Officials at the bureau, which issued a report on the industry in June, said they heard from a number of seniors who claimed that lenders encouraged them to make their older spouses the sole borrower on the loan. The brokers earn more money when they make larger loans with the older spouse as the only borrower.
Some surviving spouses complained that brokers told them they could be added later, but they were not. The bureau says those seniors are at greater risk of losing their homes. The complaints, according to elder-care advocates and federal officials, have been rising during the past year, although there are no exact numbers.
Linda McMahon, a 65-year-old widow, watched helplessly as the locks were changed on her home in St. Croix Falls, Wis., last month. She said that in 2005, when her husband was 82 and she was 58, a mortgage broker from Wells Fargo promised her that she could add her name to the mortgage once she turned 62. That never happened because that year, in 2009, she didn’t have time to deal with it as her husband’s health quickly deteriorated and he died from a heart condition, she said. Soon, she was unable to pay any of the property taxes and insurance. “I am devastated,” said Ms. McMahon, who is retired, living on Social Security income and now renting an apartment.
A spokeswoman for the bank declined to comment. Reverse mortgages also have troublesome incentive structures that might encourage brokers to steer seniors toward lump-sum loans, which carry a fixed interest rate, rather than a line of credit with a variable interest rate, the bureau found. In a lump sum arrangement, the interest charges are added each month, and over time the total debt owed can far surpass the original loan.
Brokers earn higher fees on these loans and even more money when they sell the loans into the secondary market, where they can get rates nearly double those for variable loans, according to rate sheets obtained by the consumer bureau.
Some 70 percent of reverse mortgages are taken in lump sums, up from 3 percent in 2008, according to the bureau. When seniors use the money to pay off other debts, especially right before retirement or early into it, that can leave them with scarce resources to pay their property taxes and insurance.
Ms. Forde, who lives in fear of losing her San Bernardino home, said she could not afford to save her house by paying the full $293,000 debt. Now, she said, she spends much of her day standing guard by the window. Her home is already in foreclosure proceedings. With a wavering voice, she said: “I have nowhere to go.”
