At a Senate field hearing in St. Louis, Missouri, Senator Claire McCaskill-D addressed many concerns about reverse mortgages like charging over-the-top fees and fierce marketing tacticts used to sell them to seniors.
Reverse mortgages are loans made avaiable to homeowners who are 62 years of age or older that turn home equity into cash assisting seniors with paying medical bills or funding retirement.
The Federal Housing Association backed 112,148 reverse mortgages in fiscal year 2008, up from 7,757 seven years prior, thus showing that the reverse mortgage buisiness continues to grow.
Mathew Scire, director of the Government Accountability Office’s Financial Markets and Community Investment team, testified at the hearing that reverse mortgages are complex and costly for the vulnerable population they serve.
McCaskill agreed stating, “You may borrow $100,000 and 10 years later owe $200,000.”
Scire claims that the GAO’s review of marketing material for reverse mortgages reveiled some instances of claims that may have been misleading and some that promise “lifetime income” which, in his opionon, is not always the way it works.
A reverse mortgage is designed to never be repayed by the borrowers as long as they continue to live and maintain the home they own.
About 90 percent of reverse mortgages are federally insured through the FHA’s Home Equity Conversion Mortgage program and could potentially cost taxpayers millions of dollars, according to McCaskill .
The reverse mortgage market has become increasingly popular, therefore opening it up to those loan officers who may use the opportunity to prey on the senior population by charging higher fees, and veering them towards expensive long-term annuities which may cause a tie up in their savings needed for their retirment.
The Department of Housing and Urban Development sought almost $800 million in its 2010 budget request to cover losses that may occur from falling home values using reverse mortgages.
Anthony Medici, special agent in charge of HUD’s Criminal Investigagion Division, said fraud is becoming more and more common with the reverse mortgage program, causing scammers to inflate home appraisals for higher lender profits and even revealing friends and families keeping loan payment checks after the home owners have passed away.
Medici testified that in some instances, elderly homeless people and low-income seniors are being targeted and made to portray themselves as homeowners to obtain reverse mortgages on properties.