse mortgage industry may become the next subprime crisis.

“In the reverse mortgage market, seniors face some of the same aggressive lending practices that were common in the subprime lending boom,” says Tara Twomey, an NCLC attorney and author of the report. “Well-funded marketing campaigns and perverse incentives to brokers are targeting seniors’ home equity and using reverse mortgages as their tools.”

To curb reverse mortgage scams and questionable practices, stronger consumer protections are needed, the report said. They include better counseling and the implementation of a suitability standard, which would require lenders to offer reverse mortgages that are in the best financial interests of their clients.

Sen. Claire McCaskill, D-Mo., who attended the NCLC’s briefing to release the report, says she plans to introduce legislation to improve regulation of the industry and to better protect consumers.

“Abuses in the subprime lending market almost brought down our economy,” she says. “Now we’re seeing similar abuses with reverse mortgage lending. Something needs to be done before more life savings are depleted and more tax dollars are drained.”

Carole Fleck is a senior editor at the AARP Bulletin.

Topic Alerts

You can get weekly email alerts on the topics below. Just click “Follow.”

Manage Alerts

Processing

Please wait...

progress bar, please wait

Tell Us WhatYou Think

Please leave your comment below.

The Cheap Life

Jeff Yeager Cheap Life Ultimate Cheapskate AARP YouTube web series save money

Catch the latest episode of The Cheap Life starring Jeff Yeager, AARP's Ultimate Cheapskate. Watch

Discounts & Benefits

From companies that meet the high standards of service and quality set by AARP.

Life insurance: you are covered rain or shine

Exclusive annuities for members from AARP Lifetime Income Program from New York Life.

AARP Credit card from Chase

Members can get cash back rewards on purchases with the AARP® Credit Card from Chase.

Homeowners Insurance
Member Benefits

Join or renew today! AARP members receive exclusive member benefits & affect social change.

Rewards for Good

Your Points Balance:

Learn More

Earn points for completing free online activities designed to enrich your life.

Find more ways to earn points

Redeem your points to save on merchandise, travel, and more.

Find more ways to redeem points