SENATORS ASK CONFERENCE COMMITTEE TO KEEP REVERSE MORTGAGE PROVISIONS IN WALL STREET REFORM LEGISLATION

WASHINGTON, D.C. - As representatives from the U.S. Senate and the House of Representatives meet to negotiate the final version of Wall Street reform legislation, U.S. Senators Claire McCaskill (D-MO) and Herb Kohl (D-WI) sent a letter to the members of the conference committee asking them to preserve language that will improve consumer protections and strengthen oversight of the reverse mortgage industry. As a member and the chairman of the Senate Special Committee on Aging, respectively, McCaskill and Kohl are fighting to protect seniors from predatory lending abuses in the reverse mortgage industry that can drain hard-earned savings.

 

"We believe it is critically important to ensure that there are strong consumer protections in place so that seniors who do not need or want these expensive products will not be pressured into buying them," the senators wrote in the letter.

 

Several weeks ago, McCaskill and Kohl introduced an amendment to the Wall Street reform legislation that would have required the new Consumer Financial Protection Bureau to issue a new rule to create standards for whether a reverse mortgage is suitable for seniors, prohibit misleading advertisements, and increase regulation and transparency of the reverse mortgage industry. While the amendment was not adopted in the Senate version, the House of Representatives did pass a similar measure in their version of Wall Street Reform legislation. As the conference committee works to reconcile the two versions of this legislation, McCaskill and Kohl emphasized that stronger consumer protections in the reverse mortgages industry will help protect America's seniors from predatory lending practices and ensure that America's seniors are never pressured into purchasing exotic financial tools that aren't suitable for them.

 

A reverse mortgage is a tool that allows seniors to tap into the equity in their homes, which for many seniors is their largest asset.  These loans are expensive and complicated, and many seniors struggle to understand all the terms and fees.  While reverse mortgages can be appropriate for seniors in some cases, they are not a good choice for many others, especially when they are sold alongside other expensive products such as deferred annuities that may not be suitable for seniors.   Because reverse mortgages are federally insured loans, they are often falsely marketed as a government entitlement program. And, if the loan goes bad, the government is liable for the money, not the lender.

 

The market for securities backed by reverse mortgages has grown very rapidly over the past year, increasing from $1.5 billion in January 2009 to $13 billion in March of 2010.  That could lead lenders to market reverse mortgages even more aggressively as they look to originate more loans to satisfy demand on Wall Street.

 

 

The full text of the letter is below:

 

 

June 15, 2010

 

 

The Honorable Barney Frank

Chairman

Financial Services Committee

U.S. House of Representatives

Washington, DC 20515

 

The Honorable Chris Dodd

Chairman

Committee on Banking, Housing, and Urban Affairs

U.S. Senate

Washington, D.C. 20510

 

The Honorable Spencer Bachus

Ranking Member

Financial Services Committee

U.S. House of Representatives

Washington, DC 20515

 

The Honorable Richard Shelby

Ranking Member

Committee on Banking, Housing, and Urban Affairs

U.S. Senate

Washington, D.C. 20510

 

 

Dear Chairman Dodd, Chairman Frank, Ranking Member Shelby, and Ranking Member Bachus:

 

We are writing to urge you to incorporate consumer protections for reverse mortgages in the final conference report of H.R. 4173, the Wall Street Reform and Consumer Protection Act.   H.R. 4173, as passed by the House of Representatives, contains a provision that requires the new consumer regulator to examine the reverse mortgage industry and promulgate new rules to protect consumers within a year.  We would ask that conferees include this provision in the conference report.  Further, we ask that the conferees make clear that nothing in the bill is intended to limit or constrain the new consumer regulator's authority to write rules or enforce consumer protections on reverse mortgages under other existing statutes which are not named explicitly in Section 4316 of the House-passed bill. 

 

We have serious concerns about consumer abuses in the reverse mortgage market.  Reverse mortgages are complicated and expensive.  While they can be very useful products for seniors in certain situations, many seniors would be much better off without them, especially if they are sold in conjunction with other financial products like annuities. 

 

The Senate Aging Committee has held two hearings documenting abuses in the reverse mortgage market.  The GAO, the OCC, the FDIC, FINRA, the FTC, and the FBI have all noted problems with the product, ranging from consumer abuses to fraud.  There is potential for these problems to increase as growth in the secondary market for reverse mortgages puts pressure on originators to push more seniors into reverse mortgages. 

 

We believe it is critically important to ensure that there are strong consumer protections in place so that seniors who do not need or want these expensive products will not be pressured into buying them.  As a result, we ask that you include reverse mortgage protections into the conference report of H.R. 4173. 

 

Sincerely,

 

 

 

 

 

______________________

CLAIRE MCCASKILL

United States Senator

Missouri

 

_______________________

HERB KOHL

United States Senator

Wisconsin

 

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