Reverse Mortgages: The Next Subprime? Part 2

Last month, the U.S Senate Special Committee on Aging held a hearing to address the concerns arising from reported financial abuses against the elderly in connection with the reverse mortgage industry. The hearing essentially reinforced two basic points:

1. When used wisely and carefully, a reverse mortgage is a great tool for senior citizens to tap into their home equity, tax free, the funds from which can be used for any purpose - thereby making their lives easier,
2. When sold recklessly by careless, untrained sales agents (or unscrupulously by sleazy sales agents), peddling reverse mortgages is a great way to screw elderly homeowners out of their home equity, leaving them in jeopardy of losing their homes.

In other words, it may not be the reverse mortgage itself that's bad, it's the person selling it that will ultimately determine whether (1) or (2), above applies (although watch out for "equity sharing, contingent interest" reverse mortgages, which may be available through non-HECM connected lenders).

Among some of the problems raised at the hearing:

1. unscrupulous sales agents convincing seniors to get a reverse mortgage and then use some of the proceeds to purchase a deferred annuity [some sales agents, working in tendem with home improvement contractors, will convince elderly homeowners that it is mandatory to use some of the proceeds to make overpriced, unnecessary home repairs],
2. reverse mortgage companies heavily recruiting sales agents, offering opportuinites to "double their commissions" by selling elderly homeowners reverse mortgages contemporaneously with annuity products,
3. no suitablity standards to determine if a reverse mortgage is right for a particular homeowner,
4. so-called "independent" HUD counselors that may not be all that independent,
5. no training, certification, or background checks required for HUD counselors; the counseling agency is required to have a HUD certification, but they can then turn around and hire anybody to actually do the counseling (ie. convicted felons, con artists, sleaze bags OK),
6. no real counseling requirements; face-to-face counseling not required - can be done over the phone; the "counseling" is limited to conveying an understanding of the loan terms - not of whether getting a reverse mortgage is actually a suitable arrangement for the particular senior considering the mortgage,
7. there are many ways for senior homeowners to lose their homes after getting the reverse mortgage that are never addressed during the sales pitch (contrary to what respected actor Robert Wagner and other paid celebrity spokespeople say on TV commercials and DVD marketing propaganda put out by the companies peddling reverse mortgages),
8. deceptive and misleading (without necessarily being technically incorrect) use of terms to describe reverse mortgages (ie. "HUD-regulated," "government insured" and " a benefit from the Federal government") to instill in the senior citizen homeowner trust and confidence in the product,
9. selling reverse mortgages to unmarried seniors who may be bound for a nursing home (spending 12 months in a nursing home by an elderly homeowner is enough to cause a due date acceleration of the reverse mortgage, thereby forcing a sale of the senior's home if they can't otherwise pay it off by cutting a check or refinancing it).

Written statements were submitted by witnesses who testified at the hearing:

• Statement of Carol Anthony, daughter of a victimized elderly homeowner of an unscrupulous sales agent selling a reverse mortgage tied to an annuity, resulting in significant loss of home equity,
• Statement of Prescott Cole, Senior Staff Attorney, California Advocates for Nursing Home Reform on behalf of Coalition to End Elder Financial Abuse, on the abusive marketing practices engaged in by some selling reverse mortgages,
• Go here for links to the written statements submitted by other witnesses, as well as the opening statements from the committee chairman, Sen. Herb Kohl (D-WI.) and the ranking member, Sen. Gordon Smith (R-OR).

To watch the actual webcast of the hearings, see Reverse Mortgages: Polishing not Tarnishing the Golden Years (requires Real Player media player).

Go here for Reverse Mortgages: The Next Subprime? Part 1.

Go here , go here , and go here for other posts on elder financial abuse.

For stories related to Reverse Mortgage Problems, go here , and go here. xero zebra reverse mortgage yak