December 14, 2007
McCaskill Bill Protects Seniors Amid Growth in Reverse Mortgage Industry
WASHINGTON, D.C. – U.S. Senator Claire McCaskill filed legislation today aimed at protecting seniors from aggressive marketing and predatory lending amid the rapid growth of the reverse mortgage industry. The Reverse Mortgage Proceeds Protection Act would help to protect seniors by ensuring they receive independent counseling prior to signing up for a reverse mortgage and requiring that the U.S. Department of Housing and Urban Development (HUD) issue stronger regulations related to consumer protections. Senator Herb Kohl (D-WI), chairman of the U.S. Senate Special Committee on Aging, is a co-sponsor.
“This bill is about protecting seniors. Without better financial counseling and other regulations, more and more seniors are going to fall victim to predatory lending in this industry, and they deserve better than that,” McCaskill said.
McCaskill introduced her legislation just days after chairing a U.S. Senate Special Committee on Aging hearing
in which members heard compelling testimony from a family affected by aggressive, predatory marketing of reverse mortgages, senior advocates, an official from HUD, and even an industry insider. The hearing marked the twentieth anniversary of the Federal Home Equity Conversion Mortgage (HECM), a HUD program that insures reverse mortgage loans for people over the age of 62.
Seniors have long been prime targets for predatory lending, including within the reverse mortgage industry where selling this type of loan is often a lucrative business. Seniors often have considerable equity in their homes, but for many, their house represents their only asset of real value. Because seniors often have so few financial resources beyond their home equity, it’s especially important that strong consumer protections exist to keep seniors from falling prey to aggressive marketing and predatory tactics that could leave them penniless.
For some people, a reverse mortgage provides a solution to the financial difficulties faced by those with diminishing retirement funds by allowing them to stay in their home while using their equity to cover other essential expenses. But for others, a reverse mortgage has the potential to significantly worsen their financial situation, especially if it is paired with unsuitable annuities and other unneeded financial products.
Specifically, the legislation, which has endorsed by AARP, would allow HUD to use the Mortgage Insurance Premium (MIP) to help pay for independent counseling services. HUD already requires that seniors meet with a counselor from an independent government-approved housing counseling agency before taking out an application for a reverse mortgage, but currently, the lenders are funding the counseling. This provision of the bill would allow HUD to use fees currently paid by those with reverse mortgages to help fund counseling services. Unless this additional funding is provided, the independence and quality of counseling could be compromised.
The Reverse Mortgage Proceeds Protection Act would also require HUD to implement new regulations to protect elderly homeowners from aggressive marketing. Specifically, it would require HUD to write new regulations to help ensure that seniors are not pressured or misled into purchasing unnecessary or unsuitable financial products, such as annuities, long-term care insurance, or life insurance. Several states have already begun establishing regulations to crack down on these practices.