Watch McCaskill Sound the Alarm on Reverse Mortgages in the Senate?

NewImage.jpgBefore the Senate financial reform bill wrapped up last week, Senator Claire McCaskill wanted to “sound the alarm about a very important topic that is in all likelihood not going to get addressed.”

That topic happened to be reverse mortgages, which the Senator from Missiouri said is a “subprime mess in the making”.

McCaskill had originally proposed an amendment to protect seniors from predatory lending abuses in the marketplace but it never made it to the floor for debate.  If included, it would have eliminated the reverse mortgage as a possible solution for seniors at the very time they need it most said the National Reverse Mortgage Lenders Association last week.

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“I urge my colleagues to take a look at the reverse mortgage program, to be careful of reverse mortgages,” she said late on Thursday.

During the speech, she expressed concerns about seniors using reverse mortgage proceeds to purchase annuities and the growing securitization of HECM loans which McCaskill said have grown from $1.5 billion to $13 billion in one year.  “Now, I know that we may not be the brightest lights around here and I know that sometimes we may not get it, but goodness gracious that ought to set off some alarm bells somewhere,” said McCaskill.

Why does McCaskill think there is a place for reverse mortgages? Because people in Congress are trying to find “pay-fors” in the budget to pay for things.  The Senator said the Federal Governemnt gets a cut of the initial fees off a reverse mortgage which can be used to pay for items in the appropriation process.

RMD contacted the Office of Management and Budget and learned the premiums from the HECM program are not used to offset the discretionary side of the budget.  So McCaskill clearly doesn’t understand how the program works, yet is developing legislation to regulate the industry.

Before finishing, the Senator voices her strong opposition for Congress lifting the cap on the number of HECMs later this year and allowing unlimited reverse mortgages under the guise of “we need to be doing this because its going to help the economy.”

“No, no, no, we need to go back to a cap on reverse mortgages until we have a firm handle on what the potential liabilities down the road,” she said.

It’s not about helping the economy Senator… it’s about the seniors who need the product.

You can watch her testimony below or check out the link here.

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  • Senator McCaskill (D-MO) is a very interesting Senator. She would have little influence except for her strong and meaningful support of the President back in the primaries when it looked like Secretary of State Clinton was going to march through the Midwest on her way to nomination for President.

    Although Senator McCaskill may not have the ear of the Senate, based on the actions of OMB, one wonders what her influence might be in the White House. While she treats Mr. Peter Bell reasonably well and points out that NRMLA is a responsible organization, it seems she condemns all originations of HECMs. She certainly promotes the idea that HECMs and subprime mortgages should be equally condemned.

    I have heard some declare with great conviction that basically the Senator supports the HECM program. Unfortunately this video forces one to conclude otherwise.

    Due to her unreasonable position, the question becomes should the members of our industry be working for her defeat? I hope Senator Kohl (D-WI) speaks out on the issue so that we can hear from him. As the owner of the NBA Bucks and allegedly the wealthiest member of the Senate back in 2008, his perspective would be insightful. He is considered to have a moderate voting record. Why he would cosponsor this Amendment is hard to imagine.

  • Claire McKaskill is unbelievable! A few thoughts on her brilliance:
    1) Annuity sales from RM proceeds were made illegal years ago! The constituent she speaks of (Carol Anthony) testified in 2007. I wonder if she's heard any compliants about annuity sales since then.
    2) No mortgage product orginator – forward or reverse, takes any risk in the transaction
    3) Every FHA or VA forward loan has the same “taxpayer” risk that she speaks of.
    4) Securitization is taking place in all mortgage areas, Securitization is not inherently bad, in fact for Reverses, with no payment risk, they are even less risky than anything she has the capacity to misunderstand.
    5) Pay-fors? Is she out of her mind?
    Can't she find some legislation that will actually help people?

    • FYI
      It isn’t illegal to use reverse mortgages to fund annuities. The restrictions are on the brokers and lenders making recommendations to buy annuities. There is no law stopping the insurance agents from driving a senior straight from the senior seminar over to the broker’s office.

    • Michael,

      I am not discounting that the Senator got things terribly wrong – she did — but you got things wrong as well.

      First I was not aware that purchasing an annuity with RM proceeds is “illegal.” Seniors are free to buy annuities at any time. The only restriction is that the originator cannot legally sell an annuity to the senior within certain time restrictions.

      As to your second point, it all depends on how one defines “originator.” In some contexts (such as parts of HERA) it means the lender itself. Thus Financial Freedom did take risks with its proprietary reverse mortgage. It is believed those risks did harm to its parent, Indy Mac Bank.

      FHA or VA forward mortgages do not have the same risk as HECMs. Those loans are not designed to have their loan balances grow over time. The risk with a HECM is entirely different. It lies in the risk of the growth of the underlying security. If the home value on a performing FHA forward or a performing VA loan is the same after 10 years, the risk should have lowered substantially on those mortgages; the opposite is true for a HECM. With forward performing mortgages, the risk is highest during earlier years but with a HECM risk normally grows until termination – unless total appreciation exceeds the growth in the loan.

      You are correct about Ginnie Mae securitization and HECMs as to payments but there is a different risk — taxes, insurance, and maintenance.

      I listened to the audio yesterday and do not remember the term “pay-fors.” What exactly are you saying?

      Yes, the Senator was over the top on much she said but the problem becomes, we can go just as far over the top in retaliating, making the industry look bad and just as ignorant. What the industry needs is a group which responds to the wild and unsubstantiated claims of those who lead the country or are opinion makers/trend setters. If the best in our industry are not responding to these vicious and groundless attacks, then we are facing a bleak future.

