Subprime Revisited: National Consumer Law Center Releases Report on Reverse Mortgages

image The National Consumer Law Center released a report titled “Subprime Revisited: How the Rise of the Reverse Mortgage Lending Industry Puts Older Homeowners at Risk,” which according to the press release shows that abuses from the subprime mortgage market have begun showing up in the reverse mortgage industry.

“In the reverse mortgage market, seniors face some of the same aggressive lending practices that were common in the subprime lending boom,” said Tara Twomey, an NCLC attorney and author of the report. “Well-funded marketing campaigns and perverse incentives to brokers are targeting seniors’ home equity and using reverse mortgages as their tools”

The NCLC report notes that “Many of the same players that fueled the subprime mortgage boom — ultimately with disastrous consequences—have turned their attention to the reverse market. Lenders, including some of the nation’s largest banks, view that market as a source of profits that have dried up elsewhere. Mortgage brokers see it as a new source of rich fees. Predators who once reaped profits from exotic loans have now focused on wresting more wealth from vulnerable seniors. And securitization, which allowed subprime loan originators to disassociate themselves from the downside risks of abusive lending, is becoming commonplace in the reverse mortgage industry.”

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U.S. Senator Claire McCaskill said today’s report validates the need for regulatory improvements in this industry in order to protect America’s seniors as well as our tax dollars. “We’ve seen this movie before and it didn’t have a pretty ending. Abuses in the subprime lending market almost brought down our economy. Now we’re seeing similar abuses with reverse mortgage lending – something needs to be done before more lifesavings are depleted and more tax dollars are drained,” Sen. McCaskill said.

You can read a copy of the report here.

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  • Wow! Right off the bat! Mr. Dugan, hats off to you! You not only got a quote in the first paragraph, but you gave them the thought for a catchy title to tar us with! Thank you so much!

    I note the errors in The National Law Center's explanations of the HECM program and HUD's oversight of the reverse mortgage programs available to seniors which might have been corrected by working with the very industry they are slinging mud at — oh, wait, maybe nobody in our industry wanted to get close to the muck. After all, we are all greedy ogres out to suck seniors dry and drive away in our new Mercedes. (lol, my car is 10 years old, paid for and ailing, and I don't make enough to buy a new one even with cash for clunkers.) And if they wonder why lenders of proprietary products don't want to give them information, well they have only to look at what they did with HUD's info.

    I can see why Sen McCaskill is so pleased with this report. It validates the pillory of a tireless defender of seniors in FHA in her 2008 committee hearing and quotes from that particular Senate committee hearing contained within the body of the report must certainly be flattering as well.

    A report which otherwise contains useful information, manages to defeat the ending stated purpose of saving a program that it stomps all over and then invites federal and state lawmakers to stomp all over as well. Reminds me of Lucy stomping grapes. I never thought how the grapes felt until now.

  • Can't you see the headlines now? The local TV stories? I know no one said it would be easy but the headwinds we have all been facing seem destined to only strengthen. The industry is in a horrible public relations position. If we counter on the national stage we sound apologetic, almost guilty. The fight has to be fought one homeowner at a time through education. The impact this kind of thing has is not restricted to homeowners. As far as I can tell referral partners are no lining to put their necks on the line either.

    Brick and mortar, boots on the ground getting too expensive except for the top 4 or 5 volume guys. Call centers booming. Oh well.

  • When is someone going to stand up for our industry? When is someone going to interview a senior who had their home saved from foreclosure thanks to a reverse mortgage? Where is the balanced reporting and objectivity that we are supposed to get from politicans and the media? Someone needs to stand up and fight the good fight….

  • It is reaching a point of pure ridiculousness now. People like Senator McCaskill like to stand on their soap box and preach yet have no real understanding about what they are speaking of. It just seems as though if you work in the mortgage industry, you are the devil and there is nothing we can say or do to change this perception. The failure to report balanced stories and the lack of objectivity has led to an attack on a product that has helped numerous seniors. I challenge any report or story to actually speak to one of many seniors who have been thrilled with a reverse mortgage, the loan officer that helped them, and the service they received during the process. Shame on the media and the politicians that serve them.

