History can teach great reverse mortgage lessons...
The effects of predatory mortgage lending are devastating and far from over in the US. Canadians may have dodged a financial bullet, but have property owners learned important financial lessons? "Those who ignore history are doomed to repeat it" has proven true in economies and for individuals.
The other day I came across an article from the April 2008 issue of Investment Executive that I’d kept because its exploration of the potential for predatory lending rang my “reverse mortgage alarm.” The cited research paper titled “Predatory Lending in a Rational World” identified 3 market conditions associated with predatory lending:
1. Little competition among lenders
2. Property owners with lots of home equity, and
3. Borrowers unaware of risks and mortgage terms and practices.
When selling financial products generates rewards for professional salespeople, whatever their credentials, can consumers with less knowledge than these sellers make informed buying decisions? Or are they simply being sold? Isn’t subprime-meltdown America an example of inadequacies in borrowers’ abilities to forecast financial outcomes? Doesn't it demonstrate how the encouraged view that “everything will work out if you try hard enough” can have dangerous repercussions? Yes, there was greed in there, but on individually smaller scales than the greed within the financial sector itself.
The booming US reverse mortgage marketplace and the smaller but growing Canadian counterpart appear to fit the three-pronged predatory lending criteria, which are based on data from the cited study. Have regulators learned from the US mortgage lending crisis in time to save reverse mortgage borrowers from a comparable meltdown? In the US, the meltdown-prevention dialogue has finally begun, but what will the outcome be for reverse mortgage borrowers/property owners?
The New US National Consumer Law Centre (NCLC - www.consumerlaw.org ) will release “a comprehensive new report on the growing dangers posed by aggressive reverse mortgage lenders who target the home equity of vulnerable seniors" tomorrow. The report describes the growing presence in the reverse mortgage industry of a number of the abusive techniques and of some of the same players involved in the subprime mortgage debacle.
If consumers don’t learn to be proactive and learn all about the risks and workings of financial products like reverse mortgages BEFORE they need the money and must sign on the dotted, who will stop history repeating itself?
Industry professionals on both sides of the border may do their utmost to inform and educate borrowers before they are asked to sign a reverse mortgage contract, but are consumers committed to becoming as well-informed as those selling these financial products?
Since the reverse mortgage may last for the rest of your life, shouldn’t you want to understand what could lie ahead in your life together as the decades unfold—the good, the bad and the ugly?
The other day I came across an article from the April 2008 issue of Investment Executive that I’d kept because its exploration of the potential for predatory lending rang my “reverse mortgage alarm.” The cited research paper titled “Predatory Lending in a Rational World” identified 3 market conditions associated with predatory lending:
1. Little competition among lenders
2. Property owners with lots of home equity, and
3. Borrowers unaware of risks and mortgage terms and practices.
When selling financial products generates rewards for professional salespeople, whatever their credentials, can consumers with less knowledge than these sellers make informed buying decisions? Or are they simply being sold? Isn’t subprime-meltdown America an example of inadequacies in borrowers’ abilities to forecast financial outcomes? Doesn't it demonstrate how the encouraged view that “everything will work out if you try hard enough” can have dangerous repercussions? Yes, there was greed in there, but on individually smaller scales than the greed within the financial sector itself.
The booming US reverse mortgage marketplace and the smaller but growing Canadian counterpart appear to fit the three-pronged predatory lending criteria, which are based on data from the cited study. Have regulators learned from the US mortgage lending crisis in time to save reverse mortgage borrowers from a comparable meltdown? In the US, the meltdown-prevention dialogue has finally begun, but what will the outcome be for reverse mortgage borrowers/property owners?
The New US National Consumer Law Centre (NCLC - www.consumerlaw.org ) will release “a comprehensive new report on the growing dangers posed by aggressive reverse mortgage lenders who target the home equity of vulnerable seniors" tomorrow. The report describes the growing presence in the reverse mortgage industry of a number of the abusive techniques and of some of the same players involved in the subprime mortgage debacle.
If consumers don’t learn to be proactive and learn all about the risks and workings of financial products like reverse mortgages BEFORE they need the money and must sign on the dotted, who will stop history repeating itself?
Industry professionals on both sides of the border may do their utmost to inform and educate borrowers before they are asked to sign a reverse mortgage contract, but are consumers committed to becoming as well-informed as those selling these financial products?
Since the reverse mortgage may last for the rest of your life, shouldn’t you want to understand what could lie ahead in your life together as the decades unfold—the good, the bad and the ugly?
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