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 McCaskill questions role of government and protection of Seniors in Reverse Mortgages

GAO releases report finding need for better consumer protections

Read the GAO’s report on reverse mortgages

WASHINGTON, D.C. – U.S. Senator Claire McCaskill took the U.S. Senate Special Committee on Aging on the road today to examine how to better protect seniors and taxpayers amid growing problems in the reverse mortgage industry. 

At a field hearing in the St. Louis area, McCaskill heard from industry insiders and government watchdogs about concerns with aggressive marketing amid inadequate financial counseling, taxpayer liability of federally-insured reverse mortgages, as well as a series of other issues. 

 For many elderly homeowners, the equity in their homes represents their largest asset, and a reverse mortgage loan allows seniors to convert that equity into cash.

Because seniors are sitting on $4 trillion in equity, they have become a target for predatory lenders and fraud perpetrators seeking to access this money through reverse mortgages.

 “We must not lose sight about what – and really who – we are here to talk about: America’s seniors.

"These are people – our parents, grandparents, neighbors, friends. It is the individual reports about how these seniors are targeted that give me the greatest drive to investigate this issues.”

 At the hearing, McCaskill cited the case of Mary Heinzer of St. Louis, a 79-year-old widow, who was persuaded to take out a reverse mortgage in order to repair her leaky roof.  She relied on the sales agent to arrange for her repairs as well, but was ultimately left without any equity in her home and a roof that continues to leak.

 A report by the Government Accountability Office (GAO) – requested by McCaskill and released today – found evidence of industry problems that are putting seniors in jeopardy.  Because of the confusing nature of reverse mortgages, the federal government requires that all seniors considering this type of loan attend a session with a certified counselor, but the GAO found serious problems with the quality and content of these meetings.

In 15 out of 15 sessions observed by the agency’s undercover investigators, the counselors did not cover all the required topics, leaving seniors without the knowledge needed to make an informed decision.

 At the hearing, the Inspector General of the U.S. Department of Housing and Urban Development (HUD) also discussed recent problems of fraud, including use of false appraisals and straw buyers to rip off the federal government. 

The agency acknowledged that often no one is aware of the fraud that has taken place until years later when the senior passes away.

 “No one really figures out the house is not worth what the appraisal said until that person either dies or moves out, and then the only person left holding the bag is the taxpayer,” McCaskill said.

McCaskill also raised concerns about the federal government’s role in reverse mortgages.  The federal government currently insures almost all reverse mortgages through the Home Equity Conversion Mortgage program (HECM). 

By insuring the loans, the federal government is protecting lenders from risk if the borrower is unable to repay the loan, which frequently happens if the senior lives longer than expected, interest rates rise, or the home value drops. 

 Peter H. Bell, the President of the National Reverse Mortgage Lenders Association, implied that such losses were rare; however, recent evidence suggests otherwise.

Just last month, HUD needed to ask Congress for $800 million in additional funding to cover losses in the HECM program.

 McCaskill asked Bell why the reverse mortgage industry had failed to thrive without the federal government to insure the lender against risk. 

Bell believed it was because there is not enough volume to collectively protect against losses, but McCaskill argued that it was because reverse mortgages don’t make financial sense for banks. 

 McCaskill summed it up by saying, “If the government is on the hook, [the lender] can make more money up front. They can loan more money because they aren’t taking the risk.”