Transparency about reverse mortgages in event of death

by Justin da Rosa08 Jul 2015
Reverse mortgages are under fire once again, and this time for the fact that reverse mortgages become payable – by next of kin -- in the event of borrower death.

“The first thing adult children should know about HECMs is that these reverse mortgages technically become due and payable when the borrower dies,” a Bankrate.com article states.

It’s a policy originators are aware of, but something that certainly should be mentioned up-front when discussing these types of loans with clients.

After all, reverse mortgages have recently come under regulator pressure due to the fact that some of the advertising hocking these loans was deemed misleading.

MPA reported in June that the CFPB released the results of a focus group study that found many consumers were left with false impressions after viewing reverse mortgage advertisements. After seeing the ads, many were confused about reverse mortgages being loans.

Many were also left with the impression that reverse mortgages were a government benefit, or that they would ensure consumers could stay in their homes for the rest of their lives, according to the CFPB.

And perhaps more clarity is needed when explaining what happens to these loans in the event of borrower death.

"If (the children of deceased borrowers) want to get a loan in their own name and pay off the reverse mortgage, they can," Cara Pierce of ClearPoint Credit Counseling Solutions in Fresno, California told Bankrate.com. "But if they can't and there are no other assets, like life insurance, other property or a 401(k), that they could use to pay off the loan, they will have to sell the property."
 

COMMENTS

  • by Anthony Camacho | 7/8/2015 9:51:00 AM

    The heirs have the same options upon death of the parents if the parents had a Forward mortgage on the home. The heirs can sell the home, pay off the mortgage with assets; if any are available, or refinance. The refinance takes place after the heirs transfer the title to themselves and then refinance to pay off the mortgage.

  • by Wendy Smith | 7/8/2015 10:26:39 AM

    Exactly. So, what's the hype about the need to pay off a reverse mortgage when the borrower dies?

  • by elvar19 | 7/9/2015 12:12:02 PM

    On a relevant note - Most homeowners overpay on their mortgages. The startup I work for ( http://bit.ly/1KRNtYJ ) deals with this, and a lot more. It frequently and automatically offers homeowners the cheapest options for their mortgage, and it determines if it is a good time to refinance. The platform does the same for home insurance, property taxes, bills, services, and a lot more aspects for your home. The benefits it offers are completely free to the homeowner. We charge insurance and mortgage companies, not you.

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