Joplin, MO (PressExposure) February 24, 2011 -- A Consumer Alert was issued by the Reverse Mortgage Critic, LLC today to bring awareness to the fact that lenders are steering seniors into unsuitable fixed-rate reverse mortgages.
The alert, available at http://www.ReverseMortgageCritic.com, claims that lenders are steering seniors in this direction because the fixed rate is more profitable for them despite the fact that it can end up costing a borrower and their heirs an average $131,000 in lost home equity.
"We are the first to uncover and bring reverse mortgage lender steering to the public's attention," Lyn R. Link, CSA, President of the Reverse Mortgage Critic, said. "By drawing attention to this despicable lending practice, I hope to help seniors avoid becoming victims."
A reverse mortgage enables homeowners 62 and older to borrow against their home equity with no monthly repayment of principal and interest for as long as they live in their home. One of the most important decisions seniors must make when considering a reverse mortgage is whether to choose a fixed or adjustable rate.
The primary issues in comparing the fixed- and adjustable-rate reverse mortgage are:
Interest rate: lower with the adjustable rate.
Payment options: more flexibility with the adjustable rate.
Home equity preservation: adjustable rate can help preserve equity while the lump-sum payout required with the fixed rate can deplete equity.
Undue risk: the 5 payment options with the adjustable minimizes the risk of being defrauded unlike the lump sum with the fixed.
Jeopardizing benefits: because of the payment options with the adjustable rate, a borrower can avoid jeopardizing their SSI and Medicaid benefits.
Despite the disadvantages with the fixed rate, in nine short months it went from 2.7 percent of the total reverse mortgages made monthly to 68.9 percent: a staggering 2,452 percent increase.
Lenders have increased their profitability by steering seniors into the fixed rate despite being fully aware of the suitability concerns for their senior customers. They have made as much as 2 to 3 times more from the fixed rate than from the adjustable rate.
"In no way do I or the Reverse Mortgage Critic suggest that all lenders are steering. The alert that we have issued is simply to make consumers aware that some lenders are guilty of this practice so seniors may be on their guard," Link said.