Puerto Rico Sen. Ríos catalogs reverse mortgages as financial abuse
SAN JUAN – The practice of omitting information when presenting and finalizing a reverse mortgage for property owners over age 60 was cataloged Thursday as “financial abuse” by Sen. Carmelo Ríos.
“The owner is not informed about how unpaid monthly interest accumulates on the balance sheet, which usually triples the debt. Also, another requirement to maintain [a reverse mortgage] agreement is that people live permanently in the property. This represents a big problem because, if the time comes when a condition affects the tenant and he or she has to move to an assisted living home or with another family member, the property must be sold,” Ríos said in a written statement.
“The mortgage banks suggest this financial product is an alternative to retirement, to live better during [one’s] last years. However, as detailed in Senate Resolution 484, which was approved, homeowners otherwise could enter into a tangled web with the only way out being to deliver their house and, in the process, lose their property’s accumulated value,” he added.
This measure would investigate reverse mortgages and their effects on consumers.
He explained that, after the death of the owner, if the heirs want to acquire the property, they must pay the mortgage, which would be the same as paying for the value of the house, plus legal expenses, appraisal and interest.
Ríos said many families and individuals in Puerto Rico are bound by these agreements and that officials from the AARP (formerly American Association of Retired Persons) who he spoke with assured part of the problem is that this population has fallen victim to poor financial planning.
A reverse mortgage is a mortgage loan insured by the federal government for people age 62 or older who own their residence. The loan does not require monthly payments or having perfect credit to qualify because it is guaranteed by the “equity,” or accumulated value, of the home. This type of mortgage loan was created under federal law in 1987, but it was not until the 2000s that this product was available in Puerto Rico, and in recent years has begun to take hold in the market.