April 10, 2008

Senate Approves McCaskill Provision to Curb Abuse in Reverse Mortgage Market

Amendment moves forward with housing bill as GAO agrees to investigate issue

WASHINGTON, D.C. – A provision offered by U.S. Senator Claire McCaskill to protect seniors from aggressive marketing and predatory lending in the reverse mortgage industry received Senate approval today as part of a housing bill aimed at helping individuals and communities dealing with the foreclosure crisis. McCaskill’s amendment, which strengthens and builds upon legislation she introduced in December, was added to the Foreclosure Prevention Act of 2008 and passed by the Senate 84-12.

“We cannot allow seniors to be taken advantage of in the rush to make a profit from reverse mortgages. This bill goes a long way in making sure seniors are protected and don’t fall victim to this type of predatory lending,” McCaskill said.

The legislation – co-sponsored by Senators Herb Kohl (D-WI) and Thomas Carper (D-DE) – was the result of a hearing McCaskill chaired late last year before the Senate Special Committee on Aging to look at abuse in the reverse mortgage industry. The hearing examined how the reverse mortgage industry has become a lucrative business by targeting seniors, who often have considerable equity in their home, to buy a potentially destructive type of loan using aggressive marketing practices. Although reverse mortgages are appropriate in some situations, this type of loan can also be financially dangerous, especially when paired with unsuitable financial products, including selling deferred annuities that won’t mature for decades to seniors.

McCaskill requested that the Government Accountability Office (GAO) investigate some of the issues raised. The GAO agreed to move forward with a study to look at abuses within the reverse mortgage industry, including aggressive marketing of additional, often unsuitable financial products while selling reverse mortgages and access to appropriate and independent financial counseling.

“I am proud to work with Senator McCaskill in highlighting the issue of reverse mortgages and seniors, and to see the Senate advance our legislation to strengthen consumer protection and fund independent financial counseling,” Kohl said.

McCaskill’s amendment that passed today will help protect seniors by:

Allowing the Department of Housing and Urban Development (HUD) to use a portion of mortgage insurance premiums collected under the Home Equity Conversion Mortgages (HECM) program to adequately fund independent counseling and disclosure activities.
Prohibiting financial product sales agents from serving as counselors.
Repealing a provision in existing law that offers incentives to purchase long-term care insurance with a reverse mortgage.
Prohibiting any requirement to purchase insurance or investment products as a condition of taking out a federally-insured Home Equity Conversion Mortgage.
Requiring HECM loan originators to be HUD certified.
Requiring counselors meet qualification standards and follow established protocols.
Requiring a study in consultation with consumer advocates to determine further appropriate consumer protections and the suitability of reverse mortgages for consumers.

McCaskill’s amendment was attached to the Foreclosure Prevention Act of 2008, legislation that will help individuals, families, and communities across the country deal with and recover from the foreclosure crisis.

Over the past few years, the U.S. experienced a boom in subprime mortgage lending to high-risk consumers, and today millions of Americans are struggling afford their mortgage payments as adjustable rates on many mortgages send monthly payments through the roof. According to a report from Congress’s Joint Economic Committee, nearly 20,000 Missouri families could lose their homes by the end of 2009 due to subprime mortgages with an economic cost of over $806 million in the state.

“Now is the time to take action to help alleviate the affects of this subprime mortgage mess,” McCaskill said. “That means helping people get the financial counseling they need so they can stay in their homes and investing in hard-hit communities to help them recover. That’s exactly what this bill will do.”

The Foreclosure Prevention Act of 2008 includes:

Assistance for communities affected by foreclosure in the form of supplemental Community Development Block Grant funds
Pre-foreclosure counseling.
Requirements for better mortgage disclosure.
Help for veterans facing possible foreclosure.
Incentives for purchasing homes in foreclosure.