Another Mortgage Mess In The Making?
Will the reverse mortgage soon take a place alongside its subprime sibling in the mortgage industry’s hall of shame? From the Chicago Tribune’s Mary Ellen Podmolik yesterday:
A national consumer advocacy organization added its voice Tuesday to a growing chorus of concerns about the rapidly growing popularity of reverse mortgages, comparing the loan product’s potential pitfalls to subprime mortgages.
The National Consumer Law Center said the aggressive marketing techniques being used to sell a complicated financial product to potentially vulnerable senior citizens requires the adoption of new consumer safeguards and industry standards.
“These problems are eerily similar to those that drove the subprime boom,” said Tara Twomey, an attorney with the Boston-based center. “This market could be another financial fiasco.”
In recent years, the popularity of reverse mortgages, particularly the federally backed Home Equity Conversion Mortgage, has jumped as strapped homeowners look for additional financial sources. In an HECM, a homeowner 62 or older can borrow funds against the equity in the home. The loan and the accrued interest do not have to be paid back until the homeowner sells the property, dies or fails to live there for one year.
Last year, more than 112,000 seniors used reverse mortgages to tap more than $17 billion of home equity.
The number of loan providers has swelled as demand for the product has grown. More than 2,700 lenders offer reverse mortgages, including 1,500 lenders who originated their first HECM last year, the center’s report found. The top three lenders were Financial Freedom, Wells Fargo Bank and Bank of America…
In June, the Government Accountability Office issued a report criticizing the U.S. Department of Housing and Urban Development for its oversight of reverse mortgages, saying inconsistent counseling could lead to abusive lending practices. GAO investigators posing as consumers found that the counseling sessions required for the FHA-backed reverse mortgages frequently were not long enough, did not cover all the mandatory topics and did not discuss alternative loan products.
Source:
“Reverse-mortgage boom raising concerns on potential pitfalls”
Mary Ellen Podmolik
Chicago Tribune, October 7, 2009
October 9th, 2009 at 2:55 am
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