The old cliché “if it sounds too good to be true, it probably is” might be appropriate for a lot of situations, especially when you’re borrowing against what is your most valuable asset – your home.
The January 10 “NBC Nightly News” gave a disparaging report about reverse mortgages – a special type of home loan that allows a homeowner to convert some of the equity in his or her home into cash. These loans are popular with senior citizens, one of the key demographics of the evening network news shows. However, the report relied wholly on the story of a 78-year-old who said she got a raw deal.
“Reverse mortgages allow seniors 62 and older to borrow against the equity they've built up in their home,” NBC correspondent Tom Costello said. “But upfront costs can be steep, $12,000 for Ms. Munoz. Then, her attorney claims, the sales agent who suggested the reverse mortgage sold the 78-year-old woman long-term investment annuities that don't mature until 2033. When she tried to withdraw some of that money, she faced a 20-percent penalty.”
According to her daughter, Munoz wasn’t fully aware of the terms because “she's primarily Spanish speaking, she's hard of hearing, and she trusts people.” Munoz has lived in the same home in Los Angeles for 53 years, according to the report, and had joined a class-action lawsuit against the sales agent, broker and lender.
Costello ignored the possibility Munoz neglected her obligation to be responsible borrowing against her home – an asset in which she had built up $300,000 in equity. The report also did not provide comment from Munoz’s lender for another side of the story, only mentioning they contended she was counseled.
“The lenders insist Ms. Munoz received federally required financial counseling,” Costello said.