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Reverse Mortgage News for Seniors
Reverse Mortgage Law Has Unhappy Birthday at
Senate Aging Hearing
Aging Committee hears horror story, Sen. McCaskill to
offer legislation to assure senior citizens are protected
 Dec. 13, 2007 – Yesterday was the twentieth
anniversary of the law establishing the reverse mortgage program, which
allows Americans age 62 or older to transfer their home equity into a
monthly income. The birthday celebration at the Senate Special Committee
on Aging hearing, however, was not a happy one. One witness told how her
mother suffered financial losses and mental stress from taking out a
reverse mortgage.
Witness Carol Anthony told how her father, a World
War II veteran, had left his wife financial well prepared for her senior
citizen years. But, after falling into the hands of a reverse mortgage
broker, “close to $165,000 had been effectively lifted from her estate.”
(Read her testimony below news report.)
The hearing yesterday was to examine the rapid
growth of reverse mortgages and hear from those most affected by the
expanding industry: seniors citizens.
With the senior population soaring as baby boomers
reach retirement age, the committee looked specifically at ways to
ensure consumers are protected as they consider this type of loan.
“Seniors who have worked their entire lives to be
able to enjoy retirement should not be victimized by people out to make
a buck,” said U.S. Senator Claire McCaskill, who chaired the committee
hearing.
 “We need to have adequate protections in place to
ensure only those who would benefit from a reverse mortgage qualify.
Without this, reverse mortgages could hurt as many seniors as they
help.”
The hearing included the testimony from the U.S.
Department of Housing and Urban Development (HUD), AARP, professionals
in the reverse mortgage industry, and family members of those negatively
impacted by reverse mortgages.
It marked the twentieth anniversary of the Federal
Home Equity Conversion Mortgage (HECM), a HUD program that allows people
over the age of 62 to transfer equity on their home into monthly income.
Seniors have long been prime targets for predatory
lending, including within the reverse mortgage industry where selling
this type of loan is often a lucrative business, according to a news
release from McCaskill’s office.
Seniors often have considerable equity in their
homes, but for many, their house represents their only asset of real
value. Because seniors often have so few financial resources beyond
their home equity, it’s especially important that strong consumer
protections exist to keep seniors from falling prey to aggressive
marketing and predatory tactics that could leave them penniless.
For some people, a reverse mortgage provides a
solution to the financial difficulties faced by those with diminishing
retirement funds by allowing them to stay in their home while using
their equity to cover other essential expenses, such as prescription
drugs.
But for others, a reverse mortgage has the
potential to significantly worsen their financial situation, especially
if it is paired with unsuitable annuities and other unneeded financial
products.
The hearing on Wednesday offered committee members
the opportunity to hear feedback from those who know the reverse
mortgage industry best, in an attempt to find ways to ensure that those
who would not benefit from this type of loan don’t find themselves
trapped in a reverse mortgage.
McCaskill said today that she plans to introduce
legislation in the coming weeks to address concerns raised at the
hearing.
Below is a list of those who testified. Click on
their names to read their testimony.
Statements of Committee Members
●
Senator Herb Kohl (D-WI), Chairman
●
Senator Gordon H. Smith (R-OR), Ranking Member
Witness Testimony
●
Prescott Cole, Senior Staff Attorney, California Advocates for
Nursing Home Reform on behalf of Coalition to End Elder Financial Abuse,
San Francisco, CA
●
Carol Anthony, daughter of a recipient of a reverse mortgage tied to
an annuity, King City, CA
●
Donald Redfoot, Strategic Policy Advisor, AARP Public Policy
Institute, Billings, MT
●
George Lopez, Vice President, James B. Nutter & Company, Kansas
City, MO
●
Margaret Burns, Director, FHA Single Family Program Development, US
Department of Housing and Urban Development, Washington, DC
>>
Click here to watch Video of hearing.
 Statement of Carol Anthony
Before the Senate Special Committee on Aging -
December 12, 2007
My father, John Adcock, was a member of the
greatest generation. During WW2 he served proudly with the United States
Marines in the South Pacific. When the war was over, he returned to his
home town, Salinas California, Grateful to be able to get a good job and
in his words “marry the prettiest girl in town.” Mom and Dad built a
home, lived their lives modestly and made sure their 2 daughters were
provided the opportunity of higher education.
When dad died in 2000, he left mom with a
comfortable estate so she would be provided for safely the rest of her
life.
