Reverse Mortgage Abuse on the Rise
After her husband died in November 2003, Ernestine Boach met with a financial adviser, who told her that her $60,000 life-insurance policy was inadequate. He assured Boach, who had just retired as a clerk for a local school district, that he could boost the value of the estate that she would leave to her daughter. And, he said, it wouldn’t cost her a cent. “He said he had a wonderful deal for me,” recalls Boach, of Chula Vista, Cal. “He said all I have to do is buy a reverse mortgage.”
What she really bought though was a lot of trouble, according to a lawsuit she later filed in California Superior Court. The adviser, who was an insurance agent, called in an employee of Financial Freedom Senior Funding Corp., a large reverse mortgage lender based in Irvine, Cal., who arranged a $171,000 loan.
With part of the reverse mortgage, Boach bought a $250,000 life-insurance policy. The agent also sold her an immediate annuity for more than $44,000 and told her that the $4,000 annual payout would pay the insurance premium, the suit alleges. In addition, Boach bought an $80,000 deferred annuity, which, she says she was told, would eventually pay back the reverse mortgage. Her heirs would get the house free and clear as well as the life-insurance proceeds.
After signing on, Boach began to worry. A real estate agent crunched the numbers. Within five years, she would owe $240,000 on the reverse mortgage, for principal and interest. By then, Boach says, the $80,000 annuity would have grown to only $97,000. Plus, the suit says, once the immediate annuity ended in ten years, she’d have to pay the life-insurance premiums out of pocket.
Boach wanted out. To pay back the reverse mortgage, she took out a home-equity loan, which will cost her $1,000 a month, she says. Boach, now 67, says her blood pressure has shot up after four years of fretting. “It will affect me for the rest of my life financially and health-wise,” she says.