Some lenders are advertising reverse mortgages as

A leading consumer advocacy group reported recently that senior citizens are being targeted by aggressive and exploitative marketing practices in the reverse mortgage market.

According to Washington-based National Consumer Law Center (NCLC), abuses and abusers from the subprime mortgage market have begun showing up in the reverse mortgage market, putting at risk the equity and savings of millions of seniors.

The report “Subprime Revisited: How the Rise of the Reverse Mortgage Lending Industry Puts Older Homeowners at Risk,” accused some reverse mortgage lenders of advertising reverse mortgages as "a government benefit” that seniors are entitled to, rather than what they are, loans against the value of their homes.

As the report notes: “Many of the same players that fueled the subprime mortgage boom—ultimately with disastrous consequences—have turned their attention to the reverse market. Lenders, including some of the nation’s largest banks, view that market as a source of profits that have dried up elsewhere. Mortgage brokers see it as a new source of rich fees. Predators that once reaped profits from exotic loans have now focused on wresting more wealth from vulnerable seniors. And securitization, which allowed subprime loan originators to disassociate themselves from the downside risks of abusive lending, is becoming commonplace in the reverse mortgage industry.”

Risky business

The problem lies in the fact that “All the risk is being assumed by the taxpayers… and there is no risk being assumed by the lenders… That is why this is scary,” said Sen. Clair McCaskill, D-Missouri.

Senator McCaskill said this report validates the need for regulatory improvements in this industry in order to protect’s seniors as well as our tax dollars.

“We’ve seen this movie before and it didn’t have a pretty ending. Abuses in the subprime lending market almost brought down our economy. Now we’re seeing similar abuses with reverse mortgage lending–something needs to be done before more lifesavings are depleted and more tax dollars are drained,” she added.

According to the report, some companies, eager for fee revenue, are pushing reverse mortgages on homeowners who might be better off with home-equity loans, which generally are less pricey than reverse mortgages

But, a spokesman for the reverse mortgage industry disputed many of the report’s findings, arguing that it’s not fair to require brokers to judge whether a loan is suitable for a client.

Peter Bell, president of the National Reverse Mortgage Lenders Association, said in a recent interview that he estimates that as many as half of all reverse mortgages are taken out by seniors who can't afford to pay their current mortgage, or are facing foreclosure.

More regulation

The law center is calling for stricter federal regulation and stronger protections for these homeowners.

“We especially need stronger protections for reverse mortgage borrowers, especially a suitability standard that simply obligates those who arrange and profit from reverse mortgage deals to seek to avoid harming the financial interests of elderly clients,” expressed Twoney.

In addition, the law center charged that some loan companies reward brokers with higher commissions if they put clients into more expensive loans. The report called for a federal ban on such rewards, called "yield spread premiums.”

Mónica Rosas.