Signs of Trouble for Reverse Mortgages

The program designed to help cash-strapped seniors who own their homes outright may result in the loss of seniors' biggest asset if they run into deeper financial trouble, Michelle Singletary writes in her Washington Post-Bloomberg column.

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Reverse mortgages may do some seniors more harm than good. (Thinkstock)

Reverse mortgages, the program designed to help cash-strapped seniors who own their homes outright, may result in the loss of seniors' biggest asset if they run into deeper financial trouble, Michelle Singletary writes in her Washington Post-Bloomberg column.

For many seniors, a reverse mortgage can be a saving grace. But this product isn’t without issues, according to a newly released report from the Consumer Financial Protection Bureau, which was required to study reverse mortgages as part of the Dodd-Frank financial-reform act.

For most Americans, their home is their largest asset. In 2009, half of homeowners 62 and older had at least 55 percent of their net worth tied up in home equity. In looking at the reverse-mortgage market, the consumer bureau notes that only about 2 percent to 3 percent of eligible homeowners currently have a reverse mortgage and that just 70,000 new reverse mortgages are originated each year.

"But reverse mortgages have the potential to become a much more prominent part of the financial landscape in the coming decades," the bureau said in its report.

The bureau found some troubling issues. For instance, even though borrowers have to get mandatory pre-loan counseling, many still don’t understand the intricacies of a reverse mortgage.

Read Michelle Singletary's entire piece at Washington Post-Bloomberg.

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