McCaskill: Without Better Reverse Mortgage Oversight, Facing Another Crisis

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.

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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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    • I wonder if Senator McCaskill will also turn her attention to the Nursing Home Industry. Afterall we have all heard the stories of Abuse, Neglect, Cost, that are ripe and rampant thru out that whole industry. Oh ya……sorry my bad…..I forgot, that's the industry her husband is in…..oh well it was just a thought.

    • This lady needs to get a real job – the voters in Missouri need to fire her so she can discover the real world. She’s your typical condescending political with an attitude of superiority, who thinks seniors are too stupid to make their own decisions. Counseling is already in place – give it a rest, for crying out loud.

      • Seniors are no smarter (or more stupid) than the rest of us. However, we who have been in the RM business for more than a few years have sometimes encountered prospective customers whom we may suspect are suffering from some form of cognitive impairment. Care must be taken in dealing with such persons; they may have gotten through counseling and have a certificate, but this doesn't mean they have a clean bill of health or that the originator will be insulated from sanction if he or she acts unethically.

        We originators are faced with a dilemma every time an opportunity presents itself for us to earn a commission from someone for whom we suspect a reverse mortgage might not be the best solution. Some states have begun to impose a fiduciary standard on the RM originator, meaning we must hold the customer's interests above our own.

        If I am doubtful about the prospective customer's ability to understand or capacity to enter the transaction, I attempt to engage the involvement of trusted family members, preferably under power of attorney. If this is not possible, I am inclined to pass on the deal.

        We all can use some business, but that one deal is not worth it.

    • Senator McCaskill's proposed amendments as written in the article above appear reasonable (I did not review the language at the link). The final language and the manner by which it is implemented will be critical.

      • I concur, with the exception of the 'suitability standard'. If that is interpreted in such a way as to deny a HECM to an informed senior who does not happen to meet the defined standard but wants the loan anyway, then our nanny state has gone too far.

        • I generally agree, but after obtaining the RM they need to have the financial capacity to maintain home ownership (maintain the home, pay property taxes, eat, etc).

    • Seniors are no smarter (or more stupid) than the rest of us. However, we who have been in the RM business for more than a few years have sometimes encountered prospective customers whom we may suspect are suffering from some form of cognitive impairment. Care must be taken in dealing with such persons; they may have gotten through counseling and have a certificate, but this doesn’t mean they have a clean bill of health or that the originator will be insulated from sanction if he or she acts unethically.nnWe originators are faced with a dilemma every time an opportunity presents itself for us to earn a commission from someone for whom we suspect a reverse mortgage might not be the best solution. Some states have begun to impose a fiduciary standard on the RM originator, meaning we must hold the customer’s interests above our own. nnIf I am doubtful about the prospective customer’s ability to understand or capacity to enter the transaction, I attempt to engage the involvement of trusted family members, preferably under power of attorney. If this is not possible, I am inclined to pass on the deal.nnWe all can use some business, but that one deal is not worth it.

    • More legislation doesn't keep charlatans from their slimy deeds. They always find a way to weasel around any legislation. Fortunately, the charlatans are long gone (for the MOST part, anyway) – only those of us who really care about the seniors best interest are still hanging in there… heaven knows it isn't because we're getting rich. That's my point with McCaskill's legislation: she's just grandstanding for political survival. I hope this Nov's elections will send many of them back to the real world.

    • I concur, with the exception of the ‘suitability standard’. If that is interpreted in such a way as to deny a HECM to an informed senior who does not happen to meet the defined standard but wants the loan anyway, then our nanny state has gone too far.

    • Good day,

      Their she goes again! US Senator Clair McCaskill has been bounty hunting for the reverse mortgage industry longer than I can remember.

      With all due respect for the senator, she still has not taken any courses or received the education she needs to understand what a reverse mortgage is! She is proposing many restrictions on the program, as usual, many of which are unfounded and ridicules. For instance, who has the right to say if a reverse mortgage is suitable for a senior or not? Seniors are intelligent people and wise individuals with many years of experience. This one item alone is an insult to our entire senior citizen population.

      The past two years the reverse mortgage has become the new subprime loan of the century, it has become the number one product targeted for predatory lending and has become the scourge product of the industry. Wrong, our industry has been made to appear to be on the surface to be the scourge product of the industry by politicians such as Senator Clair McCaskill, the press and left wing activists along with our own federal government.

      I do agree with the senator on one thing, we do have more predatory lending in the reverse mortgage industry today than we did three years ago. You have to ask yourself why? So should our politicians and their agencies such as FNMA, HUD ETC. be asking or I should say looking at the reason why.

      Lets take a little history lesson here. At one time the reverse mortgage was considered the most regulated loan product in the industry. The product was not a competitive football game like it is today, we all had the same rates and fees. We were set apart from our competitors by who the senior trusted and felt the most conformable with. The company and the reverse mortgage loan officer had to be educated and knowledgeable, this is what we had to sell the most.

      The housing market and the economy crashed with the wrath of God! The sub prime market as we knew it was a thing of the past. Foreclosures plagued the markets as they still do today. About 20 months ago a lot of changes started to occur in the reverse mortgage industry. The agencies, wall street and our politicians started to see humongous paper losses with reverse mortgages on the books. Keep in mind, FHA claims were not sky rocketing like the forward markets were experiencing, paper losses were skyrocketing.

      I am not saying that nothing was needed to be done, on the contrary. Pricing of the product had to be approached differently, the markets needed new investors to come to the plate and GNMA was needed in a big way. However, the way bombs were dropped on the industry turned out to be a horrendous, confused mess for the industry and mainly for the seniors affected.

