How Reverse Mortgage Lenders Put Older Homeowners’ Equity at Risk
The National Consumer Law Center* in Boston has released a new study about reverse mortgages, How Reverse Mortgage Lenders Put Older Homeowners’ Equity at Risk
From the Introduction:
"The US Office of the Comptroller of the Currency and other federal regulators that oversee banks were slow to recognize the threat posed by the recent boom in subprime mortgage lending, and slow to act. So it was noteworthy when, in June 2009, Comptroller John C. Dugan, went before a gathering of bankers and warned of a danger growing in a market designed to serve the nation’s seniors: 'While reverse mortgages can provide real benefit, they also have some of the same characteristics as the riskiest types of subprime mortgages — and that should set off alarm bells.'"
"During 2008 more than 100,000 seniors used reverse mortgages to tap more than $17 billion in home equity. Within the mortgage industry, reverse mortgages continue to grow despite the economic downturn, with volume more than doubling between 2005 and 2008. Despite a summer slowdown in originations, 2009 still appears to be on pace for a record year."
"Certainly, the continuing availability of reverse mortgages is good news for seniors who need to cash out some of their housing wealth to supplement Social Security, to meet unexpected medical costs, or to make needed home repairs. But growth in the reverse mortgage market has unleashed other, more malign forces."
"Many of the same players that fueled the subprime mortgage boom — ultimately with disastrous consequences — have turned their attention to the reverse market. Lenders, including some of the nation’s largest banks, view that market as a source of profits that have dried up elsewhere. Mortgage brokers see it as a new source of rich fees. Predators who once reaped profits from exotic loans have now focused on wresting more wealth from vulnerable seniors. And securitization, which allowed subprime loan originators to disassociate themselves from the downside risks of abusive lending, is becoming commonplace in the reverse mortgage industry."
"Reverse mortgages are complicated. The opportunities for abuse abound. Seniors, many of whom lack experience with complex financial products, often depend upon lenders and brokers for expertise and guidance. Reverse mortgage lenders, like subprime lenders, emphasize the benefits that they provide to borrowers and often tout their commitment to responsible lending principles. However, such claims are undermined by a growing public record of how subprime lenders — including some now active in the reverse mortgage market — profited from acting irresponsibly during the recent mortgage boom."
Conclusion:
"Senior advocates and policy makers supported the creation of reverse mortgages as a means to help seniors in need tap home equity that might otherwise remain out of reach. The federally insured Home Equity Conversion Mortgage has been a lifeline to many senior homeowners since its creation two decades ago. But today, the consumer protections built into the program are being eclipsed by the drive to exploit senior home equity by major banks, insurance companies, mortgage brokers, and Wall Street investors. Sophisticated sales campaigns designed to maximize loan volume target senior homeowners. This push—on the Internet, on TV, by direct mail, in senior centers, and over kitchen tables—threatens the financial well-being of America’s seniors."
"The greatest threat looms over millions of low income seniors with significant amounts of home equity. While some of these homeowners genuinely need access to their built-up equity, that need can make them especially vulnerable to bad advice from brokers and loan officers out to put the most money in their own pockets, and in the coffers of lenders and investors. Low-income seniors are also vulnerable to predators selling overpriced and inappropriate financial products and services."
"Federal and state governments must act now to ensure that reasonably priced and fairly structured reverse mortgages are available for those who truly need them, and that vulnerable seniors are protected from predatory or abusive lending practices."
The entire report can be read online.
*(NCLC does not have the resources for advising consumers directly and refers consumers to their county bar associations or legal aid programs for local legal referrals. The web site of the National Association of Consumer Advocates, www.naca.net has additional listings of legal referrals.)
Read More...More Articles
- Senator Ron Wyden's Office: On Health Care, Inflation Reduction Act Includes the Culmination of Wyden’s Work On the Finance Committee to Address the High Cost of Prescription Drugs
- Press Briefing by White House COVID19 Response Team and Public Health Officials; December 15, 2021
- How are States Prioritizing Who Will Get the COVID-19 Vaccine First? CDC’s Advisory Committee on Immunization Practices (ACIP) Released an Interim Recommendation For the Highest Priority Group
- On the Buses with Older Warrior Women
- The Dangers of Celebrating Christmas: Injuries from Christmas Trees, Electrical Lights, Sleds and Chimneys
- My Mother’s Cookbook Frosted Cakes: Seven-Minute Frosting, 1234 Cake, Pound Cake Torte and Carrot Cake
- How Health Affects Voter Turnout: There’s An Important Polarization of the Electorate to Consider - The Health Divide
- Stateline: The Elections Are Coming and There's a National Shortage of Poll Workers
- FactCheck.org Highlights Trump’s Fuzzy Medicare Math, "Medicare will be $700 billion stronger over the next decade thanks to our growth." South Dakota, September 7, 2018
- March 23rd: FTC and FCC Hosting Joint Policy Forum and Consumer Expo to Fight the Scourge of Illegal Robocalls