The coming storm
This article appeared in Federally backed reverse mortgages dominate the market now, but some lenders also offer noninsured reverse mortgages aimed at borrowers with high-value homes that exceed FHA lending limits. Unlike government-backed loans, those proprietary reverse mortgages, with some state-law exceptions, have no requirements for independent counseling and no caps on fees or prohibitions against cross selling. Because lenders don't have the safety net of federal insurance, the cash available to borrowers tends to be proportionally less than with an HECM.
"Even though there aren't a lot of private reverse mortgage products out here now, they will be coming because there is a lot of money to be made, so we're very concerned about abusive sales practices coming along with them," says Cross, of the bank supervisors group.
Federal and state legislators are seeking stronger consumer protections for all types of reverse mortgages. Pending California legislation would extend requirements for beefed-up independent counseling and cross-selling restrictions to mortgage lenders that aren't federally insured.
Sen. McCaskill has proposed legislation aimed at preventing fraud and requiring that ads for government-backed mortgages present a balanced view of their risks and benefits.
Consumers Union, the nonprofit publisher of Consumer Reports, believes that sellers of reverse mortgages should be required to make sure the loan is suitable for the borrower and that there should be better restrictions on sales practices. In addition, one-on-one mortgage counseling and fee caps should apply to proprietary mortgages as well as those backed by the federal government.
Jack Christy, director of public policy for Aging Services of California, an association of nonprofit providers of senior housing and services, says, "Baby boomers are going to be skating on thin ice as it is in their retirement years. But this country is going to be in even more trouble if lenders have the green light to just sign them all up for loans that can strip them of their primary nest egg and then stick taxpayers with the bill when it doesn't work out."
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