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Senator McCaskill raises concerns about reverse mortgage fraud in Senate Hearing

WASHINGTON, D.C. – As a follow-up to the hearing she held last month in Missouri, U.S. Senator Claire McCaskill continued to raise concerns about the quickly growing reverse mortgage industry at a Senate Commerce Committee hearing yesterday focused on protecting consumers from fraud amid the difficult economic climate. 

A reverse mortgage allows seniors to convert the equity in their home into cash. This week, McCaskill raised concerns related to the aggressive marketing used by the reverse mortgage industry to target seniors.

“It is very clear to me that these are complicated, expensive financial instruments that, while they may be appropriate in limited circumstances for some seniors with appropriate counseling and appropriate information, they are being marketed now in ways that make my blood boil,” McCaskill said during the Commerce Committee hearing.

Due to the fact that senior homeowners in America have $4 trillion in equity, they have become a target for predatory lenders and fraud perpetrators seeking to access this money through reverse mortgages.

Last month, McCaskill held a hearing of the Senate Special Committee on Aging in St. Louis focusing on how to both protect seniors from aggressive marketing and better protect taxpayers, since the loans are federally insured.  

At yesterday’s hearing, McCaskill questioned David Vladeck, the Director of Consumer Protection at the Federal Trade Commission (FTC), about their efforts to address aggressive marketing of reverse mortgages.  Specifically, McCaskill asked for an update on the work of an FTC task force charged with addressing the issue. 

Vladeck said the task force is now in the rule making process for new policies on advertising of mortgages and were working to address some of the issues McCaskill had raised

Missouri Attorney General Chris Koster testified before the committee about his experiences fighting fraudulent practices.

  McCaskill asked him about the lists containing vulnerable seniors’ contact information, which are currently used to target the elderly for marketing purposes. 

Koster responded that he was familiar with the common practice of purchasing such lists, saying that unscrupulous salespeople are marketing complicated financial products “as though they are marketing magazines”. 

He also acknowledged the seriousness of the problem, saying there is currently “tremendous advantage taking opportunities by scammers”.

McCaskill also highlighted the government’s role in insuring reverse mortgages. The federal government currently insures almost all reverse mortgages through the Home Equity Conversion Mortgage program (HECM).  However, because the government insures the loans, taxpayers share the liability if the borrower is unable to repay the loan, which frequently happens if the senior lives longer than expected, interest rates rise, or the value of the home drops.

“If these homes lose value, and at the end of this process when the home is finally sold, and there is not sufficient money there to pay the loan . . . I want to point out that it’s the taxpayers that get left holding the bag because we are insuring 90 percent plus of these loans that are being made right now,” McCaskill said. 

McCaskill finished her line of questioning by asking the witnesses to continue following this issue closely. 

“I encourage all of you to continue to be vigilant in that particular area because these seniors really deserve more protection than they are getting right now.”