  • Senator McCaskill should put the “fear of God” of everyone in our industry. She is totally uninformed yet continues to “shout from the housetops” how we are the next subrime crisis.

    This is an all-out frontal assualt on everything we believe in and stand for, and is beyond dangerous to our long-term viability.

    I sure hope the NRMLA PR campaign is getting ready to make some headway on these types of irresponsible statements made by someone who openly admitted that “…sometimes we may not get it”.

    Ya think?!

  • Well, she got one thing right anyway: ”Now, I know that we may not be the brightest lights around here and I know that sometimes we may not get it…”
    Is she proposing legislation to end Social Security because it is bankrupt? – of course not because she's a big government, anti-capitalist. Truly a glittering jewel of colossal ignorance!

  • Some of those criticizing Senator McCaskill in this forum are resorting to hyperbole and name-calling, rather than making a well-reasoned argument, backed by facts, as to the reasons they disagree with her. Such vitriolic posts, in a public space such as this, serve no useful purpose and actually can be used against our industry at the very time we are making an investment in promoting a more positive, professional image of our membership.

    • Sorry HECM Vet – I see no hyperbole whatsoever. She admitted to being ignorant and she is a big government socialist. We have those of eloquent speech in our industry (such as yourself) and then we have those of us who call ‘em as we see ‘em. Sometimes a little calculated passion moves people to action more so than eloquence. This lady has got to go in 2012! I do appreciate your concern, however.

      • We need to express our disagreements respectfully, without attacking anyone personally. Criticize their ideas all you want, but don't call them names.

        What is your opinion of Republicans who oppose FHA insurance in any form, including HECMs?

  • Senator McCaskill, she is a real challenge for our industry. She still does not understand or maybe she does but has other reasons to fight so hard against a program that is a saving grace to many seniors through out the country.

    I agree with what Clinic said, should we look to the defeat of her seat as an organization. Is their some other hidden reason Senator McCaskill is so against a reverse mortgage. Is their something hidden that we are not aware of? Could their be a personal gain for the senator if the Reverse mortgage goes away that we don't know about?

    I don't mean to sound off on the senator but she is so persistent as well as bound and determined to destroy the HECM reverse mortgage program.

    John A. Smaldone

    • That conclusion was hard to write. As a sitting member of the Senate, I respect the Senator. It is clear the Senator understands the design of the HECM but she seems to have an unexplainable — not just aversion but — hatred of it.

      I understand her questions about the potential liabilities the program could incur but instead of demanding transparency and a fairly comprehensive accounting of the program by cohorts of HECMs grouped by fiscal year of endorsement, she employs scare tactics by comparing HECMs to mortgages which have similar characteristics but entirely different risk models. She then defends her positions by tainting the overwhelming vast majority of HECMs that were originated for all the right reasons with those few that the vast majority of us also condemn.

      Like you, I wonder what is behind her contempt. The Senator is most certainly not the ignorant Senator she feigns. She is bright, articulate, outspoken, and seems to be very hard working. There is much to admire and respect except for this one flaw that gives one pause. I do not speak of banding together for her defeat lightly.

      • Critic,

        You put your comment together very well and helped me to understand the senator a bit more. I was not aware that you were a senator, I will not ask where you are from or who you are but I appreciate you sharing this with everyone.

        Their is no doubt she is deploying scare tactics on the industry, it does not add up? Why does she have this obsession of hatred and why is she so possessed on crushing the reverse mortgage product

        I agree with you, she seems to have a lot on the ball and seems to be hard working However, she is like a hate monger when it comes to our industry, this is why I questions her intentions in this matter. Their is more here than meets the eye. I understand how hard it was for you to make the statement of dealing her a defeat for her seat. You have a good and safe Holliday weekend

        Take care,

        John Smaldone

      • John,

        I believe you were addressing The_Cynic, not The_Critic.

        I reread my comment and edited it accordingly. I am not a part of government and apologize for leading you to that conclusion. As my younger son would say: “My bad.”

        I have a deep respect for our governmental institutions and do not take them or their members lightly. The good people of Missouri selected the Senator to represent them. It just seems as to our little industry she has crossed the line of reasonable and strong opposition to outright unreasoned rage. Why is still a mystery. One bad mailer to her mother is not enough to explain her bold and incessant attacks.

        There are a few Republican Senators who oppose any FHA insurance on any mortgage. Yet none of them joined with Senator McCaskill in venting their disagreement with the HECM program. I really wish Senator Kohl would have spoken out so that we could have understood the underpinnings of the proposal and its merits. One cannot help but wonder if Senator Kohl is not merely obliging Senator McCaskill in being her sole cosponsor and has little conviction regarding the amendment or its purpose.

      • I apologies Cynic. Also that is OK about you being a senator, I may of just interpreted it wrong. However, I just made you a senator for little bit of time!

        You make a lot of sense and I am glad to hear of your deep respect for our government institutions. Your statement about Kohl is a logical assumption. However, I still wonder if their isn't even more to our Senator MacCaskill's continual charge forward against the HECM reverse mortgage?

        Have a good weekend,

        John Smaldone

  • We need to express our disagreements respectfully, without attacking anyone personally. Criticize their ideas all you want, but don’t call them names.nnWhat is your opinion of Republicans who oppose FHA insurance in any form, including HECMs?

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