UNIVERSITY CITY, Mo. | Reverse mortgages, increasingly used by seniors to help fund retirement or pay unexpected medical bills, are often accompanied by excessive fees and marketed using overly aggressive tactics, Sen. Claire McCaskill said Monday.
The Missouri Democrat hosted a Senate field hearing at a senior center in suburban St. Louis to address concerns about the fast-growing reverse mortgage industry. The mortgages, which are loans available to those age 62 or older that convert home equity into cash, have exploded in popularity in the past decade — the Federal Housing Association endorsed 112,148 reverse mortgages in fiscal year 2008, up from 7,757 in 2001.
Mathew Scire, director of the Government Accountability Office’s Financial Markets and Community Investment team, testified that reverse mortgages are complex and costly for the vulnerable population they serve. McCaskill agreed.
“You may borrow $100,000 and 10 years later owe $200,000,” she said.
The GAO’s review of marketing material for reverse mortgages found examples of potentially misleading claims, Scire said. Some promise “lifetime income,” which Scire said isn’t always guaranteed.
A reverse mortgage allows elderly homeowners to convert equity in their homes into cash. It differs from a home equity loan or a second mortgage because the borrowers don’t have to repay the loans as long as they continue to live in and maintain the home. Most reverse mortgages are insured through the Federal Housing Administration’s Home Equity Conversion Mortgage program.
In fact, because the loans are federally guaranteed, reverse mortgages are costing taxpayers millions of dollars, McCaskill said.
In its fiscal 2010 budget request, the Department of Housing and Urban Development sought $798 million to cover potential losses from declining value of homes using reverse mortgages.
Peter Bell, president of the National Reverse Mortgage Lenders Association, told McCaskill his agency has polled state attorneys general offices, bank regulators and the Federal Trade Commission and found very few complaints about reverse mortgages.
Bell said strong safeguards are in place to ensure against fraud, including mandatory counseling for anyone considering a loan.
“I don’t think you could come up with any business in America in which every potential customer is referred to an independent third-party specialist, a counselor at a HUD-approved agency, to review the transaction under consideration and its implications before a decision is made to proceed,” Bell said.
But Scire said GAO investigators posed as potential customers at 15 counseling sessions and found none of the counselors covered all of the topics required by HUD.
Scammers also are taking advantage of reverse mortgages, said Anthony Medici, special agent in charge of HUD’s Criminal Investigation Division. In some cases, unauthorized individuals — relatives, even neighbors — keep payments after the homeowner dies or permanently leaves a residence. Another concern involves financial professionals convincing seniors to invest proceeds into some other financial product they may not be able to access for years, perhaps until after their life expectancy.
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