Government Proposes More Safeguards For Reverse Mortgages

12/18/2007

posted by N. Sioris

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Just two short days after chairing a Senate sub-committee on Aging, Democratic Senator, Claire McCaskill, introduced legislation designed to protect seniors from predatory and aggressive lending practices, when they apply for a reverse mortgage.

The Reverse Mortgage Proceeds Protection Act, which is endorsed by AARP , will allow FHA/HUD Mortgage Insurance Premium money to help fund independent reverse mortgage counseling services. Independent, government-approved HUD counseling is required whenever an applicant wishes to apply for a reverse mortgage. There is no charge to the senior for the counseling services. In the past, HUD provided about 3 million dollars per year for counseling, which is considered inadequate. Counseling agencies charge about $100. per session. Currently reverse mortgage lenders are allowed to fill the funding gap for the counseling services. Since lenders stand to profit from the origination of a reverse mortgage, allowing them to pay for counseling could compromise the integrity and independence of the counseling that is provided.

Additionally, The Reverse Mortgage Proceeds Protection Act, will require HUD to author new regulations to protect senior homeowners from aggressive and predatory marketing tactics. Specifically, it requires new regulations to ensure that seniors are not pressured or mislead into purchasing unsuitable financial products, such as annuities, life insurance, or long term care insurance.

The proposed legislation will also permanently repeal the unimplemented provision waiving the Mortgage Insurance Premium (MIP) if the proceeds of the reverse mortgage are used for long term care insurance. This provision was never implemented and is unanimously opposed to by senior advocates and AARP. The concern if this provision were to be implemented, is that seniors will be targets for overly aggressive insurance agents selling long term care as a "government approved" product.

As with any financial decision, education is the key to avoiding problems and future regrets. The HUD website has a list of the top ten things to know if you're interested in a reverse mortgage.