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Last year, Bank of America bought out Reverse Mortgage of America (formerly Seattle Mortgage) becoming an instant player in reverse mortgages for seniors. With perhaps the largest brand of any bank in the business, they brought instant credibility and a wide distribution channel through their retail and reverse mortgage wholesale divisions.

With such size and market clout, Bank of America because an immediate competitor to Financial Freedom, the largest reverse mortgage bank and to the newly formed Countrywide reverse mortgage program. In fact, Bank of America’s reverse mortgage jumbo program was, at least until recently, arguably the most competitive program in the business.

But the credit crunch has had battered all mortgage lenders over the past 6 months and Bank of America is no exception. Reverse mortgage lenders have, one by one, recently been making their jumbo reverse mortgage programs more restrictive and less competitive. Bank of America has now followed suit with their announcement this month to their brokers that jumbo reverse mortgage loan amounts will be reduced by 5% is most major California markets. The move applies to many other markets across the country that are deemed to be declining in value.

This means that seniors will be able to take out 5% less cash, or have a 5% lower credit line on their jumbo reverse mortgage than they could last month. In addition, Bank of America will no longer offer the no-fee reverse mortgage option that was available to seniors who had a large initial loan balance.

I will keep an eye on new developments in the reverse mortgage marketplace and report them here on this reverse mortgage blog. You can also check here for more info on California reverse mortgages.

(this is post three of a series)

Some members of the news media have played a role in the negative perception of the reverse mortgage. While it has received good press in most major newspapers, some smaller publications have reported misinformation or baseless opinions. For example, one newspaper said: if a senior lives long enough, and housing values decline, they could lose their home. Not true. All reverse mortgages allow the homeowner to stay there for life, free of mortgage payments, no matter what happens to real estate values.

A reporter wrote the following quote from a financial planner: "There are enough details in those things that I think it definitely is a consumer beware thing." If this financial planner took the time to understand the details, he would know that a third party counselor must confirm that the homeowner understands the details before they can obtain a reverse mortgage. Responsible reporters do a good job of checking their facts before writing a story, but unfortunately, there has been some irresponsible reporting about the reverse mortgage.

Human nature plays a role in the perception of reverse mortgages. Seniors, by nature, often fear the unknown. And for many, the reverse mortgage is still an unknown. Yanked from obscurity into the limelight several years ago, it will take time for some seniors to get comfortable with the idea. Many great inventions such as the automobile, the telephone, computers and the internet took time to catch on. And the reverse mortgage is catching on quickly. The number of reverse mortgages obtained each year has nearly doubled each year since 2002. Soon everyone will know someone who got a reverse mortgage and is happy with it. In fact, Fannie Mae reports a 90% satisfaction rate with the reverse mortgage.

(this is post two of a series)

Another contributor to the negative perception of the reverse mortgage is the door-to-door scam artist. As many as 10 years ago, these jerks would prey on trusting seniors by selling them information and referrals to reverse mortgage lenders for as much as several thousand dollars. The information, though not commonplace at the time, was available for free from HUD and other reliable sources. Once again, such stories made it into the newspapers and associated negative news with the reverse mortgage.

Excessive marketing of the reverse mortgage has soured some seniors. Since it has become a good financial tool, it has quickly gained popularity. As a result of this demand, companies have begun pouring huge sums of money into advertising. Many seniors report receiving numerous irritating dinnertime telemarketing calls each week. Television ads with James Garner join radio campaigns in bombarding the marketplace with sales pitches, ad nauseum. What do we think when we see something so heavily marketed? We think of shams such as miracle cures and get-rich-quick schemes. As a result, those questionable products hurt the image of other legitimate, but heavily-marketed products, such as the reverse mortgage.

Slimy salespeople often hurt the reputation of an otherwise good product. Many seniors complain about the high-pressure sales tactics that they endured after making an inquiry about financial products including the reverse mortgage. Others have lamented the salesperson's lack of knowledge, inability to give straight answers, and lack of concern for their personal situation. After completing a client's application, many salespeople pass off the follow-up work to someone else, delaying their customer's funds for months. When it comes time to sign the final paperwork (at closing), most salespeople do not care to answer their customer's questions, but rely on an unqualified signing agent to do their job. Of course, there are many trustworthy reverse mortgage advisors out there – the trick is finding them.

(this is post one of a series)
To answer this question, you have to know the background. And if the reverse mortgage is not a rip off, then it certainly has some public perception issues to overcome. Some people who are familiar with the term seem to get some form of indigestion whenever they hear it. Why is that? Is there any good reason for the scowls or at least puzzled looks its mention sometimes produces?

You bet there is. The reverse mortgage began life in the 1970's as a last resort for destitute widows. And it was, in many cases, a bad deal. It often had the senior sharing a large percentage of their equity with the bank. Stories broke in the newspapers about seniors being ripped of by these schemes, while the bank made huge profits. Getting a reverse mortgage in those days was, in fact, like signing your home over to the bank.

Fortunately, all that has changed. I am aware of NO reverse mortgage programs in the US marketplace today that share equity or appreciation with the lender. More importantly, the Department of Housing and Urban Development (HUD) regulates reverse mortgages and designed the HECM. For most programs, they regulate the interest rates and fees, require third party counseling for the borrowers, and require lenders to be FHA-approved in order to offer them. These mandates, among other changes, have transformed the reverse mortgage from a rip-off into a fair deal.