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McCaskill
renews efforts to stop reverse mortgage
fraud
Offers amendments that would
curb subprime and fraudulent practices
WASHINGTON, D.C. –
U.S. Senator Claire McCaskill has renewed
her efforts to protect seniors and taxpayers
from the growing number of fraudulent and
egregious practices within the reverse
mortgage industry.
The Missouri senator introduced an amendment that would crack down on
bad players in the industry.
Americans continue to hear about how
subprime lending plunged our country into
the current economic recession, but reverse
mortgages may pose a similar threat to
consumers if Congress doesn’t take action.
“You know, when you see these ads on TV, it
sounds too good to be true: government
benefit, no risk,” McCaskill said.
“But, there is a huge risk. There is a risk
of a senior paying more than they should for
a product that doesn't work for them and a
very big risk for the taxpayers of this
country.”
A reverse mortgage is a special type of home loan that lets seniors
convert a portion of the equity in their
home into cash.
Although a reverse mortgage may be the right choice for some, it is a
complex and expensive loan that will, in a
relatively short period, strip the home of
its net worth.
Most reverse mortgages are insured by the
federal government, and HUD has now been
assigned over a billion dollars in loans.
Plunging home prices and rising interest
rates put the government at risk for losses
on those loans.
Rapid growth in the industry will only
increase this risk to seniors and taxpayers.
Since 1990, the government has backed
500,000 reverse mortgages, and with the
government’s cap on reverse mortgages
recently lifted and the borrowing limits
raised, the industry is growing extremely
rapidly.
In 2009 alone, the government is expected to
back 200,000 reverse mortgages.
In addition, the slowing housing market has
caused some subprime lenders to look at the
nearly $4 trillion in seniors’ home equity
as a potential new source of mortgage
income.
Unfortunately, the reverse mortgage
industry, which exclusively serves seniors,
has become fraught with aggressive marketing
tactics, predatory lenders, and most
recently, fraudulent practices.
Fraud within the reverse mortgage industry
is increasing, according the Department of
Housing and Urban Development’s (HUD)
Inspector General.
Various types of fraud have been popping
up across the country, including organized
schemes of systematically inflating house
appraisals to increase the lender’s profit
off the senior and the federal government.
With the government’s role backing these
loans, the lenders have very little to lose.
The amendment introduced today would make it
more difficult for criminals to perpetrate
fraud by ensuring that the property’s
appraisal isn’t inflated, that borrowers own
and reside in the mortgage property, that
fraud or abuse is reported, and
that
violators receive criminal penalties.
The provision also ensures that advertising
for reverse mortgage/HECM products cannot be
false or misleading and prohibits lenders
and counselors from selling or disclosing
borrowers’ personal information to others
for marketing purposes.
The
amendment introduced today builds upon
legislation McCaskill introduced and
passed last year as part of the Housing and
Economic Recovery Act of 2008. She began
pursuing this issue aggressively after
chairing a Senate Special Committee on Aging
hearing on the issue in 2007.
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