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Reverse mortgage industry safe, finance professor says 2010-01-25 Citing a 2006 AARP survey, Wharton finance professor Jack Guttentag argues that seniors' reverse mortgage experiences have been overwhelmingly positive. Writing in the Washington Post, Guttentag disputes the notion that the reverse mortgage industry is poised for a meltdown like the one seen in subprime mortgages. Ninety-three percent of seniors said to the AARP that home equity conversion mortgages, or HECMs, had a "mostly positive" effect on their lives. And 95 percent were satisfied with the counseling sessions they received. Guttentag acknowledges that many unqualified subprime borrowers defaulted on their mortgage loans. But under a reverse mortgage, the lenders pay the borrowers. And HECMs are backed by the Federal Housing Administration, meaning that the government will pay off borrowers' loan balances if a lender defaults. "There are no reverse mortgage foreclosures," Guttentag asserts. While reverse mortgages are loans, they only come due when the borrower vacates his or her home. Until that point, borrowers are only required to pay property taxes and maintain their houses. The instruments are designed for seniors who "don't have enough spendable income to meet their needs but do have equity in their homes," Guttentag writes. Scare tactics can't hide the truth that, for eligible and educated borrowers, they can be a wise choice.  |