  • I did fourteen press interviews today after listening to the NCLC press event and I was pleased to find that almost everyone of the reporters I spoke to questioned the validity of the NCLC report. They all noticed that there are no facts in their study, just opinion. Some pointed out (even while on the actual press call) that the problems being pointed out are issues that are not necessarily problems caused by reverse mortgages or lenders, but rather problems of people taking advantage of seniors after they have received money from an RM.

    We will most certainly see a wave of negative stories over the next few days from reporters who got the NCLC press release but who were not on the call. However, I don’t think too many of those who actually heard the discussion on the press phone call bought the story that was being presented.

    One thing that gives me some hope for getting all this behind us is that, hard as they tried, NCLC could not come up with anything new to report. All the cases they cited are at least three years old. A few of the cases cited in their report have already been dismissed by the courts. HUD has already implemented changes that have eliminated the causes of some of the criticisms. This leads me to be hopeful that this adverse coverage is close to having run its course. Unless something specific and new arises, I don’t think any intelligent reporter will continue to tell this same old story for much longer.

    By the way, two relatively good stories came out last weekend. US News has a very balanced feature on RMs. Ken Harney explained the PLF reduction and its impact in his nationally syndicated column.

  • Peter Bell …THANK YOU for making comments and updating us in the trenches here on the RMD blog. We appreciate all you do and feel better that NRMLA is not sitting behind a desk doing nothing. The fact that you take the time to write on RMD gives us hope and encouragment for our industry's future. …and the confidence to know that NRMLA is the organization to continue to support. I feel better!

    • Mr. Linger,

      You are right on point. A few comments from Mr. Peter Bell is always welcome. Just a glimpse into what is going on behind the scenes reduces some of the tension and stress that results from seeing what detractors are saying and doing. Well said.

      The true benefit of RMD is not the great job admin does in gathering stories, etc. It is the communication between members of our little community. Hearing from Peter and Marty Bell, Joe DeMarkey, Shawna James, John LaRose, John Smaldone, and so many others is a huge benefit. It would be great to hear from such notables as Jeff Taylor, Bart Johnson, Liz Scholz, and so many others, the people who are at the heart of this industry.

  • Off topic of reverse mortgages for a second, the subprime market did not bring down our economy. The sale of those securties, MTG swaps & derivatives were to blame. When the article states “And securitization, which allowed subprime loan originators to disassociate themselves from the downside risks of abusive lending,…” by “disassociate” does he mean how everyone lost there job when subprime collapsed?

  • Now that the reverse mortgage industry requires 800 plus millions of tax payer dollars to keep the FHA HECM Insurance program solvent, I suspect one will see more than a few changes in how business is transacted. Frankly, one policy that needs to change is the industry wide method of paying loan originators streight commission without a salary or draw. This dirty little secret is great for brokers and company owners who sit on their rear-ends, talk smart and point fingers but have little or no relationship with their Senior customers; it's damn difficult for many loan originators struggling to buy leads (very few brokers provide leads), put gas in the tank, pay bills, and feed a family. If brokers had to pay $1000, $1,500, or a $2,000 draw for each new L.O. hire, you wouldn't hear or read about companies looking for ten to fifty new people. And, a Loan Originator (where the business all starts) would have an easier time of making a living in this industry. Remember you bigwigs: You wouldn't have a business without the taxpayer supported FHA Insurance program. I haven't heard of too many proprietary reverse mortgages lately. When I started in this industry the first company I worked for still was paying loan originators via the IRS 1099. When I pointed out FHA required W-2, the owners skoffed and laughted at me. When I showed them the FHA regulation and Mr. Montgomery's August 2007 letter, I was told that FHA was in error. Thank God for Federal oversight. It may not be perfect but it's a lot better than many in this industry who are only in it for the money.

    • Mr. Nelson,

      I'm sorry but I am lost. Can you please provide a link from the $798 million HECM subsidy request to paying salaries to loan officers?

