AARP’s Public Policy Institute recently sponsored a Solutions Forum which highlighted its new PPI report entitled “A First Look at Older Americans and the Mortgage Crisis”. The report presented the first analysis of delinquencies and foreclosures among Americans age 50 and over. The Solutions Forum was also meant to stimulate discussion on several policy options to provide relief to homeowners in foreclosure and to prevent a similar crisis from occurring in the future.
The forum consisted of three panels: (1) a panel providing new data from AARP on the impact of the foreclosure crisis on older Americans; (2) a panel on legal and other barriers to mortgage loan modifications; and (3) a panel on proposals for preventing future mortgage crises. During the forum reverse mortgages were discussed so I highlighted the references from the transcript below.
Someone from the crowd asked if the panelists could talk more about reverse mortgages and where they see the positives and negatives going forward.
MR. APGAR – Harvard Joint Center for Housing Studies: Well, my own reaction is that people have been talking about reverse mortgages for so long. And consumers are not taking them up. So there must be something we are not doing right. And I don’t know what it is. Right now we are starting to see some growth in the FHA program. We are definitely seeing the marketing of those mortgages more aggressively. And it seems like a good idea. But when I listen to those mortgage advertisements, I see some of the same misleading deceptive concepts coming through the ads and not a realistic understanding of what that is.
So I don’t think we have perfected that problem. I am not an expert on reverse mortgages. But I do perceive that the same marketed abuses that have helped create the current context could be applied to the growing reverse mortgage market. And that could be a problem down the road.
MS. THOMPSON – Counsel, National Consumer Law Center: My background is that I was a litigator in a legal services office in East St. Louis for almost 13 years. And much of our experience is that reverse mortgages were often sold extremely abusively, inappropriate circumstances, pushed hard by home improvement contractors in the same way that we saw all kinds of refinancing loans pushed. Reverse mortgages are, by their nature, extremely expensive products. And they are products that for most people guarantee the loss of any remaining equity in their home.
That said, they can be a useful way for seniors to be able to age in place. Many seniors would prefer not to have a reverse mortgage because many seniors want to be able – have been led, as many of us have, to think about the home not just as a place to live and as a place to give them dignity and security in their own age, but as a wealth-acquisition tool to be passed on from generation to generation. And a reverse mortgage undoes any possibility of that.
So I think their usefulness can be great. It can be very important for seniors. They are extremely expensive. People need good quality counseling, which they don’t always get. And I think for most seniors, they regard it as an option of last resort.
I think everyone reading this will agree that quality counseling is an important part of making sure reverse mortgages reach the right people. What isn’t brought up is how the housing bill isn’t addressing that need when the president signs a law but HUD can’t implement it. So frustrating…
At the end Barney Frank, Chairman, Committee on Financial Services U.S. House of Representatives adds a few comments about reverse mortgages:
As you mentioned when you mentioned the bill, one other relevant fact at AARP, one of the best parts of that bill was the extent to which we improved and expanded the reverse mortgage situation. And that has worked very well. I know The New York Times had a story about the problems, but the problems were not with reverse mortgages, but with the people who would get reverse mortgages for people who were 82 years old and then sell them at 20-year annuity, which was of limited use for them.
So one of the things we did in the bill working with the AARP was to say that if you are the one that sells the reverse mortgage, you cannot then be the investment advisor and sell the investment package. Beyond that, there had been an annual cap on these which make no sense, it’s a product that’s worked very well in this situation, and we took the cap off and in return put a cap on the fees that can be charged by the people who process them. So for a lot of older people, one of the things this bill did was to significantly enhance the role that reverse mortgages will play for older people. Of course, to the extent that they do that, it may diminish to some extent the fight over the inheritance tax, but that’s okay. (Laughter.) It’s their money and their entitled. Thank you all.
To read a copy of the entire forum transcript click the link below.