A recent hearing for the Banking, Housing, and Urban Affairs Subcommittee on Financial Institutions and Consumer Protection sparked impassioned conversation between the Office of Older Americans and senior advocacy group AARP, with significant attention paid to reverse mortgages.
The hearing included AARP’s senior attorney Julie Nepveu’s testimony, as well as that of Hubert “Skip” Humphrey, director of the Consumer Financial Protection Bureau’s Office of Older Americans, which promotes “sound financial management and decision-making of seniors with a particular focus on the areas of long-term savings and planning for retirement and long-term care.”
After Humphrey and Nepveu read their testimonies, they fielded questions from the Senate subcommittee, many of which focused on reverse mortgages.
It’s vital to guard seniors from financial fraud, both stressed, and the AARP attorney specifically cited the need for special protections for seniors in the reverse mortgage arena.
“The reverse mortgage market has long been probelematic for seniors,” she said during the hearing. “It provides an amazingly lucrative field for scammers and for high fees to be sucked away from people’s homes. But,” she acknowledged, “it’s also a source of equity for folks to tap when they are retiring, and that is when they don’t have income but they have their home asset.”
She went on to say that it’s a “very important area that needs to be available for seniors to use,” but, she adds, it needs to have “special protections because of the serious harm that can affect seniors.”
Subcommittee chairman Sherrod Brown (D-Ohio) asked at one point about the implications of alternative, non-bank lenders doing reverse mortgages along with bank lenders, citing high origination fees.
Non-bank lenders aren’t the biggest issue, according to Nepveu, as both charge steep upfront fees.
“The alternative finance markets and the mainstream banks both are in the same boat in that they each can charge high fees for this process,” said Nepveu during the hearing. “They both can cause seniors to lose their homes, they can both make the value of the property that would be available to seniors to tap for their equity, less than they would otherwise have available to them.”
AARP is “very concerned with the reverse mortgage market,” said Nepveu, as Chairman Brown followed up with concerns about education.
“Some of the abuses have been, if not abuses—the lack of financial literacy has played a significant role in making these more attractive to seniors than maybe they are,” Brown said.
Seniors who get a reverse mortgage must undergo counseling, generally by counselors who are approved by the Department of Urban and Housing Development, Nepveu informed him, but according to her, sometimes it’s not sufficient.
“The problem is, sometimes the game changes in the middle,” she said. “They’re told for many years that people will be protected, and at the end of the day, they’re not protected. So, there is more to be done on that score.”
Toward the end of the hearing, subcommittee member Jeff Merkley, a Democratic senator from Oregon, asked about the practice of removing younger spouses from their home’s title in order to increase the payout for the older, reverse mortgage borrowing spouse.
Nepveu brought up both the class action lawsuit that AARP is currently involved in with HUD and also litigation that has since been settled in regards to the non-recourse status of reverse mortgage loans.
AARP filed a lawsuit to get HUD to “reverse course again,” said Nepveu, to require that surviving non-borrowing spouses would not have to pay more than 95% of the value of the home.
“If a spouse was not on a deed,” she argued, “they still would get to stay in the home, and they still would not have to pay back more than that 95%. Because, the lender could pay that 95%, the neighbor could pay the 95%, but the person who’s living in that home for 40 years is being required to pay 150% if that’s what the value of the home was and it has fallen that much, and that’s just not fair. It’s not what the legislation required, either.”
An AARP spokesperson confirmed that Nepveu’s testimony represented the organization’s view on reverse mortgages.
In closing, Humphrey emphasized the importance of seniors getting good financial advice or counseling.
“It’s terribly important in these rather complex situations, particularly as they are aggravated by the current market,” he said. “I am sure that most of your constituents, their primary asset is their home. We’re talking about the absolutely vital interest of the people in this country and of older Americans.”
Written by Alyssa Gerace