Forbes over the holiday weekend published a point-by-point rebuttal of a recent Philadelphia Inquirer article that questioned whether reverse mortgages were too risky for older homeowners.
Jack Guttentag offered his more upbeat assessment of Home Equity Conversion Mortgages, eventually concluding that all of the potential downsides involved are plainly explained to the average borrower.
“The obligations of reverse mortgages are very clear,” Guttentag, who also runs the “Mortgage Professor” blog and loan comparison site, wrote for Forbes. “They must pay their property taxes and homeowners’ insurance, and maintain their property. Failure to do any of this can result in foreclosure and loss of the home.”
He goes on to note that HECM borrowers must review and sign detailed disclosures that are unique to the product, and that such obligations are always covered in mandatory housing counseling sessions.
“In sum, I view driving a car as a lot riskier than taking a reverse mortgage,” he wrote. “When you drive, you have no control over the maniacs on the road, but when you take a reverse mortgage, you are fully in charge of all the risks.”
Guttentag, whose lengthy resume includes stints at the Wharton School and the Federal Reserve Bank of New York, has been a longtime proponent of responsible reverse mortgage usage. His piece came in response to a story the Inquirer published late last month, alleging that reverse mortgages generally do more harm than good for average borrowers and represent a predatory loan product. The story highlighted borrowers who had fallen behind on taxes and insurance costs — including some who may not have been accurately informed of their requirements under the loan — and accused lenders of glossing over the risks in their promotional materials.
Back over in Forbes, Guttentag claimed that advertisements, by their very nature, highlight the positives of any given product — whether it be a loan or a car — and that it’s up to the consumer to consult unbiased, third-party sources before signing on the dotted line. In addition, countering a claim in the story that lenders target lower-income borrowers, Guttentag allowed that the product has traditionally attracted people in immediate need of cash — but instead called on the industry to fight that association by pitching HECMs as a broader retirement solution.
“The viability of the HECM program over the long run depends on whether it can attract more borrowers who can get along without it, but can significantly improve their lifestyle with it,” Guttentag wrote.
Check out the remainder of his rebuttals, including a discussion of how HECMs affect heirs, over at Forbes.