The attorney general of Michigan has re-released a consumer alert about the reverse mortgage product category during financial literacy month. The action is designed to inform consumers about the potential pros and cons of taking out these loans, according to an announcement issued by Attorney General Dana Nessel’s office on Monday.
“A reverse mortgage is a type of home equity loan extended, in most cases, to those who are 62 years of age or older,” the announcement stated. “It can be used to make home repairs, pay for medical expenses, or to supplement retirement income. A lender makes monthly payments to you based on the equity in your home, using your home as collateral. As long as you retain ownership of the home and pay the property taxes, the loan will not become due.”
The product can provide older homeowners with some financial flexibility under the right circumstances, but consumers should be aware of the product’s particulars, Nessel said.
“While reverse mortgages can provide financial relief for some, they also come with significant risks and obligations,” Nessel said in the statement. “Financial literacy means recognizing the potential pitfalls and long-term impacts a reverse mortgage can have on your financial future. I urge all homeowners considering this kind of loan to seek professional guidance and carefully weigh their options before signing on the dotted line.”
The office then reiterated some of the potential reverse mortgage use cases outlined in guidance from the Consumer Financial Protection Bureau (CFPB), including the requirement to complete U.S. Department of Housing and Urban Development (HUD)-approved counseling prior to closing the loan.
The alert also contains information about scammers who may present themselves as a professional that is either part of the reverse mortgage industry or someone who is seeking to commit financial fraud under the guise of obtaining a reverse mortgage. The CFPB issued guidance in 2020 warning about ways that bad actors may mention reverse mortgages when targeting older homeowners.
“AG Nessel recommends homeowners protect themselves by not only seeking advice from a financial counselor, but also confirming whether the loan is federally insured, whether the reverse mortgage repayment is limited to the value of your home once the loan becomes due, and if the mortgage payments are made directly to you,” the notice stated. “Remember that most reverse mortgages come with a right of rescission, which means you can cancel them within 3 days of closing without penalty.”
In a recent trends report, the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of the Treasury, sounded the alarm over challenges created by elder financial exploitation.