Lawmakers Weigh Pros and Cons of Reverse Mortgages

[Mar 20, 2008.]

 

Legislators in Washington are weighing the advantages and disadvantages of reverse mortgages.

The scrutiny follows what appears to be a rash of industry scams which have become a concern for both lawmakers and consumer advocates.

At this point, some legislators are lobbying for greater government regulation of the industry, which has become vulnerable to such deceptive practices.

"We have gone through a savings and loan collapse, a stock market bubble and are currently in the middle of a lending mess. Our goal is to make sure that the reverse mortgages don't become the scandal of the next decade," said Sen. Claire McCaskill (D-MO).

Fears are intensifying that the reverse mortgage industry could become the next subprime loan scandal. The subprime loan industry has become so shaky because of defaults that some financial institutions have decided to get out of the subprime business altogether.

Reverse mortgages are those loans that are extended to homeowners age 62 and older who borrow against their home's equity. The loans do not have to be repaid until the home is sold or the borrower passes away.

About nine out of ten reverse mortgages are issued through the Home Equity Conversion Mortgage Program, which is federally insured. Lenders anticipate issuing more than 214,000 loans this year.

The chief advantage to reverse mortgages is that they allow seniors to have some extra cash in their pocket when they need it most—during their golden years. However, some unscrupulous entrepreneurs may engage in predatory lending practices which put the financial security of seniors at risk.

Senior citizens may be particularly vulnerable because they may find it difficult to resist high-pressure sales tactics. They may also lack the information necessary to determine when a reverse mortgage is actually a scam.

The fact that a Senate committee decided to hold a hearing on the matter indicates that reverse mortgages have become a major issue to some taxpayers.

Julie Ann Amos
March 20th 2008

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