Reverse Mortgages: How Science Helps Protect Seniors

“Reverse mortgages help seniors get the money they deserve”

From a commercial on reverse mortgages; see one such commercial.

According to the Consumer Financial Protection Bureau, 9.4% of active reverse mortgages were in default in 2012. That is 54,000 homes with the head of household over 62 years of age. This is not a pretty sight when elderly parents lose their home. They either go out in the street or to a nursing home that likely does not fulfill anyone’s expectations. For example, when 101-year-old Texana Hollis was evicted from her home in Detroit for nonpayment of tax and insurance on her reverse mortgage, her belongings were moved to the street.

Enter Jerry Brown, governor of California. On Sept. 30 he became the first governor in the nation to sign a bill giving more protection to the elderly considering a reverse mortgage. It does this by providing those that are interested in obtaining one with more than a complicated disclosure booklet which seniors might not read. The new addition is a question sheet that is filled out by the applicant, thereby forcing informed participation in the reverse mortgage decision beyond watching a television commercial. By actively working through the worksheet, the risk and consequences of the reverse mortgage become apparent, as well as how it applies to the applicant’s particular situation. This process helps the interested party make an informed decision rather than a choice without knowledge of personal consequences.

The bill in California is called Assembly Bill 1700 (or AB No. 1700). It obliges reverse mortgage sellers to give applicants this questionnaire, which helps them evaluate their own suitability for a Home Equity Conversion Mortgage (HECM), another term for a reverse mortgage. It must be filled out before the mandatory counseling session applicants receive prior to the loan.

One of the people behind the scenes in this legislation, believe it or not, is a neuropsychologist. She is Natalie Denburg, PhD, who published a number of studies on senior decision making. Her experiments show that it can be impaired in certain elderly groups or even in the unimpaired under certain circumstances. By communicating with policy makers or those that influence legislation, her studies make an impact. As a result, laws are being enacted that protect those unable to do so themselves. Denburg said in a recent interview, “reverse mortgages are complex financial products, and these new legal requirements serve to ensure that senior citizens will make informed financial decisions." She also states that the legislation "will help ensure that persons who are involved in the sale of reverse mortgages to senior citizens will act in the best interest of reverse mortgage loan borrowers.”