      FHA found themselves in a position of home values falling so much that in many cases the balance of the reverse mortgage was higher than the home value. This spelled disaster from the potential loss FHA could face with the insurance exposure they had and still do have. Keep another thing in mind, the same agencies, wall street, lenders and the federal government were the same one's that created the inflated values of homes, a growing economy based on spiraling debt in the hands of the American people and an economy that was bound to do only one thing, crash!

      The reverse mortgage industry continues to get bashed from all sides. The professionals in the industry do not get heard like those that are so quick to criticize and want to do away with the program. People who are not in the trenches like we are. We deal with seniors daily, 90% of us in the industry are good at what we do. We are not predators, we are saviors for our seniors. We love our work and we love our seniors. The 10 to 15% who are giving the industry a bad name as well as taking advantage of our seniors need to go. The professionals, the 85 to 90% of us that do our missionary work to its fullest want the 10 to 15% eliminated from the mortgage industry more than anyone.

      Talk to us, get our point of view, interview us, the one's in the trenches that help seniors every day of our lives. Put us on the picture tube and the front page of the times. Let us go head to head with US Senator Clair McCaskill !!!

      John A. Smaldone

    • I generally agree, but after obtaining the RM they need to have the financial capacity to maintain home ownership (maintain the home, pay property taxes, eat, etc).

    • I wonder if McCaskill missed out on inheriting equity in a property because one of her senior relatives took out a reverse mortgage so they could enjoy the remainder of their life instead of struggling day by day and leaving their property.

    • More legislation doesn’t keep charlatans from their slimy deeds. They always find a way to weasel around any legislation. Fortunately, the charlatans are long gone (for the MOST part, anyway) – only those of us who really care about the seniors best interest are still hanging in there… heaven knows it isn’t because we’re getting rich. That’s my point with McCaskill’s legislation: she’s just grandstanding for political survival. I hope this Nov’s elections will send many of them back to the real world.

    • Good day,rnrnTheir she goes again! US Senator Clair McCaskill has been bounty hunting for the reverse mortgage industry longer than I can remember.rnrnWith all due respect for the senator, she still has not taken any courses or received the education she needs to understand what a reverse mortgage is! She is proposing many restrictions on the program, as usual, many of which are unfounded and ridicules. For instance, who has the right to say if a reverse mortgage is suitable for a senior or not? Seniors are intelligent people and wise individuals with many years of experience. This one item alone is an insult to our entire senior citizen population.rnrnThe past two years the reverse mortgage has become the new subprime loan of the century, it has become the number one product targeted for predatory lending and has become the scourge product of the industry. Wrong, our industry has been made to appear to be on the surface to be the scourge product of the industry by politicians such as Senator Clair McCaskill, the press and left wing activists along with our own federal government.rnrnI do agree with the senator on one thing, we do have more predatory lending in the reverse mortgage industry today than we did three years ago. You have to ask yourself why? So should our politicians and their agencies such as FNMA, HUD ETC. be asking or I should say looking at the reason why.rnrnLets take a little history lesson here. At one time the reverse mortgage was considered the most regulated loan product in the industry. The product was not a competitive football game like it is today, we all had the same rates and fees. We were set apart from our competitors by who the senior trusted and felt the most conformable with. The company and the reverse mortgage loan officer had to be educated and knowledgeable, this is what we had to sell the most.rnrnThe housing market and the economy crashed with the wrath of God! The sub prime market as we knew it was a thing of the past. Foreclosures plagued the markets as they still do today. About 20 months ago a lot of changes started to occur in the reverse mortgage industry. The agencies, wall street and our politicians started to see humongous paper losses with reverse mortgages on the books. Keep in mind, FHA claims were not sky rocketing like the forward markets were experiencing, paper losses were skyrocketing.rnrnI am not saying that nothing was needed to be done, on the contrary. Pricing of the product had to be approached differently, the markets needed new investors to come to the plate and GNMA was needed in a big way. However, the way bombs were dropped on the industry turned out to be a horrendous, confused mess for the industry and mainly for the seniors affected.rnrnFHA found themselves in a position of home values falling so much that in many cases the balance of the reverse mortgage was higher than the home value. This spelled disaster from the potential loss FHA could face with the insurance exposure they had and still do have. Keep another thing in mind, the same agencies, wall street, lenders and the federal government were the same one’s that created the inflated values of homes, a growing economy based on spiraling debt in the hands of the American people and an economy that was bound to do only one thing, crash!rnrnThe reverse mortgage industry continues to get bashed from all sides. The professionals in the industry do not get heard like those that are so quick to criticize and want to do away with the program. People who are not in the trenches like we are. We deal with seniors daily, 90% of us in the industry are good at what we do. We are not predators, we are saviors for our seniors. We love our work and we love our seniors. The 10 to 15% who are giving the industry a bad name as well as taking advantage of our seniors need to go. The professionals, the 85 to 90% of us that do our missionary work to its fullest want the 10 to 15% eliminated from the mortgage industry more than anyone.rnrnTalk to us, get our point of view, interview us, the one’s in the trenches that help seniors every day of our lives. Put us on the picture tube and the front page of the times. Let us go head to head with US Senator Clair McCaskill !!!rnrnJohn A. Smaldonernrnrnrn

    • I wonder if McCaskill missed out on inheriting equity in a property because one of her senior relatives took out a reverse mortgage so they could enjoy the remainder of their life instead of struggling day by day and leaving their property.

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