Reverse Mortgage Loan Blog

Peter H. Bell, president of the National Reverse Mortgage Lenders Association, was the soul of reason when he appeared at a hearing of the Senate Special Committee on Aging last summer at the Ochs Senior Center in University City.

Handled ethically, Mr. Bell explained, reverse mortgages can provide an exceedingly valuable financial service for senior citizens — especially those with fixed incomes.

Indeed they can. Handled ethically, reverse mortgages can enable consumers, age 62 and older, to turn the equity in their homes into cash payments. The borrowed money can be used for any purpose. Most frequently, the AARP found in a survey, the money is used to pay off an existing mortgage, make home repairs and improve the borrower’s “quality of life” — providing extra income, paying bills or making gifts to their children and grandchildren.

Handled ethically, if the borrower continues to live in the home and stays current with property taxes, homeowner’s insurance and basic home repairs, a reverse mortgage loan never comes due.

Ethical handling, though, hardly has been the hallmark of the some in reverse mortgage lending industry. Sen. Claire McCaskill, D-Mo., who brought Mr. Bell to University City for that hearing last summer, deserves credit for bringing these issues to light.

Mortgage lenders’ and brokers’ good intentions alone cannot be trusted, especially when it comes to senior citizens ripe for the picking. Americans age 65 and older will number nearly 55 million by 2020. Many own their homes and hold an equity honey pot, which, according to the reverse mortgage industry’s own estimates, amounts to $4 trillion.

If we’ve learned anything from the subprime mortgage debacle, it is that the financial service industry, left unchecked, simply cannot police itself. In the absence of strong regulation, its reckless greed can reach suicidal dimensions and wreak havoc on all of us.

Reverse mortgages are a relatively new financial product that, while starting slowly in early 1990s, have experienced explosive growth. They are marketed and bankrolled by the same Wall Street crowd that brought us toxic mortgage-backed securities. And, under current regulations, they expose elderly borrower to the same risks of treachery.

Details and risks are spelled out in recent reports by the Government Accountability Office and the National Consumer Law Center. They include jacked-up fees and interest along with deceptive marketing practices that push borrowers to place loan proceeds into exotic annuities that make no financial sense.

Ms. McCaskill and Rep. Barney Frank, D-Mass, chairman of the House Banking Committee, are writing legislation that Ms. McCaskill’s office says will contain strong protections; they expect to introduce the measure by year’s end.

Industry representatives, including Mr. Bell, note that federal regulations already provide special protection to reverse mortgages consumers, most notably mandatory participation in a loan counseling program.

Counselors provide a valuable service. But they are no match for a fast talking huckster sitting across a kitchen table from a senior citizen.

The National Consumer Law Center has made a sensible proposal: Impose a duty on reverse mortgage lenders to ensure the products they are selling are reasonably “suitable” to their customers’ financial circumstance. Suitability standards, long imposed on stock brokers and investment advisers, are a proven strategy to prevent abuse.

Ethical lenders should have no problem with that. The hucksters would howl to the heavens — further proof that the reform is needed.

Found here.

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