This article first appeared in the St. Louis Beacon, May 13, 2010 - U.S. Sen. Claire McCaskill, D-Mo., has introduced an amendment to Wall Street reform legislation that would increase the oversight and regulation of the growing reverse mortgage market.
The amendment, which McCaskill introduced with Sen. Herb Kohl, D-Wis., would set standards to determine when a reverse mortgage is suitable for seniors and would also prohibit misleading advertisements. McCaskill, a member of the Special Committee on Aging, has held two field hearings on the reverse mortgage industry. Kohl is chair of the Aging Committee.
A reverse mortgage allow seniors to tap into their home equity while they continue to live in their homes. The increasing popular loans are constructed under complicated formulas, which can be difficult to understand. Compared to other types of loans, reverse mortgages can be expensive and accompanied by hidden fees. McCaskill warns that because reverse mortgages are federally insured loans, they are sometimes falsely marketed as government programs.
In a statement McCaskill said: "While reverse mortgages are great for some seniors, too many of our greatest generation are being hoodwinked by misleading advertisements and predatory lenders looking to make a buck. Because these are government-insured loans, the taxpayers are on the hook when they default. If we don't put in place some better oversight measures, we're going to end up in a mess worse than we saw with the subprime lending collapse."
The amendment to the Restoring American Financial Stability Act of 2010 (S.3217) would require the new Consumer Financial Protection Bureau to:
- Prohibit misleading advertisements for reverse mortgages.
- Create standards on the suitability of reverses mortgages for seniors.
- Restrict the cross-selling of annuities, long-term care insurance, or other financial products with a reverse mortgage.
- Provide clear disclosures of the cost of a reverse mortgage and the terms required to avoid default.
- Require all seniors to receive counseling before taking out reverse mortgages, a requirement that is currently limited to federally insured reverse mortgages.
