Reverse Mortgage Loan Blog

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.

Found here.

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