A new report suggests that the reverse mortgage industry might be heading down the same disastrous road that led the sub-prime mortgage industry into ruin. Senator McCaskill believes Congress can erect a roadblock.
The report from the National Consumer Law Center (NCLC) warns that senior citizens face some of the same aggressive pitches for reverse mortgages that became common in the sub-prime lending boom. The report claims that well-funded marketing campaigns target the equity in the homes owned by senior citizens. It also states that many of the same players in the sub-prime mess have moved into the reverse mortgage industry.
Senator McCaskill says a reverse mortgage can be appropriate in certain circumstances.
“But, clearly, when we have a flood of television commercials saying that this is a government benefit you should not miss out on, that should make everyone’s antenna go up and we’ve got to work hard to make sure that we don’t have another sub-prime mess”
Reverse mortgage loans are designed for people ages 62 and older, according to the Federal Deposit Insurance Corporation (FDIC) Web site. It taps the equity in a house. A lending institution either pays a lump sum or makes periodic payments to the resident as long as he lives in the house. If the resident dies, sells the home or moves out, the loan comes due.
The owner retains responsibility for maintaining the home; paying property taxes and keeping up on insurance and repairs.
McCaskill worries that as the reverse mortgage industry grows, senior citizens will be pushed into poor decisions and taxpayers will be exposed to greater risks. McCaskill points out that the federal government insures nearly all reverse mortgages.
“Once the houses are sold, at the end of the line, if the houses don’t generate enough to pay back the loan, the federal government has to pay the balance,” McCaskill tells reporters on a conference call scheduled by the NCLC. “So, all of the risk is being assumed by taxpayers, right now, on these loans. There is no risk being assumed in the private market.”
McCaskill’s office says the senator plans to introduce legislation in the coming weeks to strengthen enforcement and protections for senior citizens. The office adds that the senator will address “emerging problems in the reverse mortgage industry, including the growing number of fraudulent and egregious practices.”
The NCLC says annual reverse mortgage volume has topped 110,000 units, a $17 billion industry.
AARP offers a fact sheet on Reverse Mortgages.