Published On: June 17, 2019

Urban African American neighborhoods are hardest hit as nearly 100,000 loans have failed.

Reverse mortgages – thousands of seniors, who worked their entire life to own a home, are finding their homes foreclosed for several reasons.  The problem is that a few years ago there was little to no federal regulation on reverse mortgages.  A high percentage of these homeowners relied on the lies of those who made a profit from selling reverse mortgages.  They were told they could live in their home for the rest of their lives, for “free”.

Who sells these mortgages – mostly brokers/realtors who lost their normal income during the real estate crash, but now there is an entire lending market focused on these mortgages.  They targeted poor neighborhoods who are least likely to seek competent advice about the issues with reverse mortgages.  They looked for homes that needed repairs, leaving door hangers advertised a “tax-free” benefit for seniors.

reverse mortgageTV ads featuring Henry Winkler, Fred Thompson and Robert Wagner made it appear that these mortgages were “free”.  They offered to “eliminate monthly payments permanently” with “a risk-free way of being able to access home equity” – neither of which is true, according to the Consumer Financial Protection Bureau. “Always retain ownership,” “remain in your home as long as you wish” and “you can’t be forced to leave” were other frequent hooks, according to investigations by federal regulators.

Five years ago HUD developed some changes to protect seniors.  But, those who signed reverse mortgages before the new rules went into effect are left to fend for themselves and, in many cases, lose their home.

So, what is the problem today?

Thousands of seniors signed reverse mortgages and did not understand they had certain obligations or their home would go into foreclosure.  These obligations included paying real property taxes or keeping the property insured and in good condition.  In ZIP codes where most residents make less than $40,000, the analysis found reverse mortgage foreclosure rates were six times higher in black neighborhoods than in white ones.

Poor neighborhoods were targeted with “bad apple” reverse mortgages

reverse mortgageIn ZIP codes where most residents make less than $40,000, the analysis found reverse mortgage foreclosure rates were six times higher in black neighborhoods than in white ones.  See the USA Today article for a map of the United States identifying foreclosures of senior homeowners – Chicago, Baltimore, Miami, Detroit, Philadelphia and Jacksonville, Florida, are among the hardest hit.

How do most reverse mortgages work:

Lenders appraise the value of a house and allow homeowners to borrow back money against that market value.

The following is a very generic description and not intended to describe every reverse mortgage.  Borrowers can stop making monthly mortgage payments, and they can stay put for life, so long as they maintain the home, pay property taxes and insurance and don’t sell, move out or die. Reverse mortgages require no credit check and government-mandated financial counseling can be as easy as a 20-minute phone call.

Lenders and their investors make their money through origination fees that can top $15,000 with fees and mortgage insurance, and by charging interest on the loan balance.

The neighborhood is damaged by foreclosures

reverse mortgageEach foreclosure depresses home values within about 600 feet by 1%, according to a study in 2006 in the journal Housing Studies. As foreclosures mount, the study says, that figure compounds. Five foreclosures in a few city blocks means a 5% loss for every neighbor.

It’s all about money

Even when both husband and wife are old enough to qualify, reverse mortgage lenders often advise them to remove the younger spouse from loans and titles. Federal rules allow people to take out more money if they are older based on actuarial tables showing they have fewer years left to live.  The problem is the spouse who is not on the mortgage finds it very difficult to save the home after the spouse on the loan passes away.  There are deadlines for filing certain paperwork, all happening at a time the surviving spouse is dealing with the death of the spouse.

A higher loan balance means higher closing costs and a bigger commission for brokers.

reverse mortgage

As reverse mortgages end, heirs are left with heartache, USA Today 12/19/19

10 Questions to Ask About Reverse Mortgages

Sun Cities area has some of the highest reverse-mortgage foreclosures.

Reverse Mortgage Meltdown – and Gov’t Complicity?

USA TODAY wants to hear about your stories

By |Published On: June 17th, 2019|Last Updated: July 30th, 2022|

Share this article

About the Author: Diane Drain

Diane is a well respected Arizona bankruptcy and foreclosure attorney. As a retired law professor, she believes in offering everyone, not just her clients, advice about bankruptcy and Arizona foreclosure laws. Diane is also a mentor to hundreds of Arizona attorneys.

*Important Note from Diane: Everything on this web site is offered for educational purposes only and not intended to provide legal advice, nor create an attorney client relationship between you, me, or the author of any article. Information in this web site should not be used as a substitute for competent legal advice from an attorney familiar with your personal circumstances and licensed to practice law in your state. Make sure to check out their reviews.*

Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Google Reviews
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Yelp Reviews
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Avvo Reviews
Avvo - Rate your Lawyer. Get Free Legal Advice.
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Alignable Reviews
Law Office of D.L. Drain, P.A., Arizona Bankruptcy Lawyer - Better Business Bureau
5 / 5

“You folks are the BEST OF THE BEST in Arizona.” M.H.

You and Jay are the best attorneys I have ever had or needed and thank God for the Honorable Robert Gottsfield in recommending you folks – I would have never made it through the entire process without you and Jay and God Bless you both always and stay in touch as well. You folks are the BEST OF THE BEST in Arizona.

5 / 5

“My only regret is that I didn’t find Diane sooner.” K.H.

I can’t say enough good things about Diane. The way she handled my not typical circumstances was amazing. I was very nervous to start the bankruptcy process but Diane just has a very comforting way of explaining the whole process. My only regret is that I didn’t find Diane sooner. If you find yourself in a financial situation that you can’t correct on your own, please Call Diane Drain as soon as possible.

5 / 5

“Filing for bankruptcy can be a stressful life event” R.A.

Filing for bankruptcy can be a stressful life event, and selecting the right attorney can add to this stress. Diane and Jay were a pleasure to work with, and it is obvious that they are passionate about helping people get their life back on track. I would highly recommend them if you need a bankruptcy attorney.

Related Posts

  • Published On: July 24, 2022

    Want to avoid dishonest debt collectors?  Watch this video from FTC’s Consumer Advice By Joseph Ferrari,July 22, 2022 (reprint from FTC, Consumer Alerts) During Military Consumer Month 2022, the FTC [...]

  • Published On: July 20, 2022

    BEWARE OF THE SECRET COSTS OF USING ‘BUY NOW PAY LATER’!! What You May Not Know About These Services Services like “buy now pay later” now account for $100 [...]

  • Published On: June 13, 2022

    Diane Drain received the 2022 Preeminent Award and Gold Client Champion Award from Martindale-Hubbell. The 2022 AV Preeminent award is given to an "elite group of attorneys who have been rated highly by their [...]

  • Published On: April 16, 2022

    ARIZONA IS ONE OF 2 STATES THAT WILL TAKE YOUR TAX REFUND IF THIS HAPPENS.  SHOULD THE LAW CHANGE? By RUSS WILES, Arizona Republic (reprinted for educational purposes only) Tens of millions of Americans [...]

My intention is to put you back in control of your life
Start with $0 down*. We provide affordable payment plans.