Because of certain persistent reputational challenges faced by the reverse mortgage industry, it can be challenging for borrowers to find objective informational sources about the product category.
That’s what drove a listener of the podcast “The Indicator from Planet Money,” a production of National Public Radio (NPR), to ask hosts Wailin Wong and Darian Woods about the product during a recent episode.
“I was wondering if you guys could explain reverse mortgages,” the listener asked the group. “I’m trying to understand all things housing with the market being so crazy these days.”
Wong and Woods introduced the segment by talking about notable reverse mortgage ad spokesmen like Tom Selleck and Henry Winkler, before offering an overview of the Home Equity Conversion Mortgage (HECM) product backed by the Federal Housing Administration (FHA).
“[A] reverse mortgage is a loan where you can borrow money against the value of your house,” Woods explained. “So, the house’s title is still in your name, but you’re receiving payments while you start to owe more and more to the lender.”
Woods went on to explain the factors that determine the loan’s proceeds, including interest rates, the home’s value and age of the primary borrower.
“But theoretically, a borrower could get anything from a few hundred dollars to a few thousand tax-free dollars a month while also not needing to pay their mortgage,” he said.
The pair then discussed the perceptions of the products, with Wong asking if it was “too good to be true.” Woods said that such a loan isn’t “free money,” but added that it could be a viable solution for the right borrower.
“It is definitely appealing to folks who are strapped for cash day to day, but their home is maybe the only big asset that they have. But we should mention reverse mortgages don’t have the best reputation,” he said.
The show then played audio from a segment on “The Daily Show” that aired last year, which took a flippant look at reverse mortgages without an abundance of factual rigor, saying that most reverse mortgages end “with you losing your house, or dying and losing your house, or dying and losing your house and saddling your kids with debt.”
Woods, however, was quick to specify the context.
“This is a bit of an exaggeration for comedic effect,” he said. “Debt doesn’t go across generations, but it is up to whoever managed the estate to figure out how to pay this debt back. And usually, it’s by selling the house.”
The pair then asked Cora Hume with the Consumer Financial Protection Bureau (CFPB) to weigh in. Hume said that reverse mortgages can be expensive compared to other home equity-tapping tools.
“A lot of older adults are very surprised about how quickly the amount they owe grows and how quickly their equity that they have in their home decreases,” Hume said on the show.
Woods also cited a 2023 CFPB report that said a majority of reverse mortgage direct-mail advertising is sent to “more financially vulnerable consumers, those of low or moderate income.”
Woods ended the segment by reiterating that reverse mortgages can work for people in the right situation, with Wong adding “people should do their homework” and “read the fine print.”
