Reverse Mortgages the Answer to Foreclosures? How about this for a debt prescription: instead of paying your mortgage to the bank, the bank pays you. It's called a reverse mortgage, and some homeowners say it's a saving grace in an era of foreclosures.
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Reverse Mortgages the Answer to Foreclosures?

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Reverse Mortgages the Answer to Foreclosures?

Reverse Mortgages the Answer to Foreclosures?

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From NPR News, this is NEWS & NOTES. I'm Farai Chideya.

How about this for a debt prescription: Instead of you paying your mortgages to the bank, the bank is paying you. It's called a reverse mortgage and some folks are calling it a saving grace in an era of foreclosures.

For more, we've got economist Julianne Malveaux. She is president of Bennett College. Welcome.

Ms. JULIANNE MALVEAUX (President, Bennett College for Women): Hey, Farai. How are you? Happy New Year.

CHIDEYA: Yes, Happy New Year. We're headed in to 2008. I'm very excited.

What about in an era of foreclosures, this thing called reverse mortgage. What is it and who has generally been getting it?

Ms. MALVEAUX: Well, the reverse mortgages generally go to elderly people who have built up some equity and they want to figure out how to live well. And so they can take a mortgage out. And at the end of the day, being - going into nursing home, whatever, basically, they've got - the equity has been lent to them.

It's a really kind of good idea for some people but not for all people. It depends on your age, it depends on you circumstances. My challenge, I think, and I think why we're talking about it is because it doesn't work for everyone. Some people can get ripped off from it.

CHIDEYA: Well, let's talk about this specifically in the context of people who are in the throes of potential foreclosure. When you have these reverse mortgages, you have people essentially saying, hey, you get the house, I get the money out of the house. When you have a situation where you already owe a lot of money on the house or you owe - you're mortgage payments are more than perhaps you can keep up with, how does that affect your ability to get a reverse mortgage?

Ms. MALVEAUX: The only people who are good prime for reverse mortgages are people who have clear equity. In other words, you have a mortgage of 300,000 -let's say your house is worth 700,000. You can get back reverse payments of $2,000 a month or you can get the $300,000. That's if you're in a great place.

So the challenge, Farai, is for people who don't have a lot of money to buy into this notion of reverse mortgages when they don't reverse for them.

CHIDEYA: Are there - when you mentioned potential rip-offs, what form would those take?

Ms. MALVEAUX: Someone might come in and say I can give you so much money but they can give it to you for a limited period of time. We've seen our elders get involved in consequences where they are fixing up, working up, and not clear about the terms. Always, people need to be clear about what the terms are around these reverse mortgage situations. So you have, a lot of times, some of our older people thinking, okay, I want to just get the steps fixed. And the steps getting fixed are going to cost you $20,000. Well, but if the loan turns out to be $60,000 because they offer you other things, you have to be concerned.

So I would say to anyone, and I wouldn't say over 60 to make it pejorative about age, but just pejorative about being careful. If you got a deal that looks too good to be true, have someone else look at it. What we've seen in a lot of our inner city communities is that African-American folk are given offers that they can't refuse, which means they ought to refuse them.

CHIDEYA: Let's move on to another topic. The CEO of McDonalds said that the company has created more millionaires and especially black and Hispanic millionaires than any other economic entity ever anywhere. That's from a recent column by George Will.

Now, McDonalds is sometimes seen as the poster child for unhealthy fast food in low-income areas, black and Latino neighborhoods in Los Angeles, you've even seen some moves to really block new construction of fast food. So does it even things out that some of the people who are making profits are also black and Latino?

Ms. MALVEAUX: Farai, this was such an interesting question that was raised because there are two things going on here. One, of course, is as you say when you go into a community and you enable folk, you're creating millionaires and that's a great thing. Let's just applaud McDonalds and other companies who do that. The flip side is this - at what cost?

And so while I think this is very exciting, I don't think there's anything to celebrate until we get numbers, until we see what it means. How many jobs does it generate? I mean if Farai Chideya or Julianne Malveaux is the next head of a McDonalds company in southeast L.A. or downtown D.C., how many jobs does that generate? Those are the questions we have to ask.