      Even if a link can be established, loan officers usually made less as a result of going to Forms W-2 on an after tax basis due to the change of deductibility of loan officer costs to an itemized deduction rather than an item on Schedule C. Also at the time of the switch, most employers reduced compensation in order to pay for increased payroll costs resulting from payroll taxes, etc. Switching everyone to salary seems like total compensation would drop even more.

      After looking at the GAO report itself, it seems inexperience and a certain callousness towards the needs of seniors by members of the Obama Administration has more to do with the $798 million dollar subsidy request than anything else. The story in today’s RMD, “Don't Blame HUD,” was very enlightening about this whole mess.

  • Wow, some of the responses in newspapers posted on the Internet were very negative, especially the comments on blogs. Comments to the October 6th article on the San Francisco Chronicle website were especially negative.

    In part the response resulted from a statement by dear Mr. Bachman. His responses, as they should, elicit negativity. Here is the quotation: “'The underlying assumption of a lot of these reports is that all old people are feeble,' Bachman said. 'We deal with old people every day and find that properly armed, they're formidable, not feeble. What's important is to educate themselves and understand what their needs are before they start talking to someone who's going to sell them anything.'” While education helps a lot of seniors, it does not make all of them “formidable;” that is as bad as saying they are all feeble. Who is he trying to fool?

    I really wish Mr. Bachman would stop his newspaper comments and direct people to Mr. Peter Bell and other leaders like Mr. Joe DeMarkey, Mr. Bart Johnson, Mr. David Bancroft, Mr. Monte Rose, or even Mr. Jeff Lewis. Who knows what he will say or sponsor being said next?

    • Thanks, Cynic. I am bleary eyed wading through the comments in the SFC.
      Never saw so many cat pictures and read so many paranoid (perhaps, rightfully so) ramblings. However, I only saw one Bachman post that seemed ok to me (urged caution, properly used; usual party line) but not the one you mentioned. Plus, doesn't he have the right to post (first amendment), like I will be, complaining about the lack of posters with dog pictures (or better yet duck pictures, like mine).

      • Do I need to change my name? How will I log in as The Cynic? You have a good excuse. It is dizzying to see and look at so many negative comments.

        It is the article itself where Mr. Bachman is quoted. You will find the article titled, “Abuses found in reverse-mortgage marketing” dated October 6, 2009 on the SFGate (Home of the San Francisco Chronicle) website by Carolyn Said at:

        http://www.sfgate.com/cgi-bin/article.cgi?f=/c/

        Besides what I cited in my prior comment, Mr. Bachman refers to a bill that has passed both chambers of the California legislative branch as regulations. He makes the ridiculous statement that AB 329 (the bill passed but waiting the Governor’s signature) simply codifies existing practices. It is obvious from his comments he has not even read the bill but he knows enough about it to make a statement.

        If Mr. Bachman chooses to make comments on a blog site he is free to do so. Right, wrong, silly, foolish, etc. that is his privilege on SFGate.

        But when Mr. Bachman is quoted in the newspapers and the subject pertains to reverse mortgages generally, he represents our industry. There are too many times this gentleman has initiated news releases, stories, etc. about trends with seniors, rendering advice with an “expert” from another field where the statements are just plan wrong, are suggesting improper investment decisions, and are nothing more than hyperbole. He makes all of us in the industry look ridiculous.

        If you go to his website you will discover the products Mr. Bachman is involved with: http://www.goldengateway.com/

      • Could be jealousy but I don't live or get business from the Golden City by the Bay.

        Every time I pick up something this guy is involved in, the one thing I can guarantee is, it won't be great. I keep my fingers crossed he gets something right without embarrassing us all. I never have those thoughts when I read what you write or the others I listed in the comment above are quoted or write.
        For me Mr. Bachman is in a league of his own.

