Mortgages Being Fixed For The Elderly

This article makes me sick to my stomach and banks should be reducing the principle balances for the elderly who were put in Option Arms and putting them into a reverse mortgage.  An Option Arm is where the borrower had 4 choices for a payment; minimum payment which didn’t even cover the interest, interest only, 30 year, and a 15 year payment.  It does adjust and if the minimum payment is made the amount you owe will go up because it doesn’t cover interest.

Just as a Financial Planner must do what is best for their client and a lot has to do with age, mortgage professionals (I am using that term loosely) should be held to the same standards.  The Option Arm could have been a good product but it was used incorrectly and everyone was selling them because they could make so much money off of them.  In the defense of some mortgage people, it wasn’t so much they were taking advantage of these people it is more that they just didn’t understand how they worked.  The banks that came out with the product did understand them and should have done more to prevent certain people from obtaining them.  In my opinion the product was meant for investors, self-employed, and commission based employees.  I guess maybe if property values kept going up no one would have ever said it was bad but we will never know. 

“Mr. Garcia owed about $490,000 on his home, which a recent appraisal said is now worth only about $150,000. Bank of America wrote down about $405,000 of the loan. To account for the rest, the bank then issued a reverse mortgage for about $85,000. But instead of paying that amount to Mr. Garcia, as is usual with a reverse mortgage, the bank paid the proceeds to itself. A reverse mortgage is a form of equity loan available to older homeowners that generally doesn’t need to be repaid until after the homeowner dies. That means Mr. Garcia can remain in his home without having to make mortgage payments to Bank of America. (Mr. Garcia is making small monthly payments on a second mortgage that was modified by another lender.) When he dies, the house reverts to Bank of America, and his heirs can choose to buy it back for the $85,000 plus interest and fees. Or, if the heirs choose to walk away, the bank can sell the house, and any proceeds above the loan amount would go to Mr. Garcia’s family.”

http://online.wsj.com/article/SB10001424052748704112904574477261964054646.html?mod=rss_Money