New Protections For Reverse Mortgage Borrowers Debated In Washington

Efforts to provide new protections for reverse mortgage borrowers are now 50/50 in Washington — to this point the House of Representatives wants new rules while the Senate does not.

What’s going on is this: Under the new Wall Street reform legislation that’s being debated on Capitol Hill, it appears that a Consumer Financial Protection Bureau will be created. Given that this bureau will actually represent borrowers, it’s been fought by lender lobbyists in an effort to either dump the idea entirely or to water it down so that the bureau has no real authority. So far it looks as though the bureau will be in the final bill, but that won’t be certain until the final draft is passed on to the President.

Section 4316 of the House-passed bill — the Wall Street Reform and Consumer Protection Act. H.R. 4173 — contains consumer protections for reverse mortgage borrowers. There is no similar language in the Senate version of the bill.

New Protections

The House bill says that the director of the Consumer Financial Protection Bureau “shall examine the practices of covered persons in connection with any reverse mortgage transaction” and “prescribe regulations identifying any acts or practices as unlawful, unfair, deceptive, or abusive in connection with a reverse mortgage transaction or the offering of a reverse mortgage.”

The idea is to prevent “unlawful, unfair, deceptive or abusive acts and practices in connection with a reverse mortgage transaction” and to “provide for an integrated disclosure standard and model disclosures for reverse mortgage transactions.”

Of course, if you get rid of the Consumer Financial Protection Bureau you also get rid of the associated rules and regulations it might enforce, including those pertaining to reverse mortgages. Now, however, Senators Claire McCaskill (D-MO) and Herb Kohl (D-WI) have sent a letter to to conference committee which is hashing out a final version of the legislation, asking for the reverse mortgage protections to be included.

The entire idea of Wall Street reform has been iffy from day one. A few years ago the subject would never have come up, but with the Wall Street bailout, the massive bonuses, and credit card rates of nearly 30 percent, big banks have less power in Washington than in the past. The result is that a reform bill has passed both houses, the only remaining question is what the final document will say — including whether protections for reverse mortgage borrowers will be included.

Stay tuned for more information as the mark-up for the bill is completed.

The Letter

The text of the McCaskill/Kohl letter is below:

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.

This entry was posted on Wednesday, June 23rd, 2010 at 12:10 am and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.