Senator Claire McCaskill voiced her concerns over issues related to reverse mortgages at a Senate Proceeding last week. She estimates that there will be 200,000 new reverse mortgages this year and believes it has the potential to become a huge liability to the American taxpayer if more guidelines aren’t put in place.
One area she is worried about is the way lenders are marketing reverse mortgages. “You turn on any cable channel almost in America and before midnight you’re going to see an ad that says to seniors, you need to take advantage of a great government program, a government benefit,” said McCaskill.
This is a concern that many of us in the industry share and is something that I see as the next big blow up we are facing unless some type of guidelines are issued. Last year, a company in Massachusetts was issued a cease and desist due to unfair and deceptive advertising practices and there has been other investigations too.
During her speech, she adds that HUD’s inspector general has been investigating reverse mortgage fraud and has seen inflated appraisals, shoddy repairs being done, as well as people continuing to receive payments even after the senior has passed away or moved out. She asks why is this kind of fraud increasing?
According to her testimony, she believes that all the “bad actors” who were involved in the subprime meltdown are coming over the business and are the reasons we’re seeing an increase in fraud.
To help prevent this from continuing, McCaskill has filed an amendment to the legislation that is in front of the Senate to help with fraud prevention, detection, and enforcement provisions related to reverse mortgages. She wants to require the borrower to report the termination of the residence to HUD and require that if a borrower uses a HECM for purchase that the property is owned and occupied for at least 180 days to prevent property flipping.
Overall, I think there are some good ideas here, but I hope she takes her time to think these through before she goes on another crusade which ends up hurting the industry more than it helps. You can watch her video at the link below.