AARP Watching Reverse Mortgages Closely

imageOver the weekend, the Orlando Sentinel published Reverse mortgages a lifesaver for some, but beware of shady lenders, and despite the negative sounding title it’s pretty positive.  Journalist Richard Burnett writes that while reverse mortgages were shunned by many as too risky, the loans have made a comeback as many seniors tap their home equity to replace savings battered by Wall Street’s meltdown.

The article details how Don Mulcahy, a 68 year old former telephone salesman from Orlando used a reverse mortgage and liked the idea so much that he started selling reverse mortgages himself.  "It’s not for everyone," Mulcahy said. "But it turned out to be such a good deal for me, I figured others should know about it."

Burnett writes that when HERA capped major fees and provided some additional safeguards, the product looks much more attractive.  He also points out that the industry has worked to improve its reputation by adopting conduct standards and responding to complaints.    

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"There are definitely more safeguards now," said Joe Nunziata, chief executive officer of Orlando-based FBC Mortgage, the lending unit of Florida Bank of Commerce.  But the industry still has a way to go to get a clean bill of health, AARP says.

"Despite the new laws, we are already still hearing reports of reverse-mortgage lenders selling high-priced annuities and other investments to borrowers," said Bronwyn Belling, a reverse-mortgage analyst for the AARP Foundation. "Regulators are paying close attention to this problem, and we’re going to continue to watch it very closely."

The article also point out how a couple of years ago, nearly everyone who applied for a reverse mortgage in Florida had enough home equity to make it work. Now maybe half of the applicants are eligible. 

Reverse mortgages a lifesaver for some, but beware of shady lenders

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  • HERA’s prohibitions against cross-selling look like an admission by Congress that they don’t believe the states can or will enforce existing laws, rules, and standards of market behavior and suitability for insurance licensees. Every unsuitable deferred annuity purchased with reverse mortgage proceeds would have been an unsuitable sale all by itself.

    I spent a good deal of effort trying to get regulatory entities on the mortgage and insurance side in 5 states to take a deeper look at several ‘turnkey’ marketing programs touting reverse mortgage marketing to insurance licensees as an easy source of annuity premium, but got nowhere. Cross-license regulatory cooperation and authority does not exist, and the consumer complaints had just started to appear. The mortgage and insurance regulators had no will and no way to look out over the tops of their respective silos to see what was out on the horizon, much less down in somebody else’s silo.

    As a result of near-complete state inaction, HERA has taken the standards of suitability and even fiduciary advisability out of the marketplace and subordinated these considerations to the potentially criminalizing question of who got paid. The professional referrals with no shared compensation that HERA was supposed to leave open have withered until we get some guidelines about what could turn us into unwitting felons.

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