Reverse mortgages: danger point for older Americans

The elderly need to beware of lenders–and relatives
Older Americans who seek reverse mortgages need family members and friends to help protect them from being exploited by lenders and even their children.
Lew Sichelman
December 20, 2009
http://www.latimes.com/business/la-fi-lew20-2009dec20,0,2016408.story
Reporting from Washington – The recent conviction of a Long Island woman who stole the home of a 93-year-old retired barber suffering from Alzheimer’s disease should serve as a warning to the friends and relatives of elderly people about the surprising ease with which some older homeowners can be exploited financially.

The elderly are victimized to the tune of $2.6 billion a year, according to a recent report from MetLife’s Mature Market Institute. And that’s a conservative guess because it has been estimated that only one in 25 cases of financial abuse is ever reported to authorities.

At a conference last month of specialists in reverse mortgages, a financial tool that seniors can use to tap into the equity they have in their homes without having to sell or move out, lenders were asked to help uncover ploys and schemes designed to fleece unsuspecting and often overly trusting seniors.

That might seem somewhat ironic when you consider that lenders, especially those dealing in mortgages that don’t have to be paid back until the borrower dies or moves away of his own volition, often stand accused of robbing the elderly with their backward loans.

But that’s just not the case, says Lisa Nerenberg, an expert in the prevention of elder abuse who told members of the National Reverse Mortgage Lenders Assn. that most of the time, they’re not to blame.

“There’s an epidemic of financial elder abuse, but the chief perpetrators aren’t lenders. It’s family members,” says Nerenberg, a consultant who previously headed the San Francisco Consortium for Elder Abuse Prevention.

The MetLife study confirms that fact: “Approximately 60% of the substantiated Adult Protective Services’ cases of financial abuse involve an adult child.”

Reverse-mortgage lenders aren’t all squeaky-clean. In November, for example, the government pulled the plug on a Honolulu company that allegedly duped senior citizens into using the proceeds of their reverse mortgages to buy annuities from an affiliated insurance firm. In one instance, the company supposedly “steered an 88-year-old borrower into purchasing an annuity which did not mature until she reached her 104th birthday.”

Nerenberg, though, said most lenders are legitimate. And as such, they are “in an excellent position to spot” and report crimes against seniors.

But family members and friends also share in the obligation to protect their elders. Toward that end, here are four questions that Lori Delagrammatikas, who oversees the master’s program in adult protective services at the San Diego State University Research Foundation, says should be asked of any senior who is thinking of taking a reverse mortgage:

* Do they understand what it is? This subject will be covered in a session with an independent housing counselor that is mandatory under the Federal Housing Administration’s Home Equity Conversion Mortgage program. But you should make sure that your mother, father, grandparent, aunt or uncle knows what he or she is getting into before getting that far into the process.

* Who is going to benefit? Find out who the real beneficiary will be and why. “If it’s not the senior, look at it twice,” Delagrammatikas warns.

* Is the senior citizen being coerced? Determine if your older relative is being pushed into the loan, and if so, by whom.

* Can the senior’s needs be resolved in another way? There are several alternatives to reverse mortgages.

Delagrammatikas said he once counseled a 73-year-old woman who wanted to obtain a reverse mortgage to pay for a new roof but was concerned that the proceeds would result in the loss of state insurance coverage for her husband.

“I suggested that she forgo the pricey reverse mortgage and instead apply for a zero-percent deferred payment rehab loan though the city,” the adult-services professional said.

If you suspect your senior is being taken advantage of, contact the adult protective services agency in your state. APS programs are typically housed within local or state departments of social services or aging. Further information can be found on the National Center on Elder Abuse’s website at www.ncea.aoa.gov.

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