AARP Inside E Street: Reverse Mortgage Consumer Protections Debate

In the third segment of AARP’s Inside E Street feature on reverse mortgages, Lark McCarthy sits with Peter Bell, president of the National Reverse Mortgage Lenders Association and Susanna Montezemolo from the Center for Responsible Lending to discuss a range of topics included counseling and taxes and insurance defaults.

When the topic of counseling comes up, Bell said that there are plenty of protections.

“There are a lot of consumer protections inherent in the design of the reverse mortgage program,” said Bell. “In fact Rep. Barney Frank said that if other financial products had the same type of counseling and safeguards as we had for the HECM [program], the nation’s economy would not be where it is today.”

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Montezemolo said Bell had a lot of valid points but that as far as consumer protections, “there is a lot more room to go on reverse mortgages.”

The segment also dives into the issue of taxes and insurance defaults, view the video for more information.

Be sure to check out the other AARP segments here and here.

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  • If this “debate” had transpired three years ago — except for the GAO report, counselor testing, and the new protocol — would the message of either participant really have been much different when it comes to counseling?  However, it was interesting that Peter made no points on how counseling was expanded both for the “testing” of the counselee and FIT and BCU — nor did Susanna.  It is clear neither view the three additions as either fundamental to consumer protection or adding any read new protections.  At least the testing is on the HECM and not on FIT or BCU.

    Too much time was dedicated to counseling fees.  The increase in fees is to take into account the additional time spent in counseling and most of that additional time is spent on FIT and BCU which everyone ignored as a consumer protection because as to HECMs what real protection do they in themselves provide? 

    Other than the Barney Frank quotation, the discussion never really went  much beyond limited aspects of counseling.  When Susanna brought up the default issue, it was surprising Peter did not talk about the measures servicers are taking to work with borrowers who are in default instead he focused on title never changing as a result of the HECM itself.

    As to FIT and BCU who can get worked up over ignoring their “importance” to counseling.  To be clear they are not.  Without FIT and BCU, counseling would be shorter and far more meaningful and effective.  It is about time to get rid of FIT and recommend BCU to all counselees but not include it as part of counseling.

    There is a huge need to streamline counseling.  This “debate” points out how really meaningless FIT and BCU are to consumer protection.   

  • All in all the segments directly involving Peter Bell and Susanna Montezemolo were good.  However, the opening commentary by Lark McCarthy was not.  In it she emphasizes “the fact” that a reverse mortgage is “a loan of last resort.”  She never brings that up with Peter or Susanna.  She simply states it as fact.  This is truly the big flaw in this presentation and because of it, I find it hard to recommend.
     
    The industry has failed to present a convincing retort as to why this characterization is wrong.  It is this vision of reverse mortgages which causes the biggest resistance not only by more affluent seniors but also their financial and legal advisors.  We will never win over the financial and legal opinion makers until this matter is fully and convincingly addressed.  It almost seems that on a practical level the industry has capitulated on this point.
     
    If a responsible and effective answer exists, then NRMLA needs to make this a theme at one of its conventions.  To gain momentum on this front, first our leaders must be convinced that such is the case.  With a clear message and answer we can move forward but without it, we will continue encountering meager acceptance and maximum resistance among the more affluent.  This is not a matter of supply (more proprietary products first); it is a matter of demand, seeing the value of the object.
     
    This is not an originator or lender issue; it is an industry issue.  While some of us have experienced a measure of success with this demographic, in many cases these individuals were cash short and desperately trying to hold onto their property.  One individual I met told me that the reverse mortgage industry has done a good job meeting the needs of the needy but not of the greedy.  Part of the message is we have not defined their needs and thus have groped at trying to demonstrate how a reverse mortgage can meet those needs.  We are like the brilliant theoretical inventor who cannot gain a patent not because of the inability to create an excellent and unique invention but rather to demonstrate its practical utility.  This is our story when it comes to the more affluent; we have the product but cannot demonstrate why it is so valuable.
     
    It is this image of a reverse mortgage which creates the glass wall to reaching the more affluent.  If we continue in our compliancy this one term alone could effectively keep us at under 120,000 units originated annually for some time to come.  We can do better.

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