Are Reverse Mortgages Unduly Risky?

The media and news outlets have portrayed reverse mortgages over the years as overtly risky and manipulative to retirees, tricking them with deceptive advertising into new obligations that end with them losing their homes. But these claims are not always accurate.

The risks of reverse mortgages are clear right from the beginning, sometimes with less risks than financing a new car. With a reverse mortgage, the home owner is obligated to do what they should already have been doing – pay their property taxes and homeowners insurance, and maintain their property. There is no hidden phrases that could outline disaster. The words “With a Home Equity Conversion Mortgage you retain title to your home. This means that you also have all your obligations as a home owner. You are responsible for home owner taxes and insurances,” is repeated numerous times within the document that a homeowner receives from their bank so these requirements should not come as a surprise.

Reverse mortgages reduce homeowner equity, which reduces the value of estates that are transferred to the next generation. That is not a weakness of the program, it is by design. The premise of the concept is that the current homeowners can make better use of the equity in the home than the homeowner’s beneficiaries.

See Jack Guttentag, Are Reverse Mortgages Unduly Risky?, Forbes, September 1, 2018.

Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.