Recently, a customer requested a consultation after hearing about scams related to reverse mortgages targeting the elderly in the news. They were confused about whether the product itself is dangerous or if the issue lies with certain companies misusing it, as reported in the news. Let's break it down step by step to find the answer.

A reverse mortgage is a product that allows homeowners aged 62 and older to borrow against the equity of their home. Unlike a traditional mortgage, where payments are made monthly, funds are received from the lender in a lump sum, monthly payments, or a line of credit, and the principal and interest are repaid when the home is sold, the owner passes away, or the home is no longer used as the primary residence. The most well-known product is the HECM (Home Equity Conversion Mortgage), which is insured by the Federal Housing Administration (FHA) and is the only type of reverse mortgage backed by the federal government. While the product itself is a regulated financial product under federal oversight, some companies have been reported in the news for using misleading advertising or engaging in incomplete sales practices.

Looking at the market situation in Kansas City, Kansas, as of March 31, 2026, the average home value is $198,195, which is a 1.0 percent increase from a year ago. This is favorable, but the property tax burden in Kansas can be a concern. The average effective property tax rate in Kansas varies by county but is generally around 1.2 to 1.5 percent, which is higher than the national average. Even after obtaining a reverse mortgage, the homeowner must continue to pay property taxes and insurance, so determining whether they can handle this burden is a key consideration.

There are three main items to check in order. First, confirm whether the counseling agency you are working with is HUD-approved. HECM requires mandatory counseling from this agency before applying, as this process is designed to protect consumers. Second, carefully review the fee structure outlined in the contract. The origination fee and mortgage insurance premium (MIP) are initially around 2 percent and approximately 0.5 percent annually, so it is important to be aware that the initial costs are higher than a traditional mortgage. Third, assess whether you can pass the financial capability evaluation, meaning whether you can continue to afford property taxes and insurance in the future.

When viewed in a balanced way, where some points are advantageous and others may be burdensome, the benefits include securing cash flow for living expenses or medical costs without monthly repayment obligations, and the HECM's non-recourse structure means that if the home value falls below the loan balance, heirs are not required to pay the excess due to FHA insurance. Conversely, a disadvantage is that over time, the equity in the home may decrease, reducing the assets that can be passed on to children, and there is a risk of default if property taxes or insurance cannot continue to be paid.

As of 2024, Kansas is projected to have 17.9 percent of its population aged 65 and older, indicating a steady demand for retirement-related counseling in the area. HUD-approved counseling typically lasts about an hour and can be conducted via phone or video, with counselors reviewing the applicant's financial situation and other alternatives. During this process, the applicant must receive a confirmation that they understood the information before proceeding to the actual loan application. Counseling fees vary by agency but are generally low or may be waived based on income level. The scams reported in the news often relate more to incomplete sales or malicious solicitation rather than issues with the product itself. It is helpful to be aware of the warning signs provided by the Consumer Financial Protection Bureau (CFPB).

• Approaching you by claiming it's free or rushing you into a contract
• Indicating that HUD-approved counseling can be skipped
• Encouraging you to invest in other products simultaneously
• Explaining loan terms verbally without documentation

If you notice these signs, it is safest to pause and first check with a HUD-approved counseling agency or family members. Therefore, it is essential to go through HUD-approved counseling and discuss thoroughly with family before making a careful decision. This is not investment or legal advice, and it is recommended to consult with professionals before entering into any contracts.