A report by the National Consumer Law Center (NCLC) is out this month, warning of the dangers associated with reverse mortgages. It marks the latest paper on reverse mortgages since the Office of the Comptroller of the Currency (OCC) in late September issued a consumer advisory warning consumers 62 years of age or older of the drawbacks and dangers associated with taking out a reverse mortgage — and outlining the benefits of these “complex loans.” Authors of the NCLC report, however, gave less space to explaining the benefits of reverse mortgages and devoted more time to data on reverse mortgage volume by leading lenders. The report, called ‘Subprime Revisited: How the Rise of the Reverse Mortgage Lending Industry Puts Older Homeowners at Risk,’ presents reverse mortgages — or Home Equity Conversion Mortgages among FHA lenders — as a potentially dangerous product. From the NCLC report (available to download here):
“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 who 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.”
Senior homeowners are facing aggressive lending practices akin to those in the subprime lending boom, said Tara Twomey, an NCLC attorney and author of the report, in a statement. She added: “Well-funded marketing campaigns and perverse incentives to brokers are targeting seniors’ home equity and using reverse mortgages as their tools.” Annual reverse mortgage volume is around 110,000 units at $17bn, according to the NCLC report.
