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Abuses Occurring in Reverse Mortgage Market
By
Stephen J. Baetge
Staff Writer
A
new report issued by the National Consumer Law Center (NCLC) finds
that abuses and abusers from the subprime mortgage industry have
made their appearance in the reverse mortgage market, raising concerns
that the equity and savings of millions of seniors may be at risk
by the same forces blamed for causing the current recession.
A reverse mortgage is a mortgage in which a homeowner, usually an elderly or
retired person, borrows money in the form of annual payments, which are charged
against the equity of the home and are used by many seniors to help ease their
financial burdens.
A new NCLC report, “Subprime Revisited: How the Rise of the Reverse Mortgage
Lending Industry Puts Older Homeowners at Risk,” has found that subprime
lenders have entered the reverse mortgage market.
These lenders and their unscrupulous predatory practices are considered a danger
to the financial well-being of America’s seniors.
“In the reverse mortgage market, seniors face some of the same aggressive
lending practices that were common in the subprime lending boom,” stated
the report’s author, Tara Twomey, an NCLC attorney. “Well-funded
marketing campaigns and perverse incentives to brokers are targeting seniors’ home
equity and using reverse mortgages as their tools.”
The reverse mortgage market is booming at a record pace despite the recession.
Annual reverse mortgage volume has topped 110,000 units and $17 billion, with
top banks like Wells Fargo and Bank of America and large insurance companies
like Genworth and MetLife leading the way.
The increase in the reverse mortgage market combined with the slowdown in other
home lending has attracted those interested in making a fast buck with other’s
footing the bill.
The NCLC report states, “Many of the same players that fueled the subprime
mortgage boom — ultimately with disastrous consequences — have turned
their attention to the reverse market.”
Predatory lenders — including some of the nation’s largest banks — now
view the reverse mortgage market as a source of profits that have dried up elsewhere.
Among the threats listed by NCLC are mortgage brokers looking for a new source
of rich fees and those who once reaped profits from exotic loans who are now
focused on wresting more wealth from vulnerable seniors.
Another detrimental practice found to be on the increase in the reverse mortgage
market industry is securitization, which allows subprime loan originators to
disassociate themselves from the downside risks of abusive lending.
The report drew an immediate response from lawmakers, who called for regulatory
improvements to protect seniors against predatory practices in the reverse mortgage
industry.
“We’ve seen this movie before, and it didn’t have a pretty
ending. Abuses in the subprime lending market almost brought down our economy,” observed
U.S. Senator Claire McCaskill, D-Miss. “Now we’re seeing similar
abuses with reverse mortgage lending — something needs to be done before
more lifesavings are depleted and more tax dollars are drained.”
McCaskill has authored a law to strengthen consumer protections against predatory
marketing practices within the reverse mortgage industry and is introducing new
legislation to improve regulations over the government’s role in reverse
mortgage lending.
NCLC’s report details numerous problems resulting from the growth of an
aggressive and dangerous reverse mortgage sales culture that has outstripped
the limited resources and uncertain funding for the counseling agencies that
current laws rely on to prevent reverse mortgage abuses.
“We urgently need stronger protections for reverse mortgage borrowers,
especially a suitability standard that obligates those who arrange and profit
from reverse mortgage deals to seek to avoid harming the financial interests
of elderly clients,” said Twomey.
The report calls for the extension of reverse mortgage protections to all equity
conversion products aimed at seniors, a prohibition on yield spread premiums
and prevention of questionable broker incentives in the reverse mortgage market.
It also suggests better data collection by lenders to allow them to more effectively
meet their clients’ needs.
“Reverse mortgages are complicated and expensive financial products that
must be used wisely and regulated carefully, or profit and volume driven sales
efforts can open the door to abuses and fraud,” said NCLC attorney Odette
Williamson.
The report also found an increasing danger from the use of reverse mortgages
as tools in schemes to steal the home equity of unsuspecting seniors or to fund
the purchase of expensive insurance and financial products that pay high commissions
to the sellers.
This page and its contents ©2009
Metropolitan News Company, Inc.
