Without the most relevant and timely data, it’s hard for anyone to make the right decisions—especially Congress.
Even after consumer protections have been implemented for reverse mortgages, we continue to see the same outdated arguments presented before politicians.
Case in point, during an early October hearing before the Senate Banking, Housing and Urban Affairs Subcommittee on Financial Institutions and Consumer Protection, we saw firsthand how misinformation can force Washington to focus on the wrong things.
Several experts testified on the different factors that led up to the creation of the Consumer Financial Protection Bureau. One of the panelists was Robert M. Lawless, a Professor at the University of Illinois College of Law who said that significant increases in consumer debt was not the only thing that led to the financial crisis.
Lawless joins the ranks of dozens if not hundreds of “academics” and “experts” who relay information gleaned from books, not practice or firsthand experience, to Congress.
Despite the CFPB being up and running—partially at least—new problems have appeared and have become “salient” in new ways, he says. One of the problems he noted are reverse mortgages.
“To make an informed decision on a reverse mortgage, a consumer needs a good understanding of the value of the home, life expectancy and a competitive interest rate. All of these pieces of information require estimation. Moreover, we can expect consumers to display bias in making these estimates such as overestimating the value of the home or life expectancy.”
Hard to disagree there, but Lawless begins to veer off track when he shows a clear lack of understanding about the challenges facing the reverse mortgage industry.
“Some of the same players in the subprime lending market have moved into reverse mortgages, leading to complaints from consumer advocates that were similar to the complaints about subprime lending,” he said.
If he said this in 2007 or 2008, there could be some truth to it. But here in 2011, Lawless shows just how behind the curve his observations are today.
Those “subprime” lenders that may have tried to enter the business are no longer here because they didn’t succeed. Would a subprime loan officer stick around in a business that typically takes 60-90 days to close a refi? I think not.
Lawless continues by saying that reports of high fees and financial products inappropriate for the consumer are becoming more and more prevalent in the industry as well. Anyone who has spent a bit of time in the industry or at the very least looking at more than AARP’s website would know those problems have already been addressed.
By law, fees charged to consumers are capped on HECM loans, and the Department of Housing and Urban Development forbids lenders from participating in cross selling—all protections developed in the last couple of years. Lawless fails to mention any of these during his testimony.
This article isn’t about picking on Lawless, who could very well be a great resource for other topics, but it’s about a bigger problem. If Congress wastes time trying to fix problems from three years ago, it will never be able to fix things that are impacting reverse mortgages today.
There is already enough reverse mortgage misinformation coming from members of Congress. The most recent came in May, from Rep. Nydia Velazquez (D-N.Y.) who blatantly misquoted a survey that had nothing to do with reverse mortgages to push an agenda of her own.
The last thing we need are more experts pointing out problems from three years ago.
No one expects Congress to be perfect or be able to see things before they happen. But if Congress doesn’t know what’s impacting the industry today, we will be lucky if funding is restored for HECM Counseling by 2013.