  • Mr. Nelson,rnrnI’m sorry but I am lost. Can you please provide a link from the $798 million HECM subsidy request to paying salaries to loan officers?rnrnEven if a link can be established, loan officers usually made less as a result of going to Forms W-2 on an after tax basis due to the change of deductibility of loan officer costs to an itemized deduction rather than an item on Schedule C. Also at the time of the switch, most employers reduced compensation in order to pay for increased payroll costs resulting from payroll taxes, etc. Switching everyone to salary seems like total compensation would drop even more.rnrnAfter looking at the GAO report itself, it seems inexperience and a certain callousness towards the needs of seniors by members of the Obama Administration has more to do with the $798 million dollar subsidy request than anything else. The story in todayu2019s RMD, “Don’t Blame HUD,” was very enlightening about this whole mess. rn

  • Wow, some of the responses in newspapers posted on the Internet were very negative, especially the comments on blogs. Comments to the October 6th article on the San Francisco Chronicle website were especially negative.rnrnIn part the response resulted from a statement by dear Mr. Bachman. His responses, as they should, elicit negativity. Here is the quotation: “‘The underlying assumption of a lot of these reports is that all old people are feeble,’ Bachman said. ‘We deal with old people every day and find that properly armed, they’re formidable, not feeble. What’s important is to educate themselves and understand what their needs are before they start talking to someone who’s going to sell them anything.'” While education helps a lot of seniors, it does not make all of them “formidable;” that is as bad as saying they are all feeble. Who is he trying to fool?rnrnI really wish Mr. Bachman would stop his newspaper comments and direct people to Mr. Peter Bell and other leaders like Mr. Joe DeMarkey, Mr. Bart Johnson, Mr. David Bancroft, Mr. Monte Rose, or even Mr. Jeff Lewis. Who knows what he will say or sponsor being said next?rnrn

    • Did you read the article upon which he was commenting? He is quoted at least twice in the story indicated in my comment above.

      I went the cynic website, took the test, and now I am begging The Cynic to trade names with me.

  • Thanks, Cynic. I am bleary eyed wading through the comments in the SFC.rnNever saw so many cat pictures and read so many paranoid (perhaps, rightfully so) ramblings. However, I only saw one Bachman post that seemed ok to me (urged caution, properly used; usual party line) but not the one you mentioned. Plus, doesn’t he have the right to post (first amendment), like I will be, complaining about the lack of posters with dog pictures (or better yet duck pictures, like mine).

  • Do I need to change my name? How will I log in as The Cynic? You have a good excuse. It is dizzying to see and look at so many negative comments.rnrnIt is the article itself where Mr. Bachman is quoted. You will find the article titled, u201cAbuses found in reverse-mortgage marketingu201d dated October 6, 2009 on the SFGate (Home of the San Francisco Chronicle) website by Carolyn Said at:rnrnhttp://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/10/07/BUQI1A1F79.DTLrnrnBesides what I cited in my prior comment, Mr. Bachman refers to a bill that has passed both chambers of the California legislative branch as regulations. He makes the ridiculous statement that AB 329 (the bill passed but waiting the Governoru2019s signature) simply codifies existing practices. It is obvious from his comments he has not even read the bill but he knows enough about it to make a statement.rnrnIf Mr. Bachman chooses to make comments on a blog site he is free to do so. Right, wrong, silly, foolish, etc. that is his privilege on SFGate.rnrnBut when Mr. Bachman is quoted in the newspapers and the subject pertains to reverse mortgages generally, he represents our industry. There are too many times this gentleman has initiated news releases, stories, etc. about trends with seniors, rendering advice with an u201cexpertu201d from another field where the statements are just plan wrong, are suggesting improper investment decisions, and are nothing more than hyperbole. He makes all of us in the industry look ridiculous.rnrnIf you go to his website you will discover the products Mr. Bachman is involved with: http://www.goldengateway.com/rnrn

  • Could be jealousy but I don’t live or get business from the Golden City by the Bay.rnrnEvery time I pick up something this guy is involved in, the one thing I can guarantee is, it won’t be great. I keep my fingers crossed he gets something right without embarrassing us all. I never have those thoughts when I read what you write or the others I listed in the comment above are quoted or write.rnFor me Mr. Bachman is in a league of his own.rn

  • Did you read the article upon which he was commenting? He is quoted at least twice in the story indicated in my comment above.rnrnI went to the cynic website, took the test, and now I am begging The Cynic to trade names with me.

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