McCaskill introduces amendment to protect Seniors from Predatory Lending in the Reverse Mortgage Market

May 20, 2010--WASHINGTON, D.C. – For almost three years, U.S. Senator Claire McCaskill has been fighting to protect seniors from the predatory lending abuses in the reverse mortgage industry that can drain their hard-earned savings.

This week, she introduced an amendment to the Wall Street reform legislation to ensure increased oversight and regulation of the reverse mortgage market and help ensure that America doesn’t face another mess similar to the subprime mortgage market collapse.

“While reverse mortgages are great for some seniors, too many of our greatest generation are being hoodwinked by misleading advertisements and predatory lenders looking to make a buck,” McCaskill said.

“Because these are government-insured loans the taxpayers are on the hook when they default. If we don’t put in place some better oversight measures, we’re going to end up in a mess worse than we saw with the subprime lending collapse.”

A reverse mortgage is a tool for seniors to tap into the equity in their homes, which for many represents their largest asset. 

These loans are expensive and complicated, and many seniors struggle to understand all the terms and fees.  While they can be appropriate for seniors in some cases, they are not a good choice for many others, especially when they are sold alongside other expensive products like deferred annuities that may not be suitable for seniors.  

 Further, because reverse mortgages are federally insured loans, they are often falsely marketed as a government entitlement program. If the loan goes bad, the government is on the hook for the money, not the lender.

Moreover, many now believe the reverse mortgage market resembles the subprime market, a market that substantially contributed to the financial disaster on Wall Street and the real estate collapse. 

The market for securities backed by reverse mortgages grew from $1.5 billion in January 2009 to $13 billion in March of 2010.  Some reports indicate that many subprime lenders have moved into the reverse mortgage market following the collapse of the housing market in late 2008.

McCaskill has been fighting to protect seniors against the worst abuses in this rapidly growing industry since arriving in Washington.

As a member of the Special Committee on Aging, she has held two field hearings examining the numerous problems with the industry and passed legislation to increase counseling for seniors before they take out a reverse mortgage and restrict misleading advertisements.

Her amendment, which she introduced with Senator Herb Kohl (D-WI), chair of the Aging Committee, would create standards for whether a reverse mortgage is suitable for seniors, prohibit misleading advertisements, and increase regulation and transparency of the industry.

Specifically, the measure amend the Restoring American Financial Stability Act of 2010 (S.3217) to require the new Consumer Financial Protection Bureau to issue rules to, at a minimum:

 

Prohibit misleading advertisements of reverse mortgage products.

 

Create standards for whether a reverse mortgage is suitable for a senior, with consideration for Whether the borrower plans to live in the home on a long term basis whether the borrower plans to buy an annuity or other product with the proceeds and whether the costs of the reverse mortgage and annuity outweigh the benefits Whether the borrower plans to pass the home on to an heir, etc.

 

Restrict the cross-selling of annuities, long-term care insurance, or other similar products with a reverse mortgage

 

Provide clear disclosures of the cost of a reverse mortgage and the terms required to avoid technical default on a reverse mortgage (such as maintenance and property tax requirements).

 

Require seniors to receive counseling before taking out any reverse mortgage (currently, the requirement only applies to federally insured reverse mortgages).