Reverse mortgages allow people to draw money out of their homes.
Designed for senior citizens, they're like mortgages in reverse: you might receive a monthly payment instead of making a monthly payment. Homeowners can structure reverse mortgages in a variety of ways, but the idea is to tap home equity.
The National Consumer Law Center (NCLC) suggests that these products may be the next subprime crisis. They point to the following similarities:
- Aggressive and sometimes misleading sales tactics
- Skyrocketing growth in the lending industry
- Incentives to sell certain products that may not benefit the consumer
- Increasing securitization
Seniors have a lot of money tied up in the form of home equity, and financial institutions would love to access that wealth. Reverse mortgages are one of the ways they do so. In many cases, reverse mortgages are appropriate and helpful for consumers, but sometimes they're not.
To find out what the NCLC is concerned about, read their report (PDF) or listen to a conference call (WMA audio file) summarizing the report.