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Corporate & Securities Law: FinancialCounsel
Securities Regulator Issues Warning Regarding Investors? Use of Reverse Mortgages
By James Eccleston
For many individuals, their largest asset is their home, and it is their most precious source of retirement security.
Unfortunately, over the years financial advisers have convinced homeowners that they should tap into their home equity to purchase investments. In 2004, the NASD (National Association of Securities Dealers), now known as FINRA (Financial Industry Regulatory Authority) issued an investor alert entitled, ?Betting the Ranch: Risking Your Home to Buy Securities.? That alert addressed the use of new mortgages, refinanced mortgages and lines of credit secured by the home. The NASD expressed its concern that ?investors who must rely on investment returns to make their mortgage payments could end up defaulting on their home loans if their investments decline and they are unable to meet their monthly mortgage payments.?
More recently, homeowners (over the age of 60) have been the target of those who wish to sell them a ?reverse mortgage.? While reverse mortgages may be appropriate in some circumstances (such as when homeowners cannot meet their monthly mortgage payments or cannot pay bills or meet unexpected expenses), FINRA has alerted investors to stay clear of reverse mortgages to finance a lifestyle that they otherwise cannot afford or to pay for investments. FINRA warns in its recent alert entitled, ?Reverse Mortgages: Avoiding a Reversal of Fortune?, that ?as more Americans near retirement age, some financial institutions are aggressively marketing reverse mortgages as an easy, cost-free way for retirees to finance lifestyles ? or to pay for risky investments ? that can jeopardize their financial futures.? Let?s examine FINRA?s guidance.
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