Reverse Mortgage Information

Congressman Barney Frank (D.-Mass.) recently appeared on the AARP-produced cable TV program “Inside E Street”. Barney Frank is chairman of the House Financial Services Committee and likely the elected official most well-informed and experienced about reverse mortgages. Barney Frank told host Sheila Kast that he doesn’t deduce a parallel between subprime loans and reverse mortgages.

Congressman Frank said that, in the case of the subprime loan, people are obliged to make payments. But in the case of reverse mortgage, people are receiving money. Thus there arises a clear distinction between the two.

In the case of the subprimes, as the values of the properties dropped, some people could not refinance, hence they were hurt. But comparatively, in the case of the reverse mortgage, the burden will fall on the government (because it is insured), just as it should. This is because this is not the fault of an individual but a part of a larger national economic problem.

Congressman Frank said that the results and the evidence in case of subprimes and reverse mortgages are very different. He invited people to read about the differences between subprimes and reverse mortgages. There is no talk about a reverse mortgage related crisis. But it is the subprime loans that shouldn’t have been granted in the first place, that have caused the financial crisis. Reverse mortgages are always given only up to the value or worth of a property. That way, people cannot be able to take out loans that their incoming cash flows cannot support. Thus subprime loans and reverse mortgages are two different use cases and should be viewed as such. Some of the things applicable to subprime loans are not applicable to reverse mortgages.

The host of the TV show, Kast, pressed Congressman Frank on whether he expected a crisis in the future in the case of reverse mortgages. Frank responded that we have had reverse mortgages for as long as we have had subprimes and reverse mortgages haven’t been a cause of the monetary crisis but the subprimes have been. This clearly illustrates that reverse mortgages are safer than subprimes as such they can’t be compared. Comparing subprimes with reverse mortgages would be like comparing apples and oranges.

Reverse mortgages help senior citizens during their times of financial needs. Borrowers need to be aged 62 years or above in order to qualify for a reverse mortgage. Further, the money derived from a reverse mortgage does not need to be repaid and can be used for any purpose as the home owner sees fit. The money can be drawn as a fixed monthly income, or as a one-time cash payment or as a line of credit. The only requirement is that borrowers need to keep the property in good condition and maintain the home owner’s insurance current.

Reverse mortgages are different from subprime loans, as seen by Congressman Frank. There is no need to repay the money obtained in a reverse mortgage. Sub primes were one of the causes of the current fiscal crises, but reverse mortgages are one of the solutions available for seniors to overcome the financial crises.