REPORT: SENIORS AND THEIR HOME EQUITY THREATENED AS SUBPRIME LENDERS, ABUSES APPEAR IN REVERSE MORTGAGE MARKET
National Consumer Law Center Report Released at News Event with U.S. Sen. Claire McCaskill
BOSTON – Oct. 6, 2009 – Abuses and abusers from the subprime mortgage market have begun showing up in the reverse mortgage market, putting at risk the equity and savings of millions of seniors.
That’s the main finding of “Subprime Revisited: How the Rise of the Reverse Mortgage Lending Industry Puts Older Homeowners at Risk,” a report issued today by the National Consumer Law Center.
“In the reverse mortgage market, seniors face some of the same aggressive lending practices that were common in the subprime lending boom,” said Tara Twomey, an NCLC attorney and author of the report. “Well-funded marketing campaigns and perverse incentives to brokers are targeting seniors’ home equity and using reverse mortgages as their tools”
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. Despite a slowdown in originations due to the recession, reverse mortgage originations in 2009 still continue at a record pace.
As the new NCLC report notes: “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.”
U.S. Senator Claire McCaskill said today’s report validates the need for regulatory improvements in this industry in order to protect America’s seniors as well as our tax dollars. “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. 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,” Sen. McCaskill said.
This report describes 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,” Twomey said.
The report also calls for the extension of reverse mortgage protections to all equity conversion products aimed at seniors, a prohibition on yield spread premiums and other perverse incentives in the reverse mortgage market and better data collection by lenders.
“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 Odette Williamson, an NCLC attorney.
The report also highlights the danger of predators who use 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.
ABOUT SEN. MCCASKILL
U.S. Sen. Claire McCaskill authored a law to strengthen consumer protections against predatory marketing practices within the reverse mortgage industry, is introducing new legislation to improve regulations over the government’s role in reverse mortgage lending as well as to further strengthen consumer protections.
The National Consumer Law Center is a non-profit organization that seeks marketplace justice on behalf of low-income and vulnerable Americans. NCLC works with, and offers training to, thousands of legal-service, government and private attorneys, as well as community groups and organizations representing low-income families. Our legal manuals and consumer guides are standards of the field. Learn more and find a link to the new report on our Web site: http://www.consumerlaw.org.
For more information about reverse mortgages, see more articles from ThinkGlink.com about reverse mortgages.