Well into their senior years, Kenny and Fran Goodnow were struggling to pay their mortgage in 2007 when a salesman offered what seemed like a wonderful solution.
A reverse mortgage would tap the equity in their St. Petersburg home to pay off their existing loan and give them extra cash for travel, a new car, a nest egg. Best of all, they could stay in their house.
The couple only had to take care of the property taxes and insurance, which totalled barely $100 a month back then.
"He told us you get paid every month instead of you paying the bank,'' said Kenny, now 87.
Soon after, their insurance premium jumped so high they could not afford it. They fell behind on their bills. The reverse mortgage company demanded that they pay $217,000 or lose their home of 25 years.
The couple now wish they had better understood the seemingly simple reverse mortgage, a frequent lament of homeowners who turn to what is actually a complex financial product. And as increasing numbers of baby boomers become eligible for reverse mortgages, concern looms that many others could find themselves in the same predicament as the Goodnows.
Some will end up fighting to keep their homes.
That's why Fran, 71, was in a Pinellas County courtroom Tuesday morning, her age-speckled hands clutching the lectern as she nervously faced a judge.
"Mrs. Goodnow, the mortgage company is filing for foreclosure,'' the judge said. "Is there something you want to tell me?''
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You've probably seen the TV ads: Actors including Henry Winkler, Robert Wagner and Fred Thompson tout reverse mortgages as "a safe, effective financial tool.''
"It allows you to eliminate monthly payments, pay some bills or simply enjoy your retirement,'' Thompson, also a former U.S. senator and presidential candidate, says in his folksy drawl. "It allows seniors to stay in their homes."
Most reverse mortgages are federally insured loans that enable people 62 and older to turn part of their home equity into cash. The homeowners can take a lump sum or receive monthly payments, or a combination of the two. Either way, they don't make monthly principal and interest payments.
When the homeowners move or die, the amount of the loan and the accumulated interest must be repaid. If there is enough equity remaining, the owners or their heirs can sell the home, pay what's owed to the reverse mortgage company and keep the rest.
The reverse mortgage company is counting on people not staying in the house for too long. Plus, if the house sells for less than what is owed, the Federal Housing Agency takes the loss, not the mortgage company.
Created by a Maine savings and loan in 1961, reverse mortgages were relatively uncommon until the real estate boom boosted home values in the early 2000s. New reverse mortgages peaked in 2009 at nearly 115,000 in the United States as many homeowners sought ways to stay financially afloat during a recession that eroded the value of their other investments. The numbers have declined to about 60,000 since then.
Reverse mortgages can be a useful financial tool for homeowners who have substantial equity, intend to live in their homes for many years, and plan to take the cash out over time instead of all at once.
That is not what usually happens, however. Three out of every four borrowers took all of their money up front in a lump sum, according to a 2012 study by the federal Consumer Financial Protection Bureau. Because many of them were "young'' seniors in their 60s, withdrawing so much money early in their retirement could mean less money to cover major expenses later in life.
"Reverse mortgages are complex products that are difficult for consumers to understand,'' the study stated.
The study also found a long-running problem with "deceptive advertising,'' including solicitations that imply a federally insured reverse mortgage is a government benefit rather than a loan.
Another potential problem: As of 2012, the consumer bureau said, "a surprisingly large proportion'' of reverse mortgage borrowers — 9.4 percent — were at risk of foreclosure because they didn't pay the taxes or insurance.
The numbers are particularly high in the Tampa Bay area, especially Pinellas County with its large senior population. Between 2007 and 2010, one big player in the reverse mortgage field, James B. Nutter & Co. of Kansas City, issued nearly 470 reverse mortgages to Pinellas homeowners, including the Goodnows. Of those, 27 percent have been in foreclosure.
The state's economic woes helped inflate those figures, said Paul Madson, the company's vice president.
"Florida was by far the worst-hit state," Madson said. "So I would expect the foreclosure rate to be much higher than practically anywhere else.''
As for who should take out a reverse mortgage, "there's not one right way to do a reverse mortgage or one right person,'' Madson said. "I think you have to know all the circumstances.''
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The Goodnows bought their house in St. Petersburg's Historic Kenwood area in 1989 for $40,000.
A near-fatal car accident a decade later left Fran Goodnow, a certified nursing assistant, with permanent memory problems. Neither she nor Kenny, a retired security guard, remembers a series of refinancings that climaxed in 2007 with a $153,750 mortgage and payments of about $800 a month.
That's when Kenny noticed an ad for reverse mortgages.
Then, as now, anyone getting a federally insured reverse mortgage must first meet with a government-certified housing counselor who explains the complicated terms. Madson, of James B. Nutter & Co., said the Goodnows would have been required to go through counseling, although neither Fran nor Kenny recalls it.
Because Fran's credit was poor, she was instructed to deed the house over to Kenny, who would then be the sole name on the reverse mortgage.
Blind in one eye, dim-sighted in the other, Kenny signed the paperwork without paying much attention to the terms.
"Neither of us could read all that malarkey,'' Fran said.
Here's what they agreed to: James B. Nutter & Co. would pay off their existing $153,750 mortgage, so the couple would no longer have their $800 monthly payment. They would owe that $153,750, plus interest, to be deferred until Kenny died, moved out of the house or failed to pay the property taxes and insurance.
They quickly ran into trouble when two different companies canceled their insurance, first because of hazardous tree limbs on their property, then because they failed to make a payment. A new policy cost more than they could afford.
In 2012, the mortgage company started foreclosure proceedings. Kenny met with a company representative at a mediation session. "They wanted me to pay them,'' he said, so nothing came of it.
By Tuesday, the Goodnows owed $217,402.
Kenny was in a nursing home recovering from an infection and severe dehydration. So Fran, leaning on a cane, walked alone into the courtroom of Circuit Judge Jack Day. Two weeks earlier, she had lost her oldest son to a massive heart attack. Now she was about to lose her house.
When the case was called, a lawyer for the mortgage company said Kenny had failed to pay for insurance in 2009, 2010 and 2011. Fran intended to tell the judge that she and Kenny didn't understand how they could owe so much.
Instead, when Helinger asked if she wanted to say anything, she began to ramble about Kenny's health.
"Mrs. Goodnow, they say you still haven't paid your insurance,'' the judge gently redirected her.
"It was $300 a month, and we just couldn't pay it.''
"I sympathize with your husband in the hospital,'' the judge said, "but you understand I have to follow the law.'' With that, he gave the Goodnows until July 25 to get out of their house.
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A few hours later, Fran was still trying to accept that she had less than 60 days to find another place to live. With their combined $1,500 a month in Social Security, she and Kenny hope to get an apartment in a facility for the handicapped.
Fran acknowledges that neither of them could maintain the 1,110-square-foot house, which has fallen into an obvious state of disrepair.
The mortgage company likely gambled wrong in loaning Kenny so much on the house, which now has a market value of just $87,500. But because the loan was federally insured, the company will get its money back and taxpayers will ultimately foot the bill.
What advice would the Goodnows give anyone considering a reverse mortgage?
"Don't take it!'' Kenny bellowed from his nursing home bed. "Unless you are 99 1/2 years old.''
"Or,'' added Fran, "at least until you understand it.''
Susan Taylor Martin can be reached at firstname.lastname@example.org.