BEWARE OF REVERSE MORTGAGES

Increasingly, strapped U.S. homeowners are opting to take out a “reverse mortgage,” a loan against a house’s value that is repaid when the borrower dies or sells the property. The number of federally insured reverse mortgages issued to senior citizens in the past three years alone—nearly 335,000—is more than the total from 1990 through 2006. Consumer advocates have long cautioned that reverse mortgages should be used as a last resort because of their high fees. Now, those warnings are growing louder due to a spate of fraud.

The National Consumer Law Center says seniors are facing the same kind of aggressive tactics that were common during the subprime lending boom. And according to a recent report from the FBI and the U.S. Department of Housing and Urban Development (HUD), a host of “unscrupulous loan officers, mortgage companies, and loan counselors” are defrauding desperate Americans. In one scheme, people facing foreclosure are told that a reverse mortgage can save their homes, then “ rejected” for the mortgage and steered into a deal that transfers title of their property to “ investors.” The end result: They lose their homes anyway.

Other scam artists sell loans that appear to be HUD-insured reverse mortgages but are not, according to the AARP, the nonprofit advocacy group for Americans 50 and over. Still others, billing themselves as “investment advisers,” persuade consumers to invest the proceeds of reverse mortgages in other financial products that come saddled with extra costs. And in some cases, the FBI report says, the proceeds of investment schemes are not invested—they’re simply stolen.

Homeowners should turn down any pitch that uses reverse-mortgage funds to purchase financial products. In fact, they should think twice before signing up for this type of loan at all. Other options—like taking a home-equity line of credit or even moving to a smaller place—may be able to meet your needs at a lower cost, according to the AARP.

— Gary Weiss

Originally published at http://www.parade.com/news/intelligence-report/archive/091025-beware-of-reverse-mortgages.html

AMERICAN HOMES ARE GETTING SMALLER

October 11, 2009

In a reversal of a decades-long trend, the median size of new houses in the U.S. shrank last year, and the downsizing continues in 2009. New houses under construction through June were nearly 200 square feet smaller than two years ago. Has the McMansion era come to an end?

Jeffrey Mezger, CEO of residential construction giant KB Home, thinks so. “We were in the most overheated housing market the country has ever seen, and I don’t think it will revert back to that anytime soon,” he says. Eric Belsky, executive director of the Joint Center for Housing Studies at Harvard University, says that’s a good thing: Smaller houses suited to first-time buyers could help the struggling construction sector rebound faster. “Demand has shifted from people looking to trade up to larger homes to first-time buyers who are typically younger, with less income, looking for a place that is more modest,” he says. Smaller houses are also attractive to empty-nesters looking for places that are more energy-efficient and less expensive to maintain, according to Stephen Melman, an economist with the National Association of Home Builders. “People want to buy only the home they need right now,” Melman says. “They’re not going for an extra 1000 square feet anymore.” Yet, by any international measure, American homes are still extra-large: Average new-home size peaked here in 2007 at 2521 square feet. At that time, the average house in Germany and France was about 1200 square feet; in England it was 900 square feet.

-J. Scott Orr