Senate Hearing Discussed Reverse Mortgage Practices

12/15/2007

posted by N. Sioris

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On December 13, 2007 Democratic Senator Claire McCaskill of Missouri, chaired a senate sub-committee hearing to discuss reverse mortgage industry practices and the potential for abuses within the industry. Specifically the hearings revolved around the U.S. Department of Housing and Urban Development's federally insured reverse mortgage, the HECM loan (Home Equity Conversion Mortgage).

HECM reverse mortgages were first introduced twenty years ago, but have only recently seen a surge in origination volume and interest from the public as baby boomers approach retirement age.

With the recent interest in this loan product, the industry has attracted the attention of many major lenders, previously not originating reverse mortgages, as well as loan officers or loan originators that worked in the "forward" mortgage market in the past. In addition, this market has attracted attention from financial planners and insurance product sales persons as well.

Senator McCaskill's emphasis during the hearing was to address the potential for abuses to senior homeowners and to find ways to protect seniors that can truly benefit from getting a reverse mortgage. The hearing included testimony from reverse mortgage industry professionals, HUD, AARP, and family members of seniors that had been negatively affected by certain sales tactics used by reverse mortgage loan originators.

One of the topics that was discussed at length, was the use of reverse mortgage proceeds to purchase annuities. Senator McCaskill read an employment ad for a company looking for sales people to sell reverse mortgages along with annuties. The essence of the employment ad was that there is a ton of money to be made by selling the combination of a reverse mortgage and an annuity at the same time. The ad even went so far as to say "this will be the easiest money you ever make." Well if that doesn't smack of predatory lending, I don't know what does.

Kudos to Senator McCaskill for bringing this practice to light and for her commitment to introduce legislation to head off these predators before the reverse mortgage market ends up in the same predicament that the conventional forward mortgage market is experiencing right now.

Reverse mortgages can be a life saver for people that really need them. It would be a tragedy if predatory practices erode the good reputation that the reverse mortgage industry has worked so hard to obtain over the past twenty years.

If you are considering a reverse mortgage, do a lot of research, get an AARP reverse mortgage comparison, get free HUD counseling, and run - do not walk - from any sales person that suggests you purchase another "investment" with your loan proceeds from a reverse mortgage.