Americans value fame. We’ll buy Chanel No. 5 from Brad Pitt or a T-Mobile cellphone from Catherine Zeta-Jones. And although senior citizens may be skeptics, they aren’t immune to starpower.
You’ve doubtless seen Robert Wagner, Henry Winkler and Fred Thompson on television, enticing seniors to the reverse mortgage marketplace. But the important thing about reverse mortgages isn’t that Fonzie likes them: It’s that they are poorly understood. You probably wouldn’t ask a movie star, sitcom icon or U.S. Senator to invest your life savings, so it’s wise to remember that pitchmen are paid. Reverse mortgages are a legitimate option for some seniors, but are not for everyone.
About 750,000 reverse mortgages, insured by the Federal Housing Administration, have been issued. Annual loan originations peaked at more than 100,000 before the recession, but nearly 10 percent are in foreclosure. FHA is responsible for the shortfall when a foreclosed home’s value is below the amount guaranteed the lender, and in the infamous footsteps of mortgage giants Fannie Mae and Freddie Mac, FHA has run its insurance program billions into the red. So now, it’s cutting its risks, meaning fewer options for consumers. But if borrowing tax-free dollars against your home equity sounds attractive, a reverse mortgage may be worthy of consideration.
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