Earlier this week US Senator Clair McCaskill introduced an amendment to the Wall Street reform legislation to ensure increased oversight and regulation of the reverse mortgage market and to make sure that America doesn’t face another mess similar to the subprime mortgage market collapse said a statement from her office.
“While reverse mortgages are great for some seniors, too many of our greatest generation are being hoodwinked by misleading advertisements and predatory lenders looking to make a buck,” McCaskill said. “Because these are government-insured loans the taxpayers are on the hook when they default. If we don’t put in place some better oversight measures, we’re going to end up in a mess worse than we saw with the subprime lending collapse.”
McCaskill said she is concerned because reverse mortgages are federally insured loans, they are often falsely marketed as a government entitlement program. If the loan goes bad, the government is on the hook for the money, not the lender.
The amendment she introduced with Senator Herb Kohl (D-WI), chair of the Aging Committee, would create standards for whether a reverse mortgage is suitable for seniors, prohibit misleading advertisements, and increase regulation and transparency of the industry. Specifically, the measure amend the Restoring American Financial Stability Act of 2010 (S.3217) to require the new Consumer Financial Protection Bureau to issue rules to, at a minimum:
- Prohibit misleading advertisements of reverse mortgage products.
- Create standards for whether a reverse mortgage is suitable for a senior, with consideration for o Whether the borrower plans to live in the home on a long term basis
- Whether the borrower plans to buy an annuity or other product with the proceeds and whether the costs of the reverse mortgage and annuity outweigh the benefits
- Whether the borrower plans to pass the home on to an heir, etc.
- Restrict the cross-selling of annuities, long-term care insurance, or other similar products with a reverse mortgage
- Provide clear disclosures of the cost of a reverse mortgage and the terms required to avoid technical default on a reverse mortgage (such as maintenance and property tax requirements).
- Require seniors to receive counseling before taking out any reverse mortgage (currently, the requirement only applies to federally insured reverse mortgages).
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