Reverse mortgages don't always work

— -- Trusted celebrity pitchmen such as Henry Winkler, Robert Wagner and James Garner do a good job telling older homeowners about the benefits of a reverse mortgage. Here's what they don't tell seniors: Reverse mortgages are expensive, complicated and always changing.

The government-insured program, which is available to homeowners who are 62 and older, has helped many seniors tap their home equity for living expense. But it's not a lifeline for everyone. It hasn't prevented seniors from defaulting on their taxes and homeowners insurance and possibly losing their homes to foreclosure. Delinquency has grown in recent years.

Adding to the confusion: During the economic downturn, some providers have left the business, while a new type of reverse mortgage has emerged.

Nelly Rush doesn't want to be part of the delinquency statistics.

Rush and her husband, Richard, got a reverse mortgage in 2006 from Seattle Mortgage Co. The money allowed them to pay off their $30,000 mortgage, fix their house in Inverness, Fla., and hook up to the city water line. But Rush, 75, says they didn't understand that it was an expensive proposition.

"We didn't know that we had to pay over $11,000 in closing costs," she says. And they're still responsible for caring for the house, and paying property tax and home and flood insurance.

Rush's husband died 16 months ago. She relies on Social Security and a small pension to pay the bills. She doesn't have extra cash to pay for home repairs. And she can't afford to sell the home, repay what she owes on the reverse mortgage and move closer to her family.

"I hope some people will think twice before they jump into something they don't understand," she says.

Altered realities

Retirees have often relied on their home appreciation to help fund their retirement. But now, plummeting home values make it hard to sell a home or take out a home-equity line of credit. Even reverse mortgages aren't as helpful as they were in the past.

Falling home values reduces the amount of cash that a retiree can get from a reverse mortgage. And those who already have a reverse mortgage may no longer have any equity, because their home has dropped in value. That can make it harder to sell the home.

That's not a problem if the homeowner wants to stay in the home and can afford maintenance, taxes and insurance. But cash-strapped seniors who use much of their savings to pay for the closing costs may eventually fall behind on their tax and insurance bills. About 30,000 of borrowers' reverse mortgage loans are in default, out of about 600,000 outstanding loans, says Peter Bell, president of the National Reverse Mortgage Lenders Association.

Reverse mortgage borrowers don't have to repay their loans unless they sell their homes or move, so the term "default" seems contradictory. But because the program is insured by the Federal Housing Administration, the loans are considered in default when the tax and insurance bills are unpaid.

Rising delinquency could put FHA-insured reverse mortgage programs at risk. And if a senior's outstanding bills are not resolved, the debt can trigger home foreclosure. But that should be a last resort, the FHA says.