So it's exciting but, you know, in what context? George Will threw something out there that came from the CEO of McDonalds. McDonalds is a great company. So many of our - Bennett College has some support for McDonalds and so many others do. But at the same time, what does it mean and how does it turn into jobs?

CHIDEYA: Franchises allow entrepreneurs to buy in to running part of a successful brand and when you think about McDonalds and other companies, are franchises a good way for black and Latino entrepreneurs to go as suppose to starting a business from scratch?

Ms. MALVEAUX: Franchises are a fast track. In other words, much of the initial investment that comes from buying and building a business is circumvented when you go to a franchise. So that's what we're looking at. We're looking at how you can leapfrog over all the time and energy it takes to deal with a new business. Again, I think we look at these businesses and we see lots of positivity, at the same time we want to see some independence from other businesses. So, we don't want to say that this is the only way to go. We're excited about it, it's not the only thing.

CHIDEYA: In a lot of cases, I remember doing a story several years ago on how African-American women were actually the leading group, percentage-wise, in starting new businesses. But that most of these businesses were sole proprietorship where it's like me, myself and I. I'm dong all the work, I'm paying all the bill. We're not talking about growing things into mega corporations like Microsoft or even, you know, a smaller franchisable business.

So when you think about the opportunities that entrepreneurs of color have, particularly black ones, what do people need to be smarter about when they're thinking about raising capital and growing their business?

Ms. MALVEAUX: Again, Farai, I think you've raised a key question is the sole entrepreneur versus the big entrepreneur. The sole entrepreneur has to figure out; is it about simply developing what we call a lifestyle business? In other words, you're business will support you, your children, and your next generation, or are we looking at something that's going to leave a legacy for the community? And I think if you go back and look at some of our businesses, you'll see both. You'll see, let's say Cathy Hughes who's taken a TV-Radio one is not just about she and her offspring, it's about literally a legacy.

Do you want to look at someone who's done something very different and there's no pejorative intent involved. But someone who said, you know, I'm going to open up a clothing store. It's mine. I'm going to leave it to my daughter. It's no big thing. We've created wealth in our family. But that's all that it is. So, you try to balance those things and say, you have to have a mix of them as we move into the 21st century - a mix of opportunities to maximize wealth in two different kinds of ways.

CHIDEYA: As we look ahead to 2008, it's been a bit of a rough year in 2007 economically - people starting to lose their homes. I've read something recently about how in Ontario, California, which is fairly close to L.A. - there is now a tent city where there used to be economically vibrant community. Now, there are people who literally are living on the street. And that's just one very concrete symbol of some of the things that have been going on. What can we look ahead to in 2008? Are things going to get better for people in tight spots?

Ms. MALVEAUX: I think we look to a challenging period. We have an election, and that election is going to shape aspects of the economy. We have an economy that has not been fertile for everyone, especially for people at the bottom. I think not only the bottom, but the middle. You've talked about tent cities. People have talked about ways and places where mortgages have closed and those kinds of things. We are not in an economic solid place, and it's frightening. At the same time, there are choices that we can make as a community to improve where we are. So, as I look ahead, I'm concerned about - especially younger people, that I'm concerned about the whole issue of mortgage lending. But I'm also excited about possibilities for people in terms of investing in businesses in the future.

CHIDEYA: Do you think that, again, this is one of those crystal ball questions, do you think it's a good time for people to buy a house in 2008?

Ms. MALVEAUX: It depends on the market, Farai. It depends on where you are. What we've seen is an unstable housing market but that's a national situation. There are places where you can buy a house and do very well. If you can buy a house at less than the appraised price, you are blessed. And there are people who are distressed and want to sell. So if you can do that, that's a wonderful thing. Also, if you can combine resources with people and think about ways not to buy a house, but to buy an investment opportunity, I think that's a great thing.

CHIDEYA: Well, Julianne, thank you so much.

Ms. MALVEAUX: Thank you.

CHIDEYA: Economist Julianne Malveaux is president of Bennett College and she joined us from NPR headquarters in Washington, D.C.

Just ahead on our blogger's roundtable, R. Kelly gets another trial date. And we get ready for 2008 with New Year's resolutions and old school traditions.

This is NPR News.

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