What he didn’t provide, what he never even
anticipated, was the need and knowledge to protect her from Predatory
Lenders, Con-Men and the “new California Gold Rush” also
known as the reverse mortgage.
In April 2006 my 80 year old mother (Betty) was
sold a reverse mortgage. At the time of the sale, she was in poor
health, frail and not at al capable of entering or understanding even
the simplest financial dealings. And, most importantly, mom didn’t need
a reverse mortgage.
She had substantial money in different accounts and
investments and beside, I had already helped her establish a $150,000
home equity line of credit in her name for any unforeseen emergency. The
closing cost for the home equity line was zero.
In the 3 years she had access to the credit line,
she had only borrowed $19,000. She was paying very little per month to
service this line. But in April 2006, a salesman entered the picture,
introduced to my mother by her 86 year old friend (by the way, also a
widow).
The salesman and the lending institution promised:
• “There would be no risk of losing her home.”
But there was.
• “She would receive independent credit counseling.” But she did not.
• “All loan options available to her would be reviewed”. But they
were not.
• “She would never be rushed into signing anything she did not fully
understand or was not ready to sign.” But she was.
• “She would never be pressured into applying for more money than she
needed.” But she was.
• “She would not be incurring a mortgage.” But she did.
• “All loan terms would be carefully explained.” But they were not.
When mom signed on the dotted line, she felt the
salesman was a good friend. But he was not. In place of the no fee home
equity line, she now had a reverse mortgage that charged 18 closing fees
depleting the equity in her home: The equity that had been saved over
the years …. one buck at a time.
The 18 closing fees totaled a staggering
$16,791.23. Next, she was forced to make home repairs of about $5000.
Repairs not mandated with the equity line, but are all to common with
financial freedom. Now, instead of paying interest only on the $19,000
equity line, she received her first statement showing a principle
balance of almost $37,000 with interest compounded daily.
She would also be charged a monthly finance charge
called an “MIP” and another monthly finance charge called a “Finance
Charge” to compound the financial damages, the salesman converted
$125,000 from one of mom’s municipal bond funds into a 20 year annuity.
The municipal bonds had been paying mom a nice monthly income, now, she
would have to wait until her 100th birthday to see a cent of her money.
Even though the salesman, working for Senior
Financial Freedom (for the reverse mortgage) and Standard Life of
Indiana (for the annuity) had no real estate or securities license, the
harm was done.
On the day she signed the loan and insurance
documents, close to $165,000 had been effectively lifted from her
estate. I believe the current housing crisis and the explosion of
reverse mortgages have some similarities and connections.
Both entities have at least insinuated, if not
promised home values would continue to rise at about 4% forever.
Both sets of lenders have demonstrated they are more than willing to
sell loans to people who can’t afford them, or to the elderly with home
equity lines that don’t need them. Lenders are no longer dealing in
subprime loans and people without money are unable to qualify for loans.
So where do you think the thousands of real estate
and insurance salesmen and women are headed? To the reverse home
mortgages market!
It is the new California Gold Rush coming to
your area faster than a California wild fire. Thanks to aggressive DVD
marketing, featuring such trusted celebrities like James Garner and
Robert Wagner.
Over 86,000 seniors purchased reverse mortgages
just last year. Sales seminars are seeing 10 times the number of
participant as they were seeing just a year ago. Senior Financial
Freedom is offering careers in what they are calling the explosive
market of reverse mortgages.
I have some suggestions on how to put a damper on
the reverse mortgage market. First make reverse mortgage lenders compare
their product with other conventional home mortgage products – such as
the home equity line of credit.
This one act would reduce the future number of
reverse mortgages and the problems associated with them. The current
system of letting the lending institutions provide their own sales pitch
and calling it “independent credit counseling” should be stopped. And
second, substantially reduce loan fees the elderly must pay for the
privilege of tapping into the equity of their own homes.
When mom realized what the salesman had done, she
became very depressed and all but stopped eating. The rage that I felt
seeing her cry and hearing her call herself a fool was profound. She was
lucky, I was able to buy back her house and amicably settle the annuity
issue.
But what about the other victims, the aged,
the elderly, the members of the greatest generation. They are part of
that trusting generation now so susceptible to predators, predators
whose only appreciation for the elderly is appreciation of their money.
I appreciate these members of the greatest
generation and will be forever thankful and in awe of their sacrifices.
They put their lives on hold, went to war and saved the free world. Now
I am asking you to save them.
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