Senior trap: Reverse mortgages can help or hurt older people
But many people across the country only talk with counselors briefly over the phone. They don't spend the time looking over the loan documents. They don't hire an attorney to review the risks of what they are doing, Walker says.
Walker remembers meeting with a senior couple four years ago who wanted to do a reverse mortgage. The husband was 80 years old and the wife was 59.
The lender talked the couple into doing a reverse mortgage with just the husband on the loan instead of waiting three years when the wife could also have been put on the loan.
Two years ago, the husband passed away and the wife lost the house.
"She was upset and blamed the government," Walker says. "But I warned them over and over again. ... She wanted me to save the house, but at that point there was nothing we could do."
The amount of the reverse mortgage loan is based on the age of the youngest borrower. So some people choose to keep the younger spouse off the loan.
Just taking out a reverse mortgage is not the end of borrowers' obligations. They have to pay property tax, homeowners insurance, homeowners association fees and keep up home maintenance. The home also has to be used as a primary residence, Walker says.
Will VanderToolen, director of counseling services at AAA Fair Credit Foundation where Walker works, says the downside to doing a reverse mortgage is it could be the last real asset a person has.
"If anything else goes wrong, this individual can't just sell the house and take all the money and use that money for another financial emergency down the line," he says. "They are pretty much all tied up."
But for many people, reverse mortgages can be a life saver.
One senior couple, Walker says, used a reverse mortgage to pay off their traditional mortgage and left the rest in a line of credit. Before the reverse mortgage, their budget was negative by $560 a month. Now their budget is positive by $400.
So far they haven't touched the line of credit. They told Walker, "It has just given us such a relief and our health has improved because of the relief."
"That, actually, is what I hear the most often from the people who do it," Walker says.
Denton, the reverse mortgage specialist, says he notices the same thing.
"You would not believe how it changes their lives," Denton says. "After it happens, tears come to their eyes. They hug you. They kiss you. You are like a member of the family. I have 'moms' across the country. They tell me, 'Call me your mom.’ ”