Reverse mortgages, more problems ahead.

Discussion in 'Wall St. News' started by S2007S, Oct 7, 2009.

  1. S2007S


    When does it end, when do they stop developing new ways of using houses as personal ATMS, every time they invent something new it falls apart.

    Notice how many lenders there are (2700), out of (2700) lenders (1500) of them made loans starting in 2008. Hmmmm seems to me that the the sub-prime market wasn't the place to be anymore so all the Fuc$king greedy money hungry fools had to go somewhere else to find a way to make quick loads of money.

    Posted on Wed, Oct. 7, 2009

    Reverse-mortgage industry comes under scrutiny

    By Alan J. Heavens

    Inquirer Real Estate Writer

    Reverse mortgages are not necessarily a bad idea for homeowners 62 or older who want to cash out decades' worth of equity.

    But some of the people responsible for subprime and predatory lending apparently have turned to the reverse-mortgage business in force, using high-pressure tactics to trap more seniors into giving away everything and getting little in return.

    "There are 2,700 [reverse-mortgage lenders] in the market today, and 1,500 of them made their first loans in 2008," said Sen. Claire McCaskill (D., Mo.), who has been working on a bill to curb some of the worst abuses - including widening yield-spread premiums that benefit lenders and brokers at the expense of elderly borrowers.

    McCaskill was part of a news conference yesterday sponsored by the National Consumer Law Center in Boston, which published a study warning that the reverse-mortgage market shows "systemic problems eerily similar to the subprime boom," said its author, Tara Twomey.

    There are no hard data either for this region or nationally to show how widespread the problems might be.

    But at a seminar at the Federal Reserve Bank here last week that addressed mortgage-assistance scams, Assistant U.S. Attorney Michael S. Blume said: "There has been a dramatic spike in the number of reverse mortgages, especially in the city of Philadelphia.

    "[Seniors] are vulnerable, often desperate people, who only enter the reverse market because they are having trouble with losses in their 401(k)s and their pensions," Blume said. "It is a transaction that is not easily understood, and there's a whole lot of money involved."

    Efforts are being made to "mine data" to better enforce tough laws on defrauding anyone with a federally connected mortgage, he said.

    Reverse-mortgage originations total about 110,000 annually and are worth about $17 billion, with Wells Fargo and Bank of America and insurers such as Genworth and MetLife heavily invested.

    Many lenders securitize these loans, and the required volume has resulted in high-pressure marketing campaigns "promoting reverse mortgages as lifestyle enhancement, or a mysterious government benefit," said the law center's Rick Jurgens.

    Like other mortgages, reverse mortgages can be subject to foreclosure.

    "A deal I had to sell one of these houses fell through, so the executor of the estate decided to let the mortgage go to foreclosure because the loan amount was greater than the home value," said Mayfair Realtor Christopher J. Artur.

    After the borrower dies, the relatives are often left with a house that, because of declining values, "is underwater," and cannot be refinanced, said Irwin Trauss of Philadelphia Legal Assistance.

    Most, but not all, reverse mortgages are FHA-insured. Repayment is not required if the home is the borrower's main residence. Lenders recover the principal, plus interest, when the home is sold; the rest goes to the owner or heirs.

    HUD approves reverse-mortgage lenders and requires borrowers to meet with a HUD-approved counselor before a loan is approved.

    Yet recent changes in certification have reduced the number of reverse-mortgage counselors nationwide just as the number of loans is rising.

    "Apparently, the entity conducting the training for the new certification test isn't teaching the material that is on the test, so many counselors are failing," said Farah Jiminez of Mt. Airy USA, a Philadelphia community-development corporation that offers mortgage counseling.

    In many cases, experts say, a home-equity loan would be enough to help an older homeowner in a financial squeeze.

    According to the U.S. Comptroller of the Currency, similarities to subprime loans and predatory lending are striking: Because such large amounts of money can be involved in reverse mortgages, "it can make [someone] a target for aggressive sales pitches for expensive and inappropriate products or services."

    Seniors are urged to steer clear of high-pressure salespeople trying to sell additional products, such as annuities, long-term-care insurance, investment programs, or home-repair services, that will erode years of equity and likely never be delivered.