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Reverse Mortgages Tied to Financial Abuse of Seniors
By
Michael A. Piekarz
Spectrum Staff
Strengthening
consumer protection laws was the focus of a December 12th hearing
of the U.S. Senate Special Committee on Aging which examined the
rapid growth of reverse mortgages and the increasing problem of predatory
sales practices by lenders.
Reverse mortgages were introduced 20 years ago by the U.S. Department of Housing
and Urban Development (HUD) under the Federal Home Equity Conversion Mortgage
(HECM) program. The program allows people over the age of 62 to create a monthly
income using the equity in their home.
The number of seniors seeking reverse mortgages has skyrocketed. HECM reverse
mortgage loans have increased by 41 percent from fiscal year 2006 to fiscal year
2007. Aggressive marketing targeting senior consumers often glosses over the
risks of a reverse mortgage while conveying the payoff quite clearly.
Some seniors are induced into reverse mortgage programs which are inappropriate,
or, as part of a greater scheme, to induce them to purchase unneeded financial
products.
“When used properly, reverse mortgages can be an effective way for seniors
to tap into the equity of their house as a means to bolster their retirement
security,” stated committee chairman Senator Herb Kohl (D-Wis.). “But
too often these products are not used effectively, and seniors end up losing
their homes.”
The committee heard testimony from HUD, AARP and other senior advocates, professionals
in the reverse mortgage industry and family members of those negatively impacted
by reverse mortgages. Among the solutions discussed was adequate financial counseling
for those taking out loans on their home equity and changes in laws regulating
lenders.
“Clearly, much needs to be done to protect seniors from financial abuse.
The government should be urging caution and not be in the position of promoting
the use of inappropriate reverse mortgages,” testified Prescott Cole on
behalf of the Coalition to End Elder Financial Abuse.
“Reverse mortgages are expensive loans and should only be used as a last
resort. Where appropriate, counselors should help seniors find more suitable
alternatives.”
Repeatedly, the testimony before the committee focused on parallels between the
reverse mortgage industry and the creative lending practices blamed for the current
financial woes caused by defaults due to sub-prime mortgages.
Carol Anthony, whose mother was victimized by an inappropriate reverse mortgage,
stated her belief that seniors are a major target for unscrupulous lenders.
“Both sets of lenders have demonstrated they are more than willing to sell
loans to people who can’t afford them or to the elderly with home equity
lines that don’t need them,” said Anthony.
“Lenders are no longer dealing in sub-prime loans, and people without money
are unable to qualify for loans. So where do you think the thousands of real
estate and insurance salesmen and women are headed? To the reverse home mortgages
market.”
The committee concluded the hearing and indicated that new reverse mortgage industry
trends including aggressive marketing and the use of reverse mortgages to fund
unsuitable annuities and other unneeded financial products warranted increased
consumer protection and industry oversight. It also concluded that the reverse
mortgage program is successful in its original intent of providing seniors with
the financial wherewithal to pay expenses in their “golden years.”
“We hear a lot about the concept of aging in place, and with strong consumer
protections, the reverse mortgage industry has the chance to provide seniors
the opportunity to do just that, to grow old in a comfortable, secure home environment,” concluded
committee ranking member Senator Gordon H. Smith (R-Ore.).
This page and its contents ©2008
Metropolitan News Company, Inc.
