Bad actors continue to prey on seniors
A new report by the National Consumer Law Center likens the aggressive lending practices in today's reverse mortgage lending to those common in the sub-prime mortgage heyday -- featuring some of the same players.
"Well-funded marketing campaigns and perverse incentives to brokers are targeting seniors' home equity and using reverse mortgages as their tools," attorney Tara Twomey said in the NCLC news release.
The senior market is a goldmine, the report warned, because the population of senior citizens is expected to grow from 35 million in 2000 to 65 million in 2025. The top reverse mortgage lenders were Financial Freedom -- primarily a wholesaler -- followed by Wells Fargo Bank and Bank of America.
The report adds heft to similar warnings issued this summer by the FBI, covered by WalletPop at the time.
A month before that, U.S. Comptroller John C. Dugan told a gathering of bankers: "While reverse mortgages can provide real benefit, they also have some of the same characteristics as the riskiest types of subprime mortgages -- and that should set off alarm bells."
Alarm bells, indeed. The volume of mortgage equity seniors have tapped into through reverse mortgages rose to more than $17 billion this year, a record pace. More than 100,000 seniors were involved.
Granted, allowing seniors to convert home equity into cash without moving out can be practical when they need to supplement their income or pay for unexpected medical costs or home repairs. But, in the worst scenarios, the NCLC reports, the bad actors take on the role of middle men, encouraging the seniors to apply for the loans and, in the process, free up their home equity. Then, they may get seniors to buy expensive insurance or invest in annuities with high commissions. Guess who profits from those commissions?
The NCLC joined with U.S. Sen. Claire McCaskill, author of a 2008 law strengthening consumer protections against predatory marketing practices in reverse mortgages. McCaskill plans to advocate for additional legislation to shore up the government's regulation of this corner of the lending industry.
In addition, the NCLC is callng for the following protections:
- Create standards that require lenders and brokers to arrange deals only if they do not harm the financial situation of seniors.
- Improve borrower counseling options
- Ban yield spread premiums, which give brokers incentives to favor lenders over borrowers.
- Regulate those reverse mortgages and other equity conversions that are not federally insured and collect data on them more consistently.