Reverse Mortgages: Consumer Reports gets it wrong again and again and again.

Joe Morris, CEO of Generation Mortgage Company does a fabulous job  debunking the (inaccurate) picture Consumer Reports Magazine paints of this industry. His comments can be viewed here. It is not my intent to duplicate his ire. I do wish to point out how the incessant misinformation stops seniors in their tracks.

The problem with the Consumer Reports’ featured article as above noted, like so many other of its articles, is that their reporters paint with a broad brush. Their strokes cover up the beauty of the program. They focus on the “negative” without looking at the soul of the program.  If I were considering a reverse mortgage, I too would be deathly afraid of moving forward after reading these articles.  And it would be sad if I had made this decision without realizing that this program is the one program that would work for me.

I contend that it is Consumer Reports that takes advantage of our seniors. I have to believe that the publishers would want our elders to have the appropriate information so an informed decision can be made.  Yet, after reading several of their reverse mortgage pieces, I get the feeling that a conclusion was reached before the article was even written. The reporter saw what he/she want to see and discovered what he/she expected to find.

Let me provide you with a couple of examples: In the April 2008  on line edition, Consumer Reports wrote about alternatives to reverse mortgages , suggesting that one should sell their home and move to cheaper quarters.

 Well an overwhelming number of seniors, especially older seniors do not want to move. Their next suggested solution was to have a senior enter into an agreement with a family member who will provide money in return for future equity.  Did it not occur to the magazine that children provide money because of love and not because of any other consideration. Maybe I’m getting a bit picky. Apparently the magazine does not understand that many of the adult children have lost their jobs and or have a family of their own. They cannot take care of mom and or dad and at the same time take care of their own family.  It was true that once upon a time, the adult children were spending in excess of 2 billion dollars a month to help their parents. Obviously this is no longer the case.

Any other suggestions?

In the October 2008 on line edition Consumer Reports wrote under Reverse Mortgages Can Be A Costly Way To Tap Into Home Equity, that AARP’s Public Policy institute found only 58% of the respondents (we do not know how many people took part in this survey) said that the reverse mortgage completely met their needs.  I believe that the question had to be asked in a very suggestive (leading) way. I believe that the question was asked to evoke the following thoughts. “Well I love the program but you know there was a lot of paperwork and each month there are those $30 a month servicing fees and while I’m on the subject, I wish they wouldn’t accrue those interest charges every month and by the way those upfront fees were high. So you know I am not completely satisfied; but without it my life would be in shambles”.

I believe that this industry has one of the highest product satisfaction ratings.  My clients are extremely satisfied with the changes the reverse mortgage have brought to their lives.  It is my understanding that some lenders, in their surveys are seeing a 90% or better satisfaction rating.

In an April 2008 on line piece, titled Fees Pile Up, Consumer Reports suggests that these fees are not tax deductable. I suppose that this means that one should not get a conventional loan either because those fees, except for the discount points, are not tax deductable either. The article goes on to say that because of the substantial upfront costs, “you should not even consider a reverse mortgage if there is any possibility (emphasis added) that you may move out of your home in a few years”. In other words-DO NOT GET A REVERSE MORTGAGE-

The fact is that the reporter saw what he/she wanted to see and discovered what he/she expected to find.

  On the other hand, look what was not seen:    Many seniors believed that the stock market was infallible; that real estate values only went up. They were wrong. Many of our elders lost a significant amount of their portfolio. They do not like the insecure feeling that comes along with their error in judgment. Even their pensions have disappeared. They are now forced to deal with a new reality.  Therefore, proceeds from reverse mortgages can act as an emergency investment vehicle (for the immediate future the reverse mortgage growth factor in the loc looks appealing), an estate planning device or a retirement facilitator.  Now that is flexibility!!!

Comments

[James E. Veale, CPA, MBT]

Dennis,

Your citing of the nonsense Consumer Reports presents successfully raised my ire. At the top of the webpage you linked to the April 2008 article in Consumer Reports.org on Reverse Mortgages,
CR claims to be not only nonprofit and independent but also EXPERTS (all caps added).

First let’s dispel with the idea that they are altruistically nonprofit. In reading the CR 2006 IRS Form 990 (their real name is the “Consumers Union of United States, Inc.”) for the fiscal year ended May 31, 2007 their accrual basis income exceeded their expenses by almost $13 million and their historical cost assets exceeded their current valued liabilities by over $98 million. Even though the term “nonprofit” has a technical meaning they may qualify under, they are in fact a tax-exempt profit making organization with tremendous reserves.

Moving on to their implied expertise in tax matters, Consumer Reports has “divined” the conclusion that no RM borrower can ever deduct any portion of their upfront costs. With over 37 years experience in and holding a masters degree in taxation, without sufficient taxpayer information, I personally cannot reach that conclusion on any RM borrower. I am (sarcastically) amazed that they can. It seems the author spent so much time doing in depth tax research and analyzing every RM borrower’s tax information, he/she forgot to identify himself/herself as the author.

There is no question that there are no closing costs that are tax deductible; however, the same holds true for those same expenses on all principal residence mortgages, forward or reverse. FHA MIP, however, may be deductible and origination fees may be classifiable as deductible points. As to the timing and deductibility of FHA MIP and the categorization, timing, and deductibility of the origination fees, the rules are the same for both forward and reverse mortgages.

So it seems that not only does Consumer Reports unjustifiably emphasize the least favorable aspects of reverse mortgages but as self-proclaimed experts, they also intentionally misrepresent the deductible of RM upfront costs so as to put reverse mortgages in a further bad light. But for what purpose??

[James E. Veale, CPA, MBT]

Dennis,

For once we disagree. The article by Mr. Morris appears to be nothing more than reactionary. It is a model of what not to write.

For example not all outstanding RMs are HECMs. Nor all RMs currently being originated HECMs. Some state governments still offer their own versions of RMs.

Second, are the higher lending limits actually available? Unless and until HUD issues a Mortgagee Letter, Mr. Morris’ claims are “toothless”; however, his claims make him and the rest of us look like a bunch of firebrands. [Remember how HUD never implemented the law requiring waiver of the upfront MIP when proceeds were used to purchase LTC insurance? Finally after almost a decade and in recognition of the futility of this provision without HUD’s implementation, Congress and the President eliminated it in HERA.]

Who really cares about our own “strict” Code of Ethics when one of Generation’s own “peers” had to be reprimanded and fined by the NY AG for its obviously deceitful use of a tax-exempt to market RMs. Even more recently, this month, the CEO of the largest retail RM originator in the country self-righteously testified before Congress and a national TV audience that his bank does not offer negatively amortized mortgages. There is an old Biblical admonition: “Pride cometh before the fall.”

Not all RMs have government mandated counseling. Maybe they need it. In 2006 over concern that proprietary counseling was not objective, California mandated that all RMs have counseling by HECM approved counselors.
Why did Mr. Morris have to cite a careless claim of some dear senior at the end? Not even this dear senior has any guarantee that she will be able to stay in her home until she dies. This once again points up the so-called adherence to a strict Code of Ethics. Citing this claim is the most infuriating and irresponsible part of this poorly crafted “counter-offensive.”

If we fail to admonish our leaders when they retaliate with irresponsible claims and appeals, not only are they failing our industry and our seniors but more importantly, ourselves.