Transcripts

Reverse Mortgages Can Lead To A Reversal of Fortune

SUSIE GHARIB: More and more older Americans are using a different way to make ends meet -- reverse mortgages. They're a way to convert equity in a house into a long-term stream of cash and they're getting popular as values of other assets, like stocks, are down. But as Jeff Yastine reports, reverse mortgages aren't right for everyone.

JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Reverse mortgages were created in the 1970s as a way to help seniors make ends meet when inflation and interest rates were high. Decades later, with inflation and interest rates at record lows, reverse mortgages are again enjoying renewed popularity. The Department of Housing and Urban Development says the number of new reverse mortgage applications jumped to more than 13,000 in fiscal 2002. That's an increase of more than 60 percent from the year before. Industry watchers say falling interest rates have made reverse mortgages more appealing.

PETER BELL, PRESIDENT, NATIONAL REVERSE MORTGAGE ASSOCIATION: What's happened is people might have had their savings in interest bearing investments that, CDs, for instance, that had been yielding six, 5 1/2 percent, and as those mature and they roll them over to today's rates, they're getting 1 1/2, two percent. So what we've seen is people look at the reverse mortgage as a tool for replacing that income, which is often the discretionary spending money they have available.

YASTINE: A reverse mortgage is similar to a standard home equity loan, but with some important distinctions. You must be at least 62 years and own your home free and clear. The advantages, there are no income or credit requirements for the applicant and there is no loan repayment for as long as the individual lives in the house. The down sides, well, it is a loan, which will have to be repaid, with interest, either by your heirs when you die or when you move. And there are different types of reverse mortgages. Most are insured by the government, but the up front costs and fees can vary widely. Applicants are also required to undergo financial counseling by an independent third party.

ROGER CRESSWELL, REG. ACCOUNTING EXECUTIVE, FINANCIAL FREEDOM: The counseling is important because the counselor does go over all aspects of the program. They compare the program to other avenues that they could be looking at. So once the senior completes this counseling, it is hoped, and we think it is logical that the senior then does have enough facts to make that decision or to discuss it further with other advisors.

YASTINE: Scam artists have occasionally used the guise of a fraudulent reverse mortgage to victimize seniors. Today, Fannie Mae (FNM) and the Department of Housing and Urban Development, or HUD, write the majority of reverse mortgages. Applications and information are available at no charge through HUD approved lenders. Jeff Yastine NIGHTLY BUSINESS REPORT Miami.