Some estimates suggest that a staggering one in five seniors over the age of 65 have faced some form of financial exploitation. Sadly, the individuals most at risk of being taken advantage of are those who can least afford it–including seniors hit the hardest by the recession. This form of senior abuse is incredibly disheartening, and it is important for family, friends, advocates, and lawmakers to take the necessary steps to ensure these individuals are not kicked to curb by the unscrupulous and then forgotten about.
Sometimes the mistreatment does not stem from outright theft or fraud. Instead it is based on dangerous practices which, even if legal, involve manipulation of vulnerable individuals.
Take, for example, reverse mortgages. The idea is simple enough. A senior is able to borrow money against the value of their home in which they have equity. In theory the mortgage allows aging individuals to have access to a resource that they need–cash for retirement–instead of being forced to continue working well into their 70s or 80s to make ends meet. Many seniors were hit hard by the financial crisis and saw their savings vanish. It is not at all uncommon for an individual to reach old age without any significant retirement planning. This can place these community members in quite a bind, making them susceptible to unscrupulous financial practices.
Reverse mortgages, or example, come with various pitfalls. A recent report from the U.S. Consumer Financial Protection Bureau (CFPB) touched on several of those problems. Most notably is the serious risk that seniors often do not understand the long-term consequences of not having enough equity in their home to support them throughout their retirement years. The loan is only as good as the equity, but it is inherently difficult to know for sure how much money one needs to last throughout their retirement. If the equity runs out, seniors are often place in a very tough spot.
In addition, lenders have the power of foreclosure if any problems arise. For example, if the senior falls behind on property tax payments then the lender can foreclose. This is all on top of significant “origination fees,” closing costs, and interest payments that the senior is forced to pay. Taken together, these situations often force seniors into difficult circumstances that are worse than if they had not messed with the reverse mortgage in the first place.
Sadly, according to the CFPB, default on these reverse mortgages have risen substantially in recent years. Over 54,000 borrowers are currently in default–and that is only counting those mortgages backed by HUD insurance. In addition, more borrowers are taking the lump sum payout at an earlier age. This is dangerous, because it means that the likelihood increases that the funds will run out before one’s retirement is over.
All community members should understand the actual risks of these reverse mortgages before taking the plunge. Family members are advised to protect their senior relatives, so that the elder does not unknowingly sign up for something which will leave them worse off